BASSETT, Va. - Bassett Furniture Industries, Inc. (Nasdaq:BSET) announced today its results of operations for its fiscal quarter ended August 31, 2013.
Fiscal 2013 Third Quarter Highlights
• Consolidated sales of $77.2 million for the third quarter of 2013 increased 20% as compared to the third quarter of 2012;
• Operating profit for the quarter was $0.8 million which was flat compared to the prior year quarter;
• Wholesale sales increased 18% compared to the prior year quarter;
• Company-owned store delivered sales increased 12% compared to the prior year quarter, which included a 3.9% increase from the 50 comparable stores; and
• Pre-tax income for the quarter was $0.6 million versus $0.5 million for the prior year quarter.
On a consolidated basis, the Company reported net sales for the third quarter of 2013 of $77.2 million as compared to $64.4 million for the third quarter of 2012, an increase of $12.7 million or 20%. Operating income for the quarter was $0.8 million, or 1.1% of sales, which was flat as compared to the prior year quarter. The Company reported net income of $0.6 million or $0.05 per diluted share for the third quarter of 2013 compared to net income of $2.4 million or $0.21 per diluted share in the third quarter of 2012. The prior year quarter included a $1.9 million tax benefit as a result of favorable provision to return adjustments related to the 2011 Federal income tax return and the release of a portion of the valuation allowance against certain deferred tax assets.
"In reviewing our 2013 third quarter, we are pleased to have posted our fourth consecutive quarter of double digit revenue growth," commented Robert H. Spilman, Jr., President and CEO. "Our multi-pronged sales strategy continues to bear fruit as we leverage our high level of service and logistics competencies over a broader spectrum of distribution. While we experienced modest increases in wholesale shipments to our retail network in the quarter, we again gained share with independent furniture dealers and in our juvenile products division. Also, shipments to our open market HGTV dealer network met our internal goals for the period.
"Conversely, although our operating income increased marginally for the quarter, we still have work to do in our efforts to bolster our bottom line, particularly during our fiscal third quarter which is historically our toughest reporting period," added Spilman. "The seasonality of summer retail furniture sales continues to challenge our retail network. We incurred additional operating expenses during the period in conjunction with the ongoing migration to a new retail operating system. This large project ($3 million in capital) will be completed by the end of November 2013. Further, our wholesale wood division suffered margin erosion as we continued to discount certain wood inventories, as discussed at the end of the second quarter. Finally, the final settlement of litigation associated with a vendor surrounding a 2006 product recall did not end favorably, resulting in $400k of expenses. Despite these factors, we remain focused and optimistic that we will continue to further improve our operating results as we move forward."
Wholesale Segment
Net sales for the wholesale segment were $52.9 million for the third quarter of 2013 as compared to $44.8 million for the third quarter of 2012, an increase of $8.1 million or 18%. Wholesale shipments to the open market (outside the Bassett Home Furnishings store network) increased 57% and shipments to the Bassett Home Furnishings store network increased by 0.5% compared to the prior year quarter. Gross margins for the wholesale segment were 32.2% for the third quarter of 2013 as compared to 31.7% for the third quarter of 2012. This increase was primarily due to increased margins in the upholstery operations as increased sales volumes provided greater leverage of fixed costs partially offset by lower wood margins due to product mix and increased discounting of discontinued product. Wholesale SG&A increased $2.2 million to $14.7 million for the third quarter of 2013 as compared to $12.5 million for the third quarter of 2012. Included in wholesale SG&A is $0.4 million of increased legal costs due primarily to the unfavorable settlement of litigation associated with a vendor surrounding a 2006 product recall. SG&A as a percentage of sales decreased to 27.7% as compared to 27.9% for the third quarter of 2012. Operating income was $2.4 million or 4.5% of sales as compared to $1.7 million or 3.8% of sales in the prior year quarter.
"Once again, our wholesale segment was able to leverage strong growth to improve profitability," continued Spilman. "Our upholstery and wood segments both posted growth rates of 18% for the period. At the divisional level, upholstery operating profit grew by 37% while inventory reductions in the wood division limited divisional operating improvement to 2% compared to last year's third quarter. Also noteworthy in our wholesale division for the quarter was the change in our mix. This year 39% of our wholesale shipments went to open market customers compared to 30% last year. Our focus on gaining market share outside of our stores is gaining momentum through independent Bassett dealers, our juvenile division, and our open market HGTV HOME accounts."
Retail Segment
Net sales for the 55 Company-owned stores were $46.2 million for the third quarter of 2013 as compared to $41.2 million for the third quarter of 2012, an increase of $5.1 million or 12%. The increase was comprised of a $1.6 million or 3.9% increase in comparable store sales and a $3.5 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 increased by 0.3% for the third quarter of 2013 as compared to the third quarter of 2012.
The consolidated retail operating loss for the third quarter of 2013 was $1.5 million, which was comparable to the loss recorded for the third quarter of 2012. The 50 comparable stores generated an operating loss of $0.8 million for the quarter, or 1.9% of sales, as compared to $1.3 million or 3.3% of sales for the prior year quarter. Gross margins improved to 48.3% compared to 47.5% in the prior year quarter due primarily to improved pricing strategies and lower levels of clearance sales. SG&A expenses increased $0.6 million due primarily to higher sales volumes. SG&A expenses were 50.2% of sales for the current year quarter compared to 50.8% of sales for the prior year as the higher sales volumes leverage the fixed costs.
Included in the consolidated retail results are $0.2 million of pre-opening costs associated with three stores that will open in the fourth quarter of 2013 and $0.1 million in losses associated with a store closing sale in California. This store is being closed and subsequently moved to a smaller location with lower rent. There were no such costs incurred in the third quarter of 2012. As the Company expects to open or reposition up to 10 stores over the next 12 months, retail operating results will continue to be impacted by such costs.
The following table summarizes the changes in store count year to date through the third quarter of 2013:
| November 24, | New | Stores | Stores | August 31, | |
| 2012 | Stores | Acquired | Closed | 2013 | |
| Company-owned stores | 53 | 2 | -- | -- | 55 |
| Licensee-owned stores | 33 | 2 | -- | (1) | 34 |
| Total | 86 | 4 | -- | (1) | 89 |
"Although we are pleased to post our 12th consecutive quarter of comparable store sales increase in our corporate retail division, we were disappointed to post an operating loss that was identical to last year," said Spilman. "Apart from the normal tepid sales environment that we experience each summer at retail, this year was especially challenging as we lay the foundation to expand our store footprint over the next 12 months and beyond. As alluded to earlier in this report, we are well on our way to implementing a new retail operating system that will enable us to run our large platform of stores more efficiently. After months of planning during 2012, we began the installation this February and had 36 of our 55 corporate stores up and running on the new system by the end of the August quarter. Although we are confident that all stores will be online by our fiscal year end in November, the process has been disruptive to the sales, administration, warehousing and delivery areas of our retail business."
"Furthermore, we began to incur pre-opening costs related to new store expansion this quarter", continued Spilman. "Although we opened two new stores and a replacement location earlier this year, the pace of new openings will pick up significantly over the next three to four quarters as will the pre-opening expenses that accompany these events. During this time period we plan to open six new stores and relocate an additional four stores that will replace older locations where the leases have expired. We have been encouraged by the performance of the new stores that we have brought to market over the past two years and look forward to adding to our fleet during the coming months. Likewise, we believe that the replacement stores that we are planning to open will be located in real estate that features attractive demographics and improved store economics for today's Bassett."
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 89 company- and licensee-owned stores, 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, more than 1,000 upholstery fabrics, free in-home design visits, and coordinated decorating accessories. Bassett is also growing its traditional wholesale business with more than 500 accounts on the open market, across the United States and internationally. For more information, visit the Company's website at bassettfurniture.com. (BSET-E)
| BASSETT FURNITURE INDUSTRIES, INC. AND SUBSIDIARIES | ||||||||
| Condensed Consolidated Statements of Income - unaudited | ||||||||
| (In thousands, except for per share data) | ||||||||
| Quarter Ended | Quarter Ended | Nine Months Ended | Nine Months Ended | |||||
| August 31, 2013 | August 25, 2012 | August 31, 2013 | August 25, 2012 | |||||
| Percent of | Percent of | Percent of | Percent of | |||||
| Amount | Net Sales | Amount | Net Sales | Amount | Net Sales | Amount | Net Sales | |
| Net sales | $ 77,152 | 100.0% | $ 64,438 | 100.0% | $ 238,224 | 100.0% | $ 192,860 | 100.0% |
| Cost of sales | 38,429 | 49.8% | 30,620 | 47.5% | 116,315 | 48.8% | 91,710 | 47.6% |
| Gross profit | 38,723 | 50.2% | 33,818 | 52.5% | 121,909 | 51.2% | 101,150 | 52.4% |
| Selling, general and administrative expense | 37,900 | 49.1% | 33,052 | 51.3% | 115,312 | 48.4% | 97,515 | 50.6% |
| Restructuring and asset impairment charges | -- | 0.0% | -- | 0.0% | -- | 0.0% | 711 | 0.4% |
| Lease exit costs | -- | 0.0% | -- | 0.0% | -- | 0.0% | 359 | 0.2% |
| Operating income | 823 | 1.1% | 766 | 1.2% | 6,597 | 2.8% | 2,565 | 1.3% |
| Income from Continued Dumping & Subsidy Offset Act | 0.0% | -- | 0.0% | 0.0% | 9,010 | 4.7% | ||
| Other loss, net | (229) | -0.3% | (315) | -0.5% | (1,026) | -0.4% | (2,239) | -1.2% |
| Income before income taxes | 594 | 0.8% | 451 | 0.7% | 5,571 | 2.3% | 9,336 | 4.8% |
| Income tax (expense) benefit | (38) | 0.0% | 1,920 | 3.0% | (2,082) | -0.9% | 481 | 0.2% |
| Net income | $ 556 | 0.7% | $ 2,371 | 3.7% | $ 3,489 | 1.5% | $ 9,817 | 5.1% |
| Basic earnings per share | $ 0.05 | $ 0.22 | $ 0.33 | $ 0.89 | ||||
| Diluted earnings per share | $ 0.05 | $ 0.21 | $ 0.32 | $ 0.88 | ||||
| BASSETT FURNITURE INDUSTRIES, INC. AND SUBSIDIARIES | ||
| Condensed Consolidated Balance Sheets | ||
| (In thousands) | ||
| Unaudited | ||
| Assets | August 31, 2013 | November 24, 2012 |
| Current assets | ||
| Cash and cash equivalents | $ 8,904 | $ 45,566 |
| Short-term investments | 28,125 | -- |
| Accounts receivable, net | 16,219 | 15,755 |
| Inventories, net | 58,475 | 57,916 |
| Deferred income taxes, net | 6,687 | 6,832 |
| Other current assets | 10,304 | 6,439 |
| Total current assets | 128,714 | 132,508 |
| Property and equipment, net | 60,809 | 56,624 |
| Other long-term assets | ||
| Retail real estate | 12,368 | 12,736 |
| Deferred income taxes, net | 9,565 | 10,485 |
| Other | 14,116 | 14,827 |
| Total long-term assets | 36,049 | 38,048 |
| Total assets | $ 225,572 | $ 227,180 |
| Liabilities and Stockholders' Equity | ||
| Current liabilities | ||
| Accounts payable | $ 19,048 | $ 22,405 |
| Accrued compensation and benefits | 7,323 | 6,926 |
| Customer deposits | 15,040 | 12,253 |
| Dividends payable | -- | 542 |
| Other accrued liabilities | 8,613 | 10,454 |
| Total current liabilities | 50,024 | 52,580 |
| Long-term liabilities | ||
| Post employment benefit obligations | 11,118 | 11,577 |
| Real estate notes payable | 2,862 | 3,053 |
| Other long-term liabilities | 1,972 | 2,690 |
| Total long-term liabilities | 15,952 | 17,320 |
| Stockholders' equity | ||
| Common stock | 54,623 | 54,184 |
| Retained earnings | 106,067 | 104,319 |
| Additional paid-in-capital | 72 | -- |
| Accumulated other comprehensive loss | (1,166) | (1,223) |
| Total stockholders' equity | 159,596 | 157,280 |
| Total liabilities and stockholders' equity | $ 225,572 | $ 227,180 |
| BASSETT FURNITURE INDUSTRIES, INC. AND SUBSIDIARIES | ||
| Consolidated Statements of Cash Flows - unaudited | ||
| (In thousands) | ||
| Nine Months Ended | Nine Months Ended | |
| August 31, 2013 | August 25, 2012 | |
| Operating activities: | ||
| Net income | $ 3,489 | $ 9,817 |
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||
| Depreciation and amortization | 4,445 | 3,931 |
| Equity in undistributed income of investments and unconsolidated affiliated companies | (466) | (157) |
| Provision for restructuring and asset impairment charges | -- | 711 |
| Non-cash portion of lease exit costs | -- | 359 |
| Other than temporary impairment of investments | -- | 806 |
| Deferred income taxes | 1,284 | (658) |
| Other, net | (888) | 1,655 |
| Changes in operating assets and liabilities | ||
| Accounts receivable | (656) | (316) |
| Inventories | (559) | (8,948) |
| Other current assets | (3,864) | (1,122) |
| Accounts payable and accrued liabilities | (2,682) | 853 |
| Net cash provided by operating activities | 103 | 6,931 |
| Investing activities: | ||
| Purchases of property and equipment | (9,547) | (6,858) |
| Proceeds from sales of property and equipment | 958 | 17 |
| Proceeds from sale of interest in affiliate | 2,348 | 1,410 |
| Proceeds from sales of investments | -- | 1,186 |
| Purchases of investments | (28,125) | (1,303) |
| Acquisition of retail licensee store | -- | (485) |
| Other, net | 88 | 84 |
| Net cash used in investing activities | (34,278) | (5,949) |
| Financing activities: | ||
| Repayments of real estate notes payable | (179) | (149) |
| Issuance of common stock | 643 | 295 |
| Repurchases of common stock | (759) | (5,572) |
| Taxes paid related to net share settlements of equity awards | (226) | -- |
| Excess tax benefits from stock-based compensation | 317 | -- |
| Cash dividends | (2,283) | (7,190) |
| Net cash used in financing activities | (2,487) | (12,616) |
| Change in cash and cash equivalents | (36,662) | (11,634) |
| Cash and cash equivalents - beginning of period | 45,566 | 69,601 |
| Cash and cash equivalents - end of period | $ 8,904 | $ 57,967 |
| BASSETT FURNITURE INDUSTRIES, INC. AND SUBSIDIARIES | ||||
| Segment Information - unaudited | ||||
| (In thousands) | ||||
| Quarter ended | Quarter ended | Nine months ended | Nine months ended | |
| August 31, 2013 | August 25, 2012 | August 31, 2013 | August 25, 2012 | |
| Net Sales | ||||
| Wholesale | $ 52,927 | $ 44,805 | $ 160,820 | $ 133,355 |
| Retail | 46,245 | 41,178 | 147,672 | 122,800 |
| Inter-company elimination | (22,020) | (21,545) | (70,268) | (63,295) |
| Consolidated | $ 77,152 | $ 64,438 | $ 238,224 | $ 192,860 |
| Operating Income (Loss) | ||||
| Wholesale | $ 2,367 | $ 1,711 | $ 8,218 | $ 5,575 |
| Retail | (1,509) | (1,503) | (1,803) | (2,437) |
| Inter-company elimination | (35) | 558 | 182 | 497 |
| Restructuring and asset impairment charges | -- | -- | -- | (711) |
| Lease exit costs | -- | -- | -- | (359) |
| Consolidated | $ 823 | $ 766 | $ 6,597 | $ 2,565 |
Source: Bassett Furniture Industries, Inc.
Have something to say? Share your thoughts with us in the comments below.