Bassett Furniture Industries Q4 2024 Earnings Report

Bassett Furniture Industries EPS Results

• Actual EPS: $0.38
• Consensus EPS: $0.05
• Beat/Miss: Beat by +$0.33
• One Year Ago EPS: N/A

Bassett Furniture Industries Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $82.90 million
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Bassett Furniture Industries Announcement Details

• Quarter: Q4 2024
• Date: 1/29/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, January 30, 2025
• Conference Call Time: 9:00AM ET

Bassett Furniture Industries (NASDAQ:BSET), Inc. (NASDAQ: BSET), headquartered in Bassett, Virginia, is a vertically integrated manufacturer and retailer of residential home furnishings. The company designs, produces and markets a range of furniture items, including upholstered seating, wood case goods, bedroom collections, dining room sets and home décor accessories. Bassett is known for its emphasis on craftsmanship, offering both ready-to-assemble pieces and made-to-order products that cater to varying design preferences and space requirements.

Bassett’s products are sold through a dual-channel distribution network comprising company-owned Bassett Home Furnishings stores, a franchise and independent dealer network, and an e-commerce platform that provides online shopping, virtual design consultations and customization tools. The company serves customers across the United States and Canada, with select international shipments. Its retail footprint is supported by manufacturing facilities in Virginia as well as global sourcing partnerships that help manage lead times and cost structures.

Founded in 1902, Bassett Furniture Industries went public in the early 1990s and has remained under the stewardship of the founding Baker family. Under the leadership of President and CEO Lindsay J. Baker, the company blends a legacy of Southern craftsmanship with contemporary design trends. Bassett continues to invest in product innovation, store experience and digital capabilities to strengthen its position in the competitive home furnishings market.

Bassett Furniture Industries Q4 2024 Earnings Call Transcript

Key Takeaways

• Bassett executed a comprehensive restructuring plan in 2024, returning to profitability in Q4 with $900K of operating income versus a $4.5M loss in the prior year, and expects $7–8M of annualized savings in 2025.
• Consolidated sales declined 11% in Q4, but retail written sales fell just 0.6%, Black Friday promotions drove a 25.1% increase in written sales, wholesale orders from corporate stores rose 1.8%, and outdoor orders jumped 33% year-over-year.
• Inventory was reduced by over $8M, aided by the closure of the Noah Home e-commerce business, consolidation of wood plants and delivery warehouses (from 27 to 22 facilities), improving overall cost efficiency.
• Bassett is investing in newness and innovation with three whole-home casegoods collections (Copenhagen launched, Andorra and Newberry debuting in spring) while e-commerce revenue has grown for seven consecutive months with a 27% annual increase in average order value.
• The balance sheet remains strong with $59.9M in cash, no debt, Q4 operating cash flow of $6.4M, planned 2025 capital expenditures of $8–12M, and a continuing $0.20 quarterly dividend alongside opportunistic share repurchases.

Presentation

[Operator]

Good day, and thank you for standing by. Welcome to Bassett Furniture Quarter Four, 2024 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one-one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one-one again. Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mike Daniel, CFO. Please go ahead.

[Mike Daniel, CFO at Bassett Furniture Industries]

Thank you, Gigi, for the introduction. Welcome to Bassett Furniture's earnings call for the fourth quarter ending November 30th, 2024. Joining me today is our Chairman and CEO, Rob Spilman. We issued our news release yesterday after the market closed, and it's available on our website. After today's remarks about our quarter, we will open the call up for a Q&A session. We will post the transcript of the call on our investor site within 48 hours of this call. During today's call, certain statements we make may be considered forward-looking and inherently involve risks and uncertainties that could cause actual results to differ materially from management's present view. These statements are made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995.

[Mike Daniel, CFO at Bassett Furniture Industries]

The company cannot agree or cannot guarantee the accuracy of any forecasts or estimate, nor does it undertake any obligation to update such forward-looking statements. For more information, including important cautionary notes, please see the company's annual report on Form 10-K for the fiscal year ending November 30th, 2024, to be filed next week. Other filings with the SEC describing risks related to our business are available on our corporate website. Now, I'll turn it over to Rob for comments about the fourth quarter. Rob.

[Rob Spilman, Chairman and CEO at Bassett Furniture Industries]

Thank you, Mike. Good morning, everyone, and thank you for joining us today. Our industry has long been tied to housing, and with persistent sluggish home sales, depleted levels of housing inventory, and higher mortgage interest rates, furniture sales lagged again in the fourth quarter. We took appropriate steps in 2024 to right-size our business through a comprehensive restructuring plan that we announced in July, and we've been executing since then. We are pleased to have returned Bassett to profitability for this quarter. While the major components of our restructuring plan were complete at the end of November, we continue to evaluate opportunities for increasing efficiency, leveraging our cost structure, and influencing our mindset to run a leaner business on an ongoing basis. We focus a significant amount of time on analyzing how we can run our business smarter while we navigate the ongoing challenging housing environment.

[Rob Spilman, Chairman and CEO at Bassett Furniture Industries]

In 2024, existing home sales were at the level they were in 1995, 30 years ago. Our entire industry is in search of the elusive bottoming out of demand to enable better planning of our business. Industry forecasts point to only a slight uptick in existing home sales for 2025, so we prepared our strategic plan to weather another year of tepid demand. Let me now turn to more details on the results of the fourth quarter. While consolidated sales were down by 11% for the quarter, written retail sales decreased by only 0.6%. We were pleased with our performance over the two-week Black Friday promotion, where retail written sales were up 25.1% over last year's promotion, generating strong customer deposits and a better backlog to begin 2025.

[Rob Spilman, Chairman and CEO at Bassett Furniture Industries]

Wholesale orders were down by 3.1% for the quarter, while wholesale orders received from corporate stores increased by 1.8% for the period. The majority of this quarter's wholesale decline was attributed to the comparison to last year's aggressive inventory reduction program of Club Level. Total outdoor orders for this year's fourth quarter, although representing only 7.6% of the wholesale segment, nevertheless grew by an exciting 33%. As mentioned, the primary components of our restructuring plan have been implemented. We've proven we can run on leaner inventory, which was down more than $8 million on a consolidated basis at quarter-end compared to last year. Wholesale inventory was down $6.5 million. The majority was due to domestic wood plant consolidation and Club Level. Benefits of right-sizing our operating costs began to surface in the fourth quarter.

[Rob Spilman, Chairman and CEO at Bassett Furniture Industries]

The remaining domestic wood manufacturing facility operated at a higher level of profitability in the period, and we believe that further efficiency improvements we're putting in place will yield better results in the future. The losses from Noa Home, our e-commerce business headquartered in Canada, were reduced in the quarter and are a thing of the past because the business is now closed as planned. Other gains in increased efficiency and improvements in our P&L have come from our warehouse consolidation. We moved from 27 retail home delivery facilities to 22 at year's end and have begun to see the associated financial benefits. We plan for further warehouse consolidation in 2025 with no disruption to our customer commitments while maintaining our four- to six-week delivery cycles. We've taken bold steps to drive newness and innovation into our business, and our organization is energized about 2025.

[Rob Spilman, Chairman and CEO at Bassett Furniture Industries]

In addition to all the cost-cutting, we embarked on an extensive review of our product line last year and began significant makeovers of our assortment. We planned three major whole home case goods collections to hit the retail market in 2025. The first, the Danish modern-inspired Copenhagen collection, has been in our retail stores for six weeks and is performing very well already. Two additional collections, Andorra and Newbury, will debut this spring. All three of these collections cover bedroom, dining, occasional, and entertainment options and will be transformational in terms of our retail visual merchandising. The investments that we've made at BassettFurniture.com continue to change and benefit our business. Still a small percentage of our overall sales, but e-commerce revenue is growing, and we've had seven consecutive months of sales increases through the end of 2024.

[Rob Spilman, Chairman and CEO at Bassett Furniture Industries]

Our investments in the presentation and the user experience are driving traffic and higher e-commerce order values, which are up 27% annually compared to last year. Our in-store designers are telling us that consumers are entering the store with specific items in mind based on their interaction with the brand on our website. Fourth quarter, we've strengthened our marketing program and began communicating more about the price and value of our furniture. Early response indicates this messaging is resonating with customers, and price value will be a focus for 2025. We reintroduced direct mail in our marketing mix in the fourth quarter, and it delivered positive returns. We plan to use direct mail more frequently in 2025 to drive retail traffic, particularly for major events and new product launches like Copenhagen, Andorra, and Newbury.

[Rob Spilman, Chairman and CEO at Bassett Furniture Industries]

Approximately 80% of our wholesale revenue on an annual basis comes from one of our dedicated distribution concepts. The latest is the Bassett Custom Studio, which requires the independent furniture retailer to dedicate a prescribed 1,000-sq-ft footprint to our true custom upholstery program, with no requirements of backup inventory. Nine months into this program, we're excited about the progress. With the many frame, fabric, and design options that true custom offers in a relatively small space, the dealer can generate a high rate of sales per square foot with no inventory investment beyond the floor samples. The program is working, and several dealers have already expanded the square footage dedicated to it. This inexpensive commitment to the Bassett brand has great potential, and we plan to continue to increase the number of studios this year.

[Rob Spilman, Chairman and CEO at Bassett Furniture Industries]

I also want to mention the pride that our team feels in being named Best Custom Upholstery Company in the industry as a result of Furniture Today's annual reader survey. This recognition underscores the accomplishments of so many Bassett teammates to earn the respect of those who really know the furniture business, and it reinforces the quality reputation that customers equate with our brand. I will not deny that 2024, in general, and the implementation of the restructuring was challenging. We made difficult decisions, but it changed our mindset to run as a smaller company. A year in, we had 11% fewer associates than a year ago. Our priority is to continually review our operations to ensure that we are driving efficiency as well as delivering innovation and newness for customers.

[Rob Spilman, Chairman and CEO at Bassett Furniture Industries]

We are investing in remodeling some stores, and we are negotiating leases for two others, which are expected to open in late 2025 or early 2026. We don't have a crystal ball on projections, but where the housing market or mortgage rates this year will be. As I said earlier, industry data points to similar trends to last year. But with a leaner operating model and new features to our growth plan, we believe Bassett is well-positioned for the future. On January 16th, we announced that our board approved our regular quarterly dividend of $0.20 per share, and we remain committed to shareholder returns through dividends and opportunistic share repurchases. Now, I'll turn things back over to Mike for more details on our financials. Mike.

[Mike Daniel, CFO at Bassett Furniture Industries]

Thanks, Rob. In my commentary, the comparisons I will discuss will be the fourth quarter of fiscal 2024 compared to the fourth quarter of fiscal 2023 unless otherwise noted. For the fourth quarter, total consolidated revenue declined $10.4 million or 11%, primarily due to a 14% decrease in wholesale sales and an 8.4% decrease in retail sales through our company-owned stores. Consolidated gross margins increased 230 basis points due primarily to better margins in the wholesale segment from improved margins in our Club Level product, coupled with better margins in our domestic upholstery manufacturing operation. Although we're pleased with our very strong consolidated gross margins during the quarter, we do expect a slight moderation during 2025 due to the expectation that we'll be more aggressive with pricing on the retail side, as Rob mentioned earlier.

[Mike Daniel, CFO at Bassett Furniture Industries]

We reported consolidated operating income of $900,000 compared to a loss of $4.5 million for the fourth quarter of 2023. However, if you normalize the operating income for both 2024 and 2023 for the special charges, operating income would have been $2.3 million or 2.7% of sales as compared to $900,000 or 0.9% of sales for 2023. Now, I'll provide information regarding our wholesale operations. Net sales decreased $8.3 million or 14% from the prior year period due primarily to a 13% decrease in shipments in both the store network and the open market, partially offset by a 22% increase in shipments for Lane Venture. Gross margin for the three months ended November 30th, 2024, increased 290 basis points over the prior year, primarily due to the expected improvement in the Club Level business and the improved mix of customers for the Lane Venture operation.

[Mike Daniel, CFO at Bassett Furniture Industries]

Although SG&A expenses decreased year over year, SG&A expense as a % of sales increased slightly due to deleverage of fixed costs from lower sales volumes, partially offset by cost reductions from implementing our restructuring plan. Wholesale backlog at the quarter end was $21.8 million as compared to $18.5 million at the end of both the third quarter of 2024 and the end of fiscal 2023. Now, moving on to our retail store operations, net sales decreased $4.8 million or 8% from the prior year period. As Rob said, written sales, the value of sales orders taken but not delivered, declined 0.6% compared to the prior year period. Gross margin for the quarter was essentially flat as improved inline margins were offset by lower margins on clearance goods. As Rob mentioned, we've been aggressively working through unproductive inventory, which was part of our restructuring plan.

[Mike Daniel, CFO at Bassett Furniture Industries]

Although SG&A expenses decreased year over year, again, SG&A expense as a percentage of sales increased slightly due to deleverage of fixed costs from lower sales volumes, partially offset by cost reductions from implementing our restructuring plan. Retail backlog at the end of the fourth quarter was $37.1 million compared to $33.3 million at the end of the third quarter and $30.9 million at the end of fiscal 2023. As Rob mentioned, Noah Home has been closed, and it was closed by the end of the fourth quarter, but we recorded a $2.6 million tax benefit for a capital loss associated with the cumulative investment in Noah Home.

[Mike Daniel, CFO at Bassett Furniture Industries]

As capital losses can only be deducted to the extent of capital gains, we will be able to file an amended return for 2022 and use that loss against the large gain that we recorded in 2022 on the sale of Zenith Logistics and recapture part of the cash paid for that year. Let's cover the balance sheet and capital allocation. We generated $6.4 million of operating cash flow in the fourth quarter. We ended the quarter with $59.9 million in cash and short-term investments with no outstanding debt. As Rob discussed, we've made significant progress on the restructuring plan over the back half of the year. Although savings to date have been slightly above $1 million, expected savings in 2025 compared to 2024 should be between $7 and $8 million.

[Mike Daniel, CFO at Bassett Furniture Industries]

As mentioned in last quarter's report, we reduced our capital outlay in the fourth quarter and closed the fiscal 2024 with capital spend of $5.2 million. The majority of the spending was on retail store openings and remodels. Fiscal 2025, we have projected a range of capital investment between $8 million and $12 million. This will be dedicated primarily to existing store remodels and the potential store openings that Rob previously mentioned, as well as investments in technology. We continue to pay our quarterly dividend and repurchase shares opportunistically. We spent $4.9 million on dividends and $1.4 million on share buybacks during 2024. Our goal is to provide good returns to Bassett shareholders. Our financial condition remains solid and provides us with a platform to service all of our obligations. Now, we'll open up the line for questions. Gigi, please provide instructions to do so.

[Operator]

Thank you. As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Anthony Lebodzinski from Sidoti & Company, LLC.

[Anthony Lebiedzinski, Analyst at Sidoti & Company, LLC]

Good morning, everyone, and thanks for taking the question. So first, great to see Bassett returning to profitability and maintaining a strong balance sheet. I know you touched on the written sales, so good to see that also relatively improving. Just curious as to what you guys have seen, I guess, since the election. I guess we've heard from some other companies seeing relatively better trends. Also wondering if you could comment on what you've seen thus far, first two months of your new fiscal year, just overall, whether it's written sales or just overall trends in the business that you're seeing. That would be great to get an update on that.

[Rob Spilman, Chairman and CEO at Bassett Furniture Industries]

Okay, Anthony, good morning. This is Rob. So as we pointed out, it seemed like we got a little brief period of euphoria around Black Friday, as we mentioned, and that was, of course, right after the election. Since that time, we would say we've kind of settled back down to where we were to a certain extent. We're on it now. I'll qualify that by saying that last year in our fiscal calendar, it was a six-week December, and this year was a five-week. So we had one less week to deal with, but we were up mid-single digits in December, and that's kind of the trend that we're seeing. I'm talking about at retail, and so when I say where we were, slightly better, but we're not seeing a sense of euphoria out there at the moment, but a little better.

[Anthony Lebiedzinski, Analyst at Sidoti & Company, LLC]

A little better sounds good, certainly. So you highlighted Bassett Custom Studios. Can you give us an update as to how many of those you have in place now, and what is your expectation if you have one for as far as number of those Custom Studios that you plan to have by the end of fiscal 2025?

[Rob Spilman, Chairman and CEO at Bassett Furniture Industries]

Now we are around 43 or 4 of those things. It changes day to day, of course, as we get the report in from the field. Honestly, I don't want to say how many we're going to have at year end, but you think about it, nine months, we've been opening about five per month. And I'm not sure we're going to be able to continue that pace, but we are getting a lot of interest in this program, and we expect it to grow significantly in terms of the amount of dealers that we have in 2025.

[Anthony Lebiedzinski, Analyst at Sidoti & Company, LLC]

Gotcha. Okay. And then you've talked about the True Custom upholstery program. You guys have had it. Sounds like you guys have been certainly recognized for those efforts based on your comment about the Furniture Today. Now, is this something you plan to highlight more in terms of your marketing messaging, whether it's, like you said, direct mail you'll do more of or anything else that you think that you plan to do to highlight that?

[Rob Spilman, Chairman and CEO at Bassett Furniture Industries]

I would say in conjunction with the custom studio, Anthony, we've definitely done some trade advertising, which we haven't done in a long time, and I think there's a community of dealers out there, and a lot of them think we are a store company and that we don't, maybe not interested in their business, let's say, and we're only in about half the states with stores, and so we think there's a lot of opportunity to communicate just how strong this custom upholstery is, which has been a hallmark of our retail concept for a number of years, so yes, we will be continuing to highlight our competencies on True Custom in the stores, as always, but we're also going to be a little more aggressive out there in the field in our dedicated distribution opportunities.

[Anthony Lebiedzinski, Analyst at Sidoti & Company, LLC]

Gotcha. And then my last question before I pass it on to others. So obviously, the gross margin was impressive in Q4. I know you mentioned that you expect that to moderate a bit because of pricing. That being said, when housing does recover at some point, how should we think about potential gross margins in the future?

[Rob Spilman, Chairman and CEO at Bassett Furniture Industries]

We're answering the question from almost an all-time high, I think. So I think I don't see them climbing significantly beyond where we are, even if housing comes back. We still want to offer value, and we think we can leverage that volume to lower the SG&A and have better operating margins. That's really the plan. We are very focused now, given the environment for two years, on offering good value to our customers. We think we have, but we really want to start communicating that. So I'd say the gross margin is kind of going to stay in this neighborhood, if I had to guess.

[Anthony Lebiedzinski, Analyst at Sidoti & Company, LLC]

That makes a lot of sense. Well, thank you very much and best of luck.

[Rob Spilman, Chairman and CEO at Bassett Furniture Industries]

Thanks, Anthony.

[Operator]

Thank you. One moment for our next question. Our next question comes from the line of Brian Gordon from Water Tower Research.

[Mike McCormack, Analyst at Water Tower Research]

Hey, guys. It's Mike McCormick from Water Tower. How are you?

[Rob Spilman, Chairman and CEO at Bassett Furniture Industries]

Hey, Mike.

[Mike Daniel, CFO at Bassett Furniture Industries]

We're doing great. Thank you.

[Mike McCormack, Analyst at Water Tower Research]

Hey, just a little more color on the margin commentary. You talked about a step back, I guess, as we go forward this year. Can you just give us a hint on what that degree might look like?

[Mike Daniel, CFO at Bassett Furniture Industries]

Ask that one more time. Mike, give me.

[Mike McCormack, Analyst at Water Tower Research]

Yeah. Gross margins, obviously, were very impressive, but you talked about maybe taking a step back.

[Mike Daniel, CFO at Bassett Furniture Industries]

Right. Right. I mean.

[Mike McCormack, Analyst at Water Tower Research]

Just trying to get a sense for what that might look like.

[Mike Daniel, CFO at Bassett Furniture Industries]

Yeah. I'd say, again, as we alluded to, we think we're going to get a little bit more aggressive, two things. Get more aggressive on pricing related to retail or in our retail stores, as well as making sure that we're moving through clearance goods as quickly as we need to be moving them through. As Rob has said to us many times, inventory does not get more valuable as it sits in warehouses. So we just want to make sure that we're moving that through. Now, that's not going to be. Those together are not going to be that much pressure on the margins, but we are proud of the fact that we did have what we consider to be a record margin, but just not comfortable to say that that's going to be sustainable, and particularly with those added pressures on the margin.

[Mike Daniel, CFO at Bassett Furniture Industries]

But again, we don't see it as a drastic shift of any kind.

[Rob Spilman, Chairman and CEO at Bassett Furniture Industries]

I would add, Mike, that it's similar to Anthony's question. We don't see this trend continuing to rise necessarily, and that's by design, and although, I think, as Mike said, we're going to moderate it, I think, slightly. We're not talking about a huge decline in margin, but we don't see this trend we've been on continuing this year, but we don't want it to drop much either, so we're just setting expectations, really.

[Mike Daniel, CFO at Bassett Furniture Industries]

That's right.

[Mike McCormack, Analyst at Water Tower Research]

Yep. Understood. Thank you. And then I guess just on the natural disasters between the hurricanes and the wildfires, how much impact on the business?

[Rob Spilman, Chairman and CEO at Bassett Furniture Industries]

The North Carolina hurricane back in September was causing effect. We had to close our operations down for a couple of days, a few days there in the Hickory area. Also, we have a very strong independent dealer base in that area, North Carolina. That's a very strong and it affected other areas too, South Carolina, etc., so a lot of our dealers were affected by that, and that hurt our incoming business. As far as the California fire tragedy, we did have one store out there that had to shut down for a few days, but I wouldn't say that it caused a whole lot of upheaval to our operations.

[Mike McCormack, Analyst at Water Tower Research]

Thank you. Yes.

[Operator]

Thank you. At this time, I would now like to turn the conference back over to Rob Spilman, Chairman and CEO, for closing remarks.

[Rob Spilman, Chairman and CEO at Bassett Furniture Industries]

Thank you, Gigi, and thank everyone for your interest in Bassett and for your questions. We know that our decisions to right-size our cost structure put us on the road to improve profitability. We delivered that in the fourth quarter. We're optimistic that our growth-driving initiatives will deliver for customers and shareholders this year. We are excited about our new collections, strengthening our dedicated distribution programs, and reaching more consumers through our e-commerce site and price value messaging. Thank you very much, and have a great day.

[Operator]

This concludes today's conference call. Thank you for participating. You may now disconnect.

Participants

Executives

• Rob Spilman, Chairman and CEO
• Mike Daniel, CFO

Analysts

• Anthony Lebiedzinski, Analyst at Sidoti & Company, LLC
• Mike McCormack, Analyst at Water Tower Research