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Bassett Announces Fiscal Second Quarter Results

BASSETT, Va., June 30, 2016 (GLOBE NEWSWIRE) -- Bassett Furniture Industries, Inc. (Nasdaq:BSET) announced today its results of operations for its fiscal quarter ended May 28, 2016.

Fiscal 2016 Second Quarter Highlights

  • Consolidated sales were $106.7 million for the second quarter of 2016 compared to $111.6 million for the second quarter of 2015, a decrease of 4.4%. 
  • Operating income for the quarter was $5.9 million or 5.5% of sales as compared to $6.7 million or 6.0% of sales for the prior year quarter. 
  • Wholesale sales were $59.9 million for the second quarter of 2016 compared to $66.7 million for the second quarter of 2015, a decrease of 10%.  Wholesale operating profit for the quarter was $4.3 million or 7.3% of sales as compared to $4.8 million or 7.2% of sales for the prior year quarter.
  • Company-owned store sales were $61.9 million for the second quarter of 2016 compared to $63.9 million for the second quarter of 2015, a decrease of 3.1%.  This included a comparable store sales decrease of 3.6%, compared to the prior year quarter, with the twelve Texas stores accounting for over 70% of the decrease. Comparable store operating income was $1.2 million or 2.0% of sales for the current year quarter as compared to $2.3 million or 3.7% of sales for the prior year quarter.  Total retail operating income was $0.4 million or 0.6% of sales for the quarter as compared to $2.0 million or 3.1% of sales for the prior year quarter.  Comparable store written sales for the quarter decreased 3.9%.  However, comparable store written sales for the 12-day Memorial Day promotional period increased 24% as compared to the 2015 promotional period.
  • Revenue for Zenith was $23.8 million for the second quarter of 2016 compared to $22.0 million for the second quarter of 2015, an 8.4% increase.  Zenith’s operating profit for the quarter was $0.7 million or 2.8% of sales as compared to $1.0 million or 4.7% of sales for the prior year quarter.
  • Net income for the quarter was $3.4 million or $0.31 per diluted share as compared to $4.5 million or $0.42 per diluted share for the prior year quarter, which included income of $1.1 million related to the Continued Dumping & Subsidy Offset Act (“CDSOA”). Excluding the CDSOA income, net income for the second quarter of 2015 would have been $3.9 million, or $0.36 per diluted share.

“The year over year sales growth that we have generated in 15 of the past 16 quarters stalled for our quarter ended May 28, 2016,” commented Robert H. Spilman, Jr., Chairman and CEO.  “Although we saw decreases in our consolidated, wholesale, and retail sales for the quarter, we remain optimistic about our prospects for the future as we continue to open new stores, remodel older ones, and close the remaining handful of underperformers.  Against the backdrop of last year’s 31% sales increase, sales fell 4.4%.  Operating income declined to $5.9 million compared to the $6.7 million that we produced last year.  Much of our efforts in the first half of the year have been pointed toward the large product rollout that we executed in preparation for this year’s Memorial Day sales event and we were extremely pleased with the sales that our new products produced, as the net result for the 12-day promotional period produced comparable store written sales that were 24% higher compared to the 2015 promotional period.  Amidst the choppy sales environment that has characterized the past few months in our sector, we are encouraged by the performance of our new assortment and will focus on additional enhancements as the remainder of 2016 unfolds.”

Wholesale Segment 

Net sales for the wholesale segment were $59.9 million for the second quarter of 2016 as compared to $66.7 million for the second quarter of 2015, a decrease of $6.8 million or 10%.  This decrease was driven by lower shipments to both the Bassett Home Furnishings store network and the open market (outside the Bassett Home Furnishings network). The decrease in sales to the Bassett Home Furnishings store network and the open market, was primarily due to general softness at retail.  In addition, sales to the open market were impacted by lower sales of the HGTV Home Collection brand that was discontinued in late 2015.  Gross margins for the wholesale segment increased to 33.8% for the second quarter of 2016 from 32.8% for the second quarter of 2015, driven largely by higher margins in the imported wood operation from favorable ocean freight and lower impact of discounting in 2016, as the Company was exiting the open market HGTV Home Collection brand in 2015.  In addition, gross margins in the upholstery operation improved due to improved pricing strategies coupled with favorable raw material costs. Wholesale SG&A for the second quarter of 2016 was $15.9 million as compared to $17.1 million for the prior year period. SG&A as a percentage of sales increased to 26.5% as compared to 25.6% for the second quarter of 2015. This increase in SG&A as a percentage of sales was primarily driven by reduced leverage of fixed costs from lower sales levels partially offset by lower bad debt costs and incentive compensation expenses.  Operating income was $4.3 million or 7.3% of sales as compared to $4.8 million or 7.2% of sales in the prior year.

“Both our wood and upholstery divisions suffered sales declines in the quarter,” continued Spilman.  “Only our domestically produced Bench Made product range generated revenue growth.  In reviewing the quarter’s results, it has been difficult to pinpoint specific macro factors that slowed our sales momentum.  Closer to home, however, we can cite the closure of three Bassett stores, the discontinuation of our open market HGTV product line, temporary disruptions in our imported motion supply chain, and the comparatively weak performance of our stores in the energy-related economy of Texas, as the primary contributors to our down quarter.  Despite this, we were able to hold our wholesale margins intact, albeit on less volume.  Our Grand Prairie, Texas upholstery facility was modestly profitable in its first full quarter of operation, further showcasing the portability of our cellular manufacturing model.  Once again, we are building on the success of our recent product launch with the upcoming additions of several new product collections that will hit our stores this fall.”

Retail Segment

Net sales for the 58 Company-owned Bassett Home Furnishings stores were $61.9 million for the second quarter of 2016 as compared to $63.9 million for the second quarter of 2015, a decrease of $2.0 million or 3.1%. The decrease was due to a $2.2 million or 3.6% decrease in comparable store sales. 

While the Company does not recognize sales until goods are delivered to the consumer, management tracks written sales (the retail dollar value of sales orders taken, rather than delivered) as a key store performance indicator.  Written sales for comparable stores decreased by 3.9% for the second quarter of 2016 as compared to the second quarter of 2015. 

The consolidated retail operating profit for the second quarter of 2016 was $0.4 million as compared to $2.0 million for the second quarter of 2015, a decline of $1.6 million.  The 56 comparable stores generated operating income of $1.2 million for the quarter, or 2.0% of sales, as compared to $2.3 million, or 3.7% of sales, for the prior year quarter. Gross margins for comparable stores were 49.4% for the second quarter of 2016 compared to 49.9% for the second quarter of 2015.  Lower gross margins were due primarily to increased discounting of clearance items in preparation for a significant product rollout for the Memorial Day holiday promotion. SG&A expenses for comparable stores decreased $0.3 million to $28.0 million or 47.4% of sales as compared to 46.2% of sales for the second quarter of 2015. This increase in SG&A as a percentage of sales was primarily driven by reduced leverage of fixed costs from lower sales levels. 

“Comparable store delivered sales decreased by 3.6% compared to last year’s 17% increase resulting in a $1.6 million decline in retail operating profit,” said Spilman.  “Over 70% of our comparable store decline was attributable to our twelve Texas stores where local economies have been impacted by volatility in oil prices.  Our Houston market was particularly hard hit with a sales decline in excess of 20%. On the other hand, store sales have been strong since the end of the quarter.  We are especially pleased with the strides we have made in staffing our stores and with our recruitment strategies in general.  In keeping with our ongoing store portfolio improvement program, three underperforming stores with expiring leases were closed during the period, resulting in losses of $(0.4) million.  We also incurred preopening expenses from our new Sterling, Virginia store that opened at the end of the quarter.  Looking ahead, we are under construction with a new store in Hunt Valley, Maryland and have three more signed leases for units that are set to open at the end of fiscal 2016 or at the beginning of next year.”

About Bassett Furniture Industries, Inc.
Bassett Furniture Industries, Inc. (NASDAQ:BSET), is a leading manufacturer and marketer of high quality, mid-priced home furnishings. With 90 company- and licensee-owned stores at the time of this release, Bassett has leveraged its strong brand name in furniture into a network of corporate and licensed stores that focus on providing consumers with a friendly environment for buying furniture and accessories. The most significant growth opportunity for Bassett continues to be the Company’s dedicated retail store program. Bassett’s retail strategy includes affordable custom-built furniture that is ready for delivery in the home within 30 days. The stores also feature the latest on-trend furniture styles, free in-home design visits, and coordinated decorating accessories. Bassett also has a traditional wholesale business with more than 700 accounts on the open market, across the United States and internationally.  For more information, visit the Company’s website at bassettfurniture.com. (BSET-E)

Certain of the statements in this release, particularly those preceded by, followed by or including the words “believes,” “expects,” “anticipates,” “intends,” “should,” “estimates,” or similar expressions, or those relating to or anticipating financial results for periods beyond the end of the second fiscal quarter of 2016, constitute “forward looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended.  For those statements, Bassett claims the protection of the safe harbor for forward looking statements contained in the Private Securities Litigation Reform Act of 1995.  In many cases, Bassett cannot predict what factors would cause actual results to differ materially from those indicated in the forward looking statements.  Expectations included in the forward-looking statements are based on preliminary information as well as certain assumptions which management believes to be reasonable at this time.  The following important factors affect Bassett and could cause actual results to differ materially from those indicated in the forward looking statements:  the effects of national and global economic or other conditions and future events on the retail demand for home furnishings and the ability of Bassett’s customers and consumers to obtain credit; and the economic, competitive, governmental and other factors identified in Bassett’s filings with the Securities and Exchange Commission.  Any forward-looking statement that Bassett makes speaks only as of the date of such statement, and Bassett undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.  Comparisons of results for current and any prior periods are not intended to express any future trends or indication of future performance, unless expressed as such, and should only be viewed as historical data.


BASSETT FURNITURE INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income - unaudited
(In thousands, except for per share data)
                       
                       
  Quarter Ended   Six Months Ended
  May 28, 2016   May 30, 2015   May 28, 2016   May 30, 2015
    Percent of     Percent of     Percent of     Percent of
  Amount Net Sales   Amount Net Sales   Amount Net Sales   Amount Net Sales
                       
Sales revenue:                      
Furniture and accessories $ 92,990       $ 99,467       $ 185,392       $ 189,015    
Logistics   13,677         12,086         28,148         15,345    
Total sales revenue   106,667     100.0 %     111,553     100.0 %     213,540     100.0 %     204,360     100.0 %
                       
Cost of furniture and accessories sold   42,419     39.8 %     46,921     42.1 %     84,405     39.5 %     88,851     43.5 %
                       
Selling, general and administrative expenses excluding                      
new store pre-opening costs   58,088     54.5 %     57,425     51.5 %     117,045     54.8 %     104,900     51.3 %
New store pre-opening costs   307     0.3 %     44     0.0 %     446     0.2 %     44     0.0 %
Lease exit costs   -     0.0 %     -     0.0 %     -     0.0 %     419     0.2 %
Asset impairment charges   -     0.0 %     -     0.0 %     -     0.0 %     106     0.1 %
Management restructuring costs   -     0.0 %     449     0.4 %     -     0.0 %     449     0.2 %
Income from operations   5,853     5.5 %     6,714     6.0 %     11,644     5.5 %     9,591     4.7 %
                       
Remeasurement gain on acquisition of affiliate   -     0.0 %     -     0.0 %     -     0.0 %     7,212     3.5 %
Income from Continued Dumping & Subsidy Offset Act   -     0.0 %     1,066     1.0 %     -     0.0 %     1,066     0.5 %
Other loss, net   (600 )   -0.6 %     (597 )   -0.5 %     (1,257 )   -0.6 %     (1,220 )   -0.6 %
Income before income taxes   5,253     4.9 %     7,183     6.4 %     10,387     4.9 %     16,649     8.1 %
                       
Income tax provision   1,868     1.8 %     2,654     2.4 %     3,768     1.8 %     6,164     3.0 %
Net income $ 3,385     3.2 %   $ 4,529     4.1 %   $ 6,619     3.1 %   $ 10,485     5.1 %
                       
Basic earnings per share $ 0.31       $ 0.42       $ 0.61       $ 0.99    
                       
Diluted earnings per share $ 0.31       $ 0.42       $ 0.61       $ 0.98    

/EIN News/ --

BASSETT FURNITURE INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
    (Unaudited)    
Assets   May 28, 2016   November 28, 2015
Current assets        
Cash and cash equivalents   $ 29,726     $ 36,268  
Short-term investments     23,125       23,125  
Accounts receivable, net     18,987       21,197  
Inventories, net     54,834       59,896  
Other current assets     8,249       6,798  
Total current assets     134,921       147,284  
         
Property and equipment, net     104,075       96,104  
         
Other long-term assets        
Deferred income taxes, net     12,205       13,471  
Goodwill and other intangible assets     17,521       17,682  
Other     7,525       8,002  
Total long-term assets     37,251       39,155  
Total assets   $ 276,247     $ 282,543  
         
Liabilities and Stockholders’ Equity        
Current liabilities        
Accounts payable   $ 20,198     $ 20,916  
Accrued compensation and benefits     11,614       14,345  
Customer deposits     20,132       23,999  
Dividends payable     -       2,184  
Current portion of long-term debt     6,438       5,273  
Other accrued liabilities     10,907       13,133  
Total current liabilities     69,289       79,850  
         
Long-term liabilities        
Post employment benefit obligations     12,654       12,694  
Long-term debt     9,220       8,500  
Other long-term liabilities     4,151       4,133  
Total long-term liabilities     26,025       25,327  
         
Stockholders’ equity        
Common stock     54,525       54,580  
Retained earnings     125,563       120,904  
Additional paid-in-capital     3,409       4,560  
Accumulated other comprehensive loss     (2,564 )     (2,678 )
Total stockholders' equity     180,933       177,366  
Total liabilities and stockholders’ equity   $ 276,247     $ 282,543  


BASSETT FURNITURE INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows - unaudited
(In thousands)
 
  Six Months Ended
  May 28, 2016
  May 30, 2015
Operating activities:  
Net income   $ 6,619     $ 10,485  
Adjustments to reconcile net income to net cash provided by  
(used in) operating activities:  
Depreciation and amortization     5,611       4,729  
Equity in undistributed income of investments and unconsolidated  
affiliated companies     -       (220 )
Non-cash asset impairment charges     -       106  
Non-cash portion of lease exit costs     -       419  
Remeasurement gain on acquisition of affiliate     -       (7,212 )
Tenant improvement allowances received from lessors     590       330  
Deferred income taxes     1,198       4,212  
Excess tax benefits from stock-based compensation     41       1,032  
Other, net     697       1,018  
Changes in operating assets and liabilities  
Accounts receivable     2,436       (1,490 )
Inventories     5,062       (5,706 )
Other current and long-term assets     (1,451 )     (2,121 )
Customer deposits     (3,867 )     763  
Accounts payable and accrued liabilities     (5,926 )     3,882  
Net cash provided by operating activities     11,010       10,227  
 
Investing activities:  
Purchases of property and equipment     (14,116 )     (7,942 )
Proceeds from sale of retail  real estate and property and equipment     577       2,952  
Cash paid for business acquisition, net of cash acquired     -       (7,323 )
Capital contribution to affiliate     -       (1,345 )
Net cash used in investing activities     (13,539 )     (13,658 )
 
Financing activities:  
Cash dividends     (4,145 )     -3,777  
Proceeds from the exercise of stock options     114       2,993  
Other issuance of common stock     176       171  
Repurchases of common stock     (1,930 )     (255 )
Repayments of notes payable     (4,920 )     (1,214 )
Proceeds from equipment loans     6,692       1,307  
Net cash used in financing activities     (4,013 )     (775 )
Change in cash and cash equivalents     (6,542 )     (4,206 )
Cash and cash equivalents - beginning of period     36,268       26,673  
Cash and cash equivalents - end of period   $ 29,726     $ 22,467  


BASSETT FURNITURE INDUSTRIES, INC. AND SUBSIDIARIES
Segment Information - unaudited
(In thousands)
                 
    Quarter Ended   Six Months Ended
    May 28, 2016   May 30, 2015   May 28, 2016   May 30, 2015
Net Sales                
Wholesale   $ 59,906     $ 66,705     $ 119,482     $ 125,510  
Retail - Company-owned stores     61,943       63,921       123,538       121,104  
Logistical services     23,810       21,958       48,489       27,957  
Inter-company eliminations:                
Furniture and accessories     (28,859 )     (31,159 )     (57,628 )     (57,600 )
Logistical services     (10,133 )     (9,872 )     (20,341 )     (12,611 )
Consolidated   $ 106,667     $ 111,553     $ 213,540     $ 204,360  
                 
Operating Income                
Wholesale   $ 4,334     $ 4,796     $ 8,732     $ 7,723  
Retail     381       1,971       697       1,929  
Logistical services     661       1,027       1,405       1,019  
Inter-company elimination     477       (631 )     810       (106 )
Lease exit costs     -       -       -       (419 )
Asset impairment charges     -       -       -       (106 )
Management restructuring costs     -       (449 )     -       (449 )
Consolidated   $ 5,853     $ 6,714     $ 11,644     $ 9,591  


BASSETT FURNITURE INDUSTRIES, INC. AND SUBSIDIARIES
Rollforward of BHF Store Count
         
 
    November 28,     May 28,
    2015 Opened* Closed* 2016
           
Company-owned stores   60 1   (3 ) 58
Licensee-owned stores   33 -   (1 ) 32
           
Total   93 1   (4 ) 90
           
           
* Does not include openings and closures due to relocation of existing stores within a market.   


BASSETT FURNITURE INDUSTRIES, INC. AND SUBSIDIARIES
Supplemental Retail Information--unaudited
(In thousands)
                       
  56  Comparable Stores   56  Comparable Stores
  Quarter Ended   Quarter Ended   Six Months Ended   Six Months Ended
  May 28, 2016   May 30, 2015   May 28, 2016   May 30, 2015
    Percent of     Percent of     Percent of     Percent of
  Amount Net Sales   Amount Net Sales   Amount Net Sales   Amount Net Sales
                       
Net sales $ 59,003     100.0 %   $ 61,192     100.0 %   $ 117,054     100.0 %   $ 115,965     100.0 %
                       
Cost of sales   29,834     50.6 %     30,633     50.1 %     58,977     50.4 %     57,773     49.8 %
                       
Gross profit   29,169     49.4 %     30,559     49.9 %     58,077     49.6 %     58,192     50.2 %
                       
Selling, general and administrative expense*   27,963     47.4 %     28,269     46.2 %     55,736     47.6 %     55,616     48.0 %
                       
Income from operations $ 1,206     2.0 %   $ 2,290     3.7 %   $ 2,341     2.0 %   $ 2,576     2.2 %
                       
                       
  All Other Stores   All Other Stores
  Quarter Ended   Quarter Ended   Six Months Ended   Six Months Ended
  May 28, 2016   May 30, 2015   May 28, 2016   May 30, 2015
    Percent of     Percent of     Percent of     Percent of
  Amount Net Sales   Amount Net Sales   Amount Net Sales   Amount Net Sales
                       
Net sales $ 2,940     100.0 %   $ 2,729     100.0 %   $ 6,484     100.0 %   $ 5,139     100.0 %
                       
Cost of sales   1,807     61.5 %     1,531     56.1 %     3,979     61.4 %     2,791     54.3 %
                       
Gross profit   1,133     38.5 %     1,198     43.9 %     2,505     38.6 %     2,348     45.7 %
                       
Selling, general and administrative expense   1,651     56.2 %     1,473     54.0 %     3,703     57.1 %     2,951     57.4 %
Pre-opening store costs**   307     10.4 %     44     1.6 %     446     6.9 %     44     0.9 %
                       
Loss from operations $ (825 )   -28.1 %   $ (319 )   -11.7 %   $ (1,644 )   -25.4 %   $ (647 )   -12.6 %
                       
*Comparable store SG&A includes retail corporate overhead and administrative costs.
**Pre-opening store costs include the accrual for straight-line rent recorded during the period between
date of possession and store opening date, employee payroll and training costs prior to store opening
and other various expenses incurred prior to store opening.


J. Michael Daniel
Senior Vice President and
Chief Financial Officer
(276) 629-6614 – Investors

Jay S. Moore
Director of Communications
(276) 629-6450 – Media