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Bassett Announces Fiscal Third Quarter Results

BASSETT, Va., Sept. 28, 2017 (GLOBE NEWSWIRE) -- Bassett Furniture Industries, Inc. (Nasdaq:BSET) announced today its results of operations for its fiscal quarter ended August 26, 2017.

Fiscal 2017 Third Quarter Highlights

  • Consolidated sales were $114.3 million for the third quarter of 2017 compared to $104.7 million for the third quarter of 2016, an increase of 9.1%. 
  • Operating income for the quarter was $7.3 million or 6.4% of sales as compared to $7.5 million or 7.2% of sales for the prior year quarter.  Excluding the unusual items described below, adjusted operating income was $6.5 million or 5.7% of sales as compared to $6.1 million or 5.8% of sales for the prior year quarter.
  • Wholesale sales were $61.8 million for the third quarter of 2017 compared to $58.3 million for the third quarter of 2016, an increase of 5.9%.  Wholesale operating income for the quarter was $4.5 million or 7.2% of sales as compared to $5.6 million or 9.7% of sales for the prior year quarter. Wholesale operating profit for the third quarter of 2016 included $1.4 million for the settlement of the Polyurethane Foam Antitrust Litigation.
  • Company-owned store sales were $67.4 million for the third quarter of 2017 compared to $61.2 million for the third quarter of 2016, an increase of 10%.   This included a comparable store sales increase of 1.8% compared to the prior year quarter. Comparable store operating income was $1.2 million or 2.0% of sales for the current year quarter as compared to $1.5 million or 2.5% of sales for the prior year quarter.  Included in the comparable store operating income for 2017 was a $0.5 million loss for expenses related to settling employment claims.  Total retail operating income was $1.4 million or 2.0% of sales for the quarter as compared to $0.8 million or 1.3% of sales for the prior year quarter.  Also included in the 2017 retail operating income was a $1.2 million gain on the sale of the Las Vegas store building which was closed during the quarter.  Comparable store written sales for the quarter decreased 2.9%.
  • Revenue for Zenith was $24.9 million for the third quarter of 2017 compared to $23.0 million for the third quarter of 2016, an 8.4% increase.  Zenith’s operating income for the quarter was $1.2 million or 4.7% of sales as compared to $0.7 million or 2.9% of sales for the prior year quarter.
  • Net income for the quarter was $4.6 million or $0.43 per diluted share as compared to $4.2 million or $0.38 per diluted share for the prior year quarter.

“We were pleased to post a 9.1% consolidated sales increase for the quarter,” commented Robert H. Spilman, Jr., Chairman and Chief Executive Officer.  “All three of our operating segments posted revenue gains led by our retail division’s 10% increase.  Although there were a number of unusual year over year comparisons, quarterly operating income grew by 7% on an adjusted basis despite increasing expense related to investments in our digital platform.  We look forward to opening two new stores in new markets in the current quarter, and entering fiscal 2018 with plans to open an additional six to eight new stores, while continuing our program to reposition older stores to better real estate when circumstances are appropriate.  Finally, we welcomed our Board of Directors’ approval in July of a 10% increase in our quarterly dividend as part of our ongoing capital allocation strategy.”

Wholesale Segment                                                                                        

Net sales for the wholesale segment were $61.8 million for the third quarter of 2017 as compared to $58.3 million for the third quarter of 2016, an increase of $3.5 million or 5.9%.  This increase was driven by a 5.1% increase in furniture shipments to the Bassett Home Furnishings network as compared to the prior year period and a 5.7% increase in furniture shipments to the open market (outside the Bassett Home Furnishings network).  Wholesale shipments of accessories, a much smaller component of the Company’s wholesale revenues, increased 79% over the prior year quarter.  Gross margins for the wholesale segment were 33.6% for the third quarter of 2017 as compared to 35.4% for the prior year quarter. Excluding the effects of the previously mentioned foam settlement in 2016, the prior year gross margin would have been 33.0%.  Gross margins improved in both the Upholstery and Wood operations as compared to the prior year driven by increased operating efficiencies in the domestic operations along with greater leverage of fixed costs from higher sales levels.  Wholesale SG&A for the third quarter of 2017 was $16.3 million as compared to $15.0 million for the prior year period. SG&A as a percentage of sales increased to 26.4% as compared to 25.8% for the third quarter of 2016. This increase in SG&A as a percentage of sales was primarily driven by increased spending on the website and e-commerce strategy development along with higher accruals for incentive compensation, partially offset by greater leverage of other fixed costs due to higher sales volumes.  Operating income was $4.5 million or 7.2% of sales as compared to $5.6 million or 9.7% of sales in the prior year.  Excluding the effects of the previously mentioned foam settlement in 2016, the prior year operating income would have been $4.2 million or 7.2% for the prior year.

“Strong performances in our Wood and Upholstery divisions were largely offset at the comparable wholesale operating profit level by spending to enhance our website and E-commerce capabilities and by a favorable adjustment made to our executive compensation accrual last year,” continued Spilman.  “Nevertheless, the fundamentals around the domestic manufacturing and importing of our product line were solid.  Domestic wood grew by 23% and profitability grew by 55% in the process.  Thanks to a strong showing in our Juvenile division, imported wood sales declined at a smaller rate than experienced in recent quarters.  We are also very encouraged by the initial retail sales of our newly-introduced Bella collection that hit the stores in August.  As has been the case for several years, we grew upholstery sales and profitability again this quarter.  Raw material price increases from our suppliers tempered profit gains in our domestic upholstery operations, however.  We are watching this trend closely as we move forward.  Retail sales of our Club Level by Bassett motion upholstery product line also contributed to wholesale sales gains and profitability.”

“As mentioned, we are increasing our investments in our website and our E-commerce capabilities to continue to grow Bassett,” added Spilman.  “There are several components to this strategy that merit discussion.  Simply increasing digital content is one component.  This means more presentations of the imagery of our product assortment to further expose consumers to our designs and our custom furniture capabilities, primarily through a more aggressive consumer e-mail campaign.  Secondly, technology enhancements on our website are being implemented to provide consumers with a faster and more interactive experience with our products and to allow them to visualize the myriad fabric and finish options that we offer.  This is paying off in the average time spent on our website by consumers when engaging with this technology and with a much increased likelihood that they will visit a Bassett store as a result.  The third component of our technology investments is designed to grow our accessory business and to round out our offerings as a complete resource for interior design.  Exposing these products more heavily on our website and creating a full E-commerce framework to complement our in-store home makeover capabilities will generate opportunities for Bassett to attract more customers more often.  We are encouraged by the early results that we have seen from these efforts and believe that the commitment to invest in these digital competencies will strengthen our store performance and the Bassett brand in general as we move forward.”

Retail Segment

Net sales for the 62 Company-owned Bassett Home Furnishings stores were $67.4 million for the third quarter of 2017 as compared to $61.2 million for the third quarter of 2016, an increase of $6.2 million or 10%. The increase was due to a $1.1 million or 1.8% increase in comparable store sales along with a $5.1 million increase in non-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 2.9% for the third quarter of 2017 as compared to the third quarter of 2016. 

The consolidated retail operating profit for the third quarter of 2017 was $1.4 million as compared to $0.8 million for the third quarter of 2016, an increase of $0.6 million.  The 55 comparable stores generated operating income of $1.2 million for the quarter, or 2.0% of sales, as compared to $1.4 million, or 2.5% of sales, for the prior year quarter. Gross margins for comparable stores were 51.3% for the third quarter of 2017 as compared to 50.3% for the third quarter of 2016.  This increase is primarily due to improved pricing strategies and product mix.  SG&A expenses for comparable stores increased $1.4 million to $29.6 million or 49.3% of sales as compared to 47.9% of sales for the third quarter of 2016. The increase in SG&A was primarily due to a $0.5 million loss for expenses associated with settling employment claims along with higher advertising expenses and occupancy costs.

Non-comparable stores generated sales of $7.3 million with operating income of $0.1 million.  Included in the operating income was a $1.2 million gain on the sale of the Las Vegas store building that was closed during the third quarter.

“The third quarter in our corporate retail operation was relatively quiet as we prepared for a flurry of new store activity in the upcoming quarters,” continued Spilman.  “Our June price increase began to positively offset retail gross margins with a 70 basis point year over year improvement.  Delivered retail comps increased 1.8% but written sales comped down 2.9% compared to last year’s 7.9% comparable store improvement.  We suffered cannibalization in stores nearby our new Westbury, NY and King of Prussia, PA locations though the overall markets grew significantly in both cases.  Written sales were also affected by store closures in the south Texas market over the final three days of the quarter due to the approach of Hurricane Harvey.  While these factors contributed to our written sales shortfall, the decline in store sales that we began to see this summer have continued into the first four weeks of the current quarter.  We completed the store closing event in our original Las Vegas location during the quarter and began closing events in Dallas and Cincinnati.  We were pleased that we were able to hold our overall margins intact as the final liquidation of store inventories are detrimental to margins.  We plan to open new locations in each of these markets over the next few quarters.”

Logistical Services Segment

Revenue for Zenith was $24.9 million for the third quarter of 2017 as compared to $23.0 million for 2016, an increase of $1.9 million or 8.4%.  Revenues to both Bassett and non-Bassett customers were higher quarter over quarter.  Zenith’s operating expenses for the third quarter of 2017 were $23.7 million or 95.3% of revenue as compared to $22.3 million or 97.1% for the third quarter of 2016.  This resulted in operating profit of $1.2 million or 4.7% of sales for the current quarter as compared to $0.7 million or 2.9% of sales for the prior year quarter.  Improved operating efficiencies in the over the road freight operations were partially offset by increased costs in the home delivery operations primarily from the start-up of several local distribution hubs.

About Bassett Furniture Industries, Inc.
Bassett Furniture Industries, Inc. (NASDAQ:BSET), is a leading manufacturer and marketer of high quality home furnishings. With 91 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 stylish, 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 third fiscal quarter of 2017, 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   Nine Months Ended
  August 26, 2017   August 27, 2016   August 26, 2017   August 27, 2016
    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 $ 100,152         $ 91,465         $ 294,144         $ 276,857      
Logistics   14,109           13,247           40,134           41,395      
Total sales revenue   114,261     100.0 %     104,712     100.0 %     334,278     100.0 %     318,252     100.0 %
                       
Cost of furniture and accessories sold   45,320     39.7 %     40,091     38.3 %     132,199     39.5 %     124,496     39.1 %
                       
Selling, general and administrative expenses excluding                      
new store pre-opening costs   61,373     53.7 %     56,800     54.2 %     180,972     54.1 %     173,845     54.6 %
New store pre-opening costs   308     0.3 %     281     0.3 %     1,583     0.5 %     727     0.2 %
Income from operations   7,260     6.4 %     7,540     7.2 %     19,524     5.8 %     19,184     6.0 %
                       
Gain on sale of investment   -     0.0 %     -     0.0 %     3,267     1.0 %     -     0.0 %
Impairment of investment real estate   -     0.0 %     -     0.0 %     (1,084 )   -0.3 %     -     0.0 %
Other loss, net   (583 )   -0.5 %     (647 )   -0.6 %     (1,994 )   -0.6 %     (1,904 )   -0.6 %
Income before income taxes   6,677     5.8 %     6,893     6.6 %     19,713     5.9 %     17,280     5.4 %
                       
Income tax provision   2,098     1.8 %     2,728     2.6 %     6,431     1.9 %     6,496     2.0 %
Net income $ 4,579     4.0 %   $ 4,165     4.0 %   $ 13,282     4.0 %   $ 10,784     3.4 %
                       
Basic earnings per share $ 0.43         $ 0.39         $ 1.25         $ 1.00      
                       
Diluted earnings per share $ 0.43         $ 0.38         $ 1.24         $ 0.99      

/EIN News/ --   

BASSETT FURNITURE INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
 
                                                                        (Unaudited)        
Assets   August 26, 2017   November 26, 2016
Current assets        
Cash and cash equivalents   $ 36,497     $ 35,144  
Short-term investments     23,125       23,125  
Accounts receivable, net     19,514       18,358  
Inventories, net     57,748       53,215  
Other current assets     8,808       10,727  
Total current assets     145,692       140,569  
         
Property and equipment, net     101,988       104,655  
         
Other long-term assets        
Deferred income taxes, net     8,235       8,071  
Goodwill and other intangible assets     17,431       17,360  
Other     6,410       7,612  
Total long-term assets     32,076       33,043  
Total assets   $ 279,756     $ 278,267  
         
Liabilities and Stockholders’ Equity        
Current liabilities        
Accounts payable   $ 19,047     $ 21,281  
Accrued compensation and benefits     13,584       13,602  
Customer deposits     20,757       25,181  
Dividends payable     -       3,218  
Current portion of long-term debt     3,373       3,290  
Other accrued liabilities     13,554       10,441  
Total current liabilities     70,315       77,013  
         
Long-term liabilities        
Post employment benefit obligations     13,776       12,760  
Long-term debt     527       3,821  
Other long-term liabilities     4,412       3,968  
Total long-term liabilities     18,715       20,549  
         
         
Stockholders’ equity        
Common stock     53,677       53,615  
Retained earnings     139,345       129,388  
Additional paid-in-capital     626       255  
Accumulated other comprehensive loss     (2,922 )     (2,553 )
Total stockholders' equity     190,726       180,705  
Total liabilities and stockholders’ equity   $ 279,756     $ 278,267  

   

BASSETT FURNITURE INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows - unaudited
(In thousands)
                                               
    Nine Months Ended
    August 26, 2017   August 27, 2016
Operating activities:        
Net income   $ 13,282     $ 10,784  
Adjustments to reconcile net income to net cash provided by        
(used in) operating activities:        
Depreciation and amortization     10,060       8,866  
Provision for asset impairment charge     1,084       -  
Gain on sale of property and equipment     (1,278 )     (165 )
Gain on sale of investment     (3,267 )     -  
Tenant improvement allowances received from lessors     1,165       590  
Deferred income taxes     195       4,360  
Other, net     516       421  
Changes in operating assets and liabilities        
Accounts receivable     (1,018 )     2,334  
Inventories     (4,190 )     6,483  
Other current and long-term assets     1,919       (4,721 )
Customer deposits     (4,424 )     (3,867 )
Accounts payable and accrued liabilities     654       (6,120 )
Net cash provided by operating activities     14,698       18,965  
         
Investing activities:        
Purchases of property and equipment     (10,817 )     (18,955 )
Proceeds from sale of retail  real estate and property and equipment     4,474       632  
Proceeds from sale of investment     3,592       -  
Acquisition of retail licensee store     (655 )     -  
Other     223       -  
Net cash used in investing activities     (3,183 )     (18,323 )
         
Financing activities:         
Cash dividends     (6,544 )     (5,238 )
Proceeds from the exercise of stock options     310       114  
Other issuance of common stock     83       182  
Repurchases of common stock     (83 )     (3,989 )
Taxes paid related to net share settlement of equity awards     (641 )     (77 )
Repayments of notes payable     (3,287 )     (7,235 )
Proceeds from equipment loans     -       7,384  
Net cash used in financing activities     (10,162 )     (8,859 )
Change in cash and cash equivalents     1,353       (8,217 )
Cash and cash equivalents - beginning of period     35,144       36,268  
    .   .
Cash and cash equivalents - end of period   $ 36,497     $ 28,051  

 

BASSETT FURNITURE INDUSTRIES, INC. AND SUBSIDIARIES
Segment Information - unaudited
(In thousands)
                                                       
    Quarter Ended   Nine Months Ended
    August 26, 2017   August 27, 2016   August 26, 2017   August 27, 2016
Net Sales                
Wholesale   $ 61,757     $ 58,303     $ 186,025     $ 177,785  
Retail - Company-owned stores     67,402       61,216       196,139       184,754  
Logistical services     24,925       22,991       71,885       71,480  
Inter-company eliminations:                
Furniture and accessories     (29,007 )     (28,054 )     (88,020 )     (85,682 )
Logistical services     (10,816 )     (9,744 )     (31,751 )     (30,085 )
Consolidated   $ 114,261     $ 104,712     $ 334,278     $ 318,252  
                 
Operating Income                
Wholesale   $ 4,466     $ 5,648     $ 15,142     $ 14,380  
Retail     1,353       768       1,377       1,465  
Logistical services     1,164       674       1,736       2,079  
Inter-company elimination     277       450       1,269       1,260  
Consolidated   $ 7,260     $ 7,540     $ 19,524     $ 19,184  

 

BASSETT FURNITURE INDUSTRIES, INC. AND SUBSIDIARIES  
Rollforward of BHF Store Count  
               
                 
    November 26,             August 26,
                                                                  2016     Opened*   Closed*     Transfers     2017
                 
Company-owned stores   59   3   (1 )   1     62
Licensee-owned stores   31   1   (1 )   (1 )   30
                 
Total   90   4   (2 )   -     92
                 
* 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)
                       
  55  Comparable Stores   55  Comparable Stores
  Quarter Ended   Quarter Ended   Nine Months Ended     Nine Months Ended
  August 26, 2017   August 27, 2016   August 26, 2017   August 27, 2016
    Percent of     Percent of       Percent of     Percent of
  Amount     Net Sales     Amount     Net Sales   Amount     Net Sales   Amount     Net Sales
                       
Net sales $ 60,137   100.0 %   $ 59,071     100.0 %   $ 180,584     100.0 %   $ 175,005     100.0 %
                       
Cost of sales   29,301   48.7 %     29,342     49.7 %     89,578     49.6 %     87,678     50.1 %
                       
Gross profit   30,836   51.3 %     29,729     50.3 %     91,006     50.4 %     87,327     49.9 %
                       
Selling, general and administrative expense*                29,622   49.3 %     28,259     47.8 %     87,355     48.4 %     83,643     47.8 %
                       
Income from operations $ 1,214   2.0 %   $ 1,470     2.5 %   $ 3,651     2.0 %   $ 3,684     2.1 %
                       
                       
  All Other Stores   All Other Stores
  Quarter Ended   Quarter Ended   Nine Months Ended   Nine Months Ended
  August 26, 2017   August 27, 2017   August 27, 2017   August 27, 2016
    Percent of     Percent of     Percent of     Percent of
  Amount Net Sales   Amount Net Sales   Amount Net Sales   Amount Net Sales
                       
Net sales $ 7,265   100.0 %   $ 2,145     100.0 %   $ 15,555     100.0 %   $ 9,749     100.0 %
                       
Cost of sales   3,796   52.3 %     1,136     53.0 %     8,050     51.8 %     5,756     59.0 %
                       
Gross profit   3,469   47.7 %     1,009     47.0 %     7,505     48.2 %     3,993     41.0 %
                       
Selling, general and administrative expense   3,022   41.6 %     1,430     66.7 %     8,196     52.7 %     5,485     56.3 %
Pre-opening store costs**   308   4.2 %     281     13.1 %     1,583     10.2 %     727     7.5 %
                       
Loss from operations $ 139   1.9 %   $ (702 )   -32.8 %   $ (2,274 )   -14.7 %   $ (2,219 )   -22.8 %
                       
*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 possesion 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