BASSETT, VA -- Bassett Furniture Industries, Inc. (Nasdaq:BSET) announced today its results of operations for its fiscal quarter ended May 28, 2011.
Consolidated sales for the quarter ended May 28, 2011 were $66.3 million as compared to $57.8 million for the quarter ended May 29, 2010, an increase of 15%. The sales increase was primarily driven by a 25% increase in sales at retail due primarily to additional Company-owned stores and a 4% increase in comparable store sales, coupled with a 6.8% increase in wholesale sales. Gross margins for the second quarter of 2011 and 2010 were 50.1% and 49.2%, respectively. The margin increase was primarily a result of the retail segment's increased share of the overall sales mix, partially offset by lower product margins in the retail segment.
Selling, general and administrative expenses, excluding bad debt and notes receivable valuation charges, licensee debt cancellation charges, restructuring and asset impairment charges and lease exit costs increased $3.2 million for the second quarter of 2011 as compared to the second quarter of 2010, primarily due to additional Company-owned retail stores and increased wholesale costs. The Company also recorded $6.2 million of bad debt and notes receivable valuation charges during the second quarter of 2011 as compared to $1.1 million for the second quarter of 2010 which reflects a more aggressive strategy for dealing with licensees who are having difficulty in meeting their obligations to the Company. In addition, the Company recorded $6.4 million, $1.1 million, and $2.8 million in licensee debt cancellation charges, restructuring and asset impairment charges and lease exit costs, respectively, for a total of $10.3 million during the second quarter of 2011. There were no such costs in the second quarter of 2010.
Other income (loss), net for the second quarter of 2011 was a $4.8 million loss compared to $0.5 million of income for the second quarter of 2010. During the quarter, the Company recorded $4.8 million in asset write downs and lease exit costs associated with certain licensee real estate. As a result of the $85.5 million gain from the consummation of the sale of the Company's investment in the International Home Furnishings Center ("IHFC"), the Company recorded income tax expense of $3.9 million in the second quarter of 2011 compared to $48 thousand in the second quarter of 2010. The Company reported net income of $62.5 million, or $5.43 basic earnings per share, for the quarter ended May 28, 2011, as compared to net income of $117 thousand , or $0.01 basic earnings per share, for the quarter ended May 29, 2010.
The Company received cash proceeds of $67.8 million from the sale of IHFC. As a result of receiving these proceeds, the Company has elected to retire certain debt and other long-term obligations, settle various obligations related to closed stores and idle facilities, and resume paying a quarterly dividend and buying back stock. The Company will continue to evaluate appropriate uses of its strengthened cash position, which may include the use of additional funds towards the activities noted above, along with meeting future working capital needs and making modest investments in new or repositioned Company-owned stores.
This liquidity event also has enabled the Company to be more opportunistic in managing its relationships with its licensees and therefore accelerate certain licensees' ability to rebuild their businesses after several years of extremely difficult industry conditions. As such, during the quarter the Company cancelled certain debts of what it considers to be key licensees in select markets. The Company believes that, in exchange for relieving the debts of these licensees and thus strengthening their respective financial positions, these licensees will be in a much better position to reinvest in all aspects of their store operations (new product offerings, personnel, advertising, building appeal, etc.) which will ultimately lead to increased sales and profitability of the Bassett brand.
To better understand the profitability trends related to on-going operations, the Company's management considers net income after reversing the effects of certain non-recurring or unusual items. Such items include bad debt and notes receivable valuation charges and lease and loan guarantee charges associated with licensee stores that closed or were taken over during the quarter or where the decision to close or take them over was made during the quarter. Also included are restructuring costs for licensee debt cancellation charges, asset write-downs and lease exit charges; closed store and idle facility charges; and other expense and gains considered to be of a non-recurring or unusual nature, including the sale of IHFC. Excluding these items from the respective quarters, net income for the quarter ended May 28, 2011 would have been $2.4 million as compared to net income of $0.8 million for the quarter ended May 29, 2010. See the attached Reconciliation of Net Income (Loss) as Reported to Net Income as Adjusted.
"Our second quarter featured several significant developments that will positively impact the company's future," said Robert H. Spilman Jr., President and CEO. "Most notable, of course, was the closing of the IHFC transaction. As a result, we initiated a series of actions that included store closings, licensee takeovers, and debt settlements that will put an end to the past few years of dealing with these issues. By the end of the third quarter, the Company will operate over 50% of all Bassett Home Furnishings stores and the remaining licensee fleet is a much healthier network than we have been working with since the housing bubble burst in 2007-2008. In light of the progress that we are making in our corporate retail division, our team is excited to be able to focus its full attention on improving performance of the remaining stores and to adding new ones to the group. In addition to our day-to-day operational work, management continues to concentrate on maximizing the opportunity that our strengthened balance sheet provides. We have successfully negotiated the settlement of several real estate obligations and outstanding notes payable that will enhance future cash flow, and this process should continue throughout the remainder of the year. A quarterly dividend was re-instated during the period, with the payment of $0.03 per share to shareholders on June 1, 2011. Also, in the three weeks following the receipt of IHFC proceeds leading up to the end of the quarter, the company purchased approximately $473,000 of stock on the open market at an average price of $8.76 per share."
Net sales for the wholesale segment were $45.8 million for the second quarter of 2011 as compared to $42.8 million for the second quarter of 2010, an increase of 6.8%. This increase is due primarily to increased shipments in the traditional non-dedicated store business as growth in this sector has been a stated goal.
Although the number of stores in the Bassett Home Furnishings network has decreased, wholesale shipments to the stores have remained essentially flat.
Approximately 50% of wholesale shipments during the second quarter of 2011 were imported products compared to approximately 49% for the second quarter of 2010. Gross margins for the wholesale segment were 32.8% for the second quarter of 2011 and 32.4% for the second quarter of 2010. Wholesale SG&A, excluding bad debt and notes receivable valuation charges, increased $1.6 million. As a percentage of net sales, SG&A increased 1.8 percentage points to 28.3% for the second quarter of 2011 as compared to 26.5% for the second quarter of 2010. This increase is primarily due to higher marketing, legal and employee benefit costs. The Company recorded $6.2 million of bad debt and notes receivable valuation charges for the second quarter of 2011 as compared with $1.1 million for the second quarter of 2010. This increase reflects a more aggressive strategy for dealing with licensees who are having difficulty in meeting their obligations to the Company. As a part of this strategy, the Company acquired one store from a licensee and closed three stores with two other licensees during the quarter ended May 28, 2011. The Company also acquired the operations of two other stores from a licensee subsequent to May 28, 2011 .
The wholesale backlog, representing orders received but not yet shipped to dealers and company stores, was $9.2 million at May 28, 2011 as compared to $16.6 million at May 29, 2010. A significant portion of the $7.4 million decrease in wholesale backlog is attributable to fulfilling orders during 2010 that were delayed due to stock outages during the second quarter of 2010 as well as higher orders from the 2010 Memorial Day promotion.
"Wholesale revenue grew by 6.8%, marking the fourth consecutive quarter of growth," continued Mr. Spilman. "Both our wood and upholstery divisions contributed to the sales increase. Despite receiving significant price increases from suppliers in our wood and upholstery segments, wholesale gross margins slightly increased as compared to 2010. Looking forward, we are concerned by the slowing of our incoming order pace that we have seen over the past two months. With the exception of a relatively strong Memorial Day weekend event, written business has weakened markedly in May and June reflecting the downward trend in consumer confidence from its recent peak in March 2011."
At May 28, 2011, the total store network included 46 licensee-owned stores and 44 Company-owned and operated stores. During the three months ended May 28, 2011, the Company acquired certain assets of, and now operates, one additional licensee store. In addition, the Company closed two underperforming company-owned stores and four licensee stores completed going out of business sales and closed.
The Company-owned stores had sales of $38.0 million in the second quarter of 2011 as compared to $30.5 million in the second quarter of 2010, an increase of 25%. The increase was comprised of a $6.3 million increase primarily from additional Company-owned stores, and a $1.2 million, or 4.4%, increase in comparable store sales ("comparable" stores include those locations that have been open and operated by the Company for all of each comparable reporting period).
While the Company does not recognize sales until goods are delivered to the customer, the Company's management tracks written sales (the dollar value of sales orders taken, rather than delivered) as a key store performance indicator. Written sales for comparable stores increased by 2.9% for the second quarter of 2011 as compared to the second quarter of 2010.
Gross margins for the quarter ended May 28, 2011 decreased 1.1 percentage points to 47.0% as compared to the quarter ended May 29, 2010 due primarily to lower margins from the store liquidation sales at the two stores closed, as well as slightly lower margins from comparable stores. SG&A increased $1.6 million, primarily due to increased store count. On a comparable store basis, SG&A decreased 2.4 percentage points to 49.2% for the second quarter of 2011 as compared to the second quarter of 2010. Operating losses for the comparable stores decreased by $0.5 million to $0.3 million. In all other stores (consisting of the 15 stores which have been acquired, opened or closed since February 27, 2010), the operating loss was $0.1 million or 0.7% of sales. Refer to the accompanying schedule of Supplemental Retail Information for results of operations for the Company's retail segment by comparable and all other stores.
"Our corporate retail results for the quarter were very encouraging," commented Mr. Spilman. "Our bottom line improved by $1.7 million on a year-over-year basis despite the ongoing distraction of closing two corporate stores and the acquisition of another licensed operation. As previously discussed, we expect the pace of closings and takeovers to slow significantly as we reach the 4th quarter of 2011 and beyond. Our ongoing evaluation of each store led to the remodeling of our Raleigh, N.C., location, which was completed during the quarter. We have also begun to consider sites for the possible opening of additional locations in certain areas where we currently operate. Given the required due diligence, we anticipate that there will be no new openings in 2011. We are, however, well underway with the repositioning of an existing Bassett Home Furnishings store in Manchester, Mo."
Balance Sheet and Cash Flow
The Company used $4.6 million of cash from operating activities during the six months ended May 28, 2011, $0.8 million of it during the second quarter 2011, primarily due to settlement of accounts payable related to the Company's build-up of inventory during the second half of 2010. The Company added $69.8 million of cash from investing activities primarily due to the sale of the Company's interest in IHFC. In addition to the $69.9 million of cash on-hand, the Company has investments of $15.2 million, consisting of $14.4 million in cash, money market accounts, bond funds, and individual treasuries, and $0.8 million in a hedge fund. Although the $14.4 million is primarily cash and other liquid assets, as of the end of Q2 2011 the Company presented these as long-term assets as they were pledged as collateral for the revolving debt agreement.
Access to capital is extremely difficult to obtain for companies in the furniture industry. Consequently, the Company deems it prudent to conservatively manage its capital to ensure adequate liquidity until capital is more readily available for the furniture industry in general, and the Company sees improvement in its operating results.
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 licensee- and company- 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 750 upholstery fabrics, free in-home design visits, and coordinated decorating accessories.
SOURCE: Bassett Furniture Industries Inc.
BASSETT, VA -- Bassett Furniture Industries, Inc. (Nasdaq:BSET) announced today its results of operations for its fiscal quarter ended May 28, 2011.
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