Company remains profitable with just over $2 million in net income reported for the quarter ended May 27
BASSETT, Va. — Bassett Furniture Industries reported a nearly 22% decline in consolidated sales during the company’s second quarter ended May 27, resulting from what the company described as soft demand across the industry.
The company said consolidated sales totaled $100.5 million, down 21.9% from the $128.7 million for the same period last year.
The declines impacted the wholesale and retail side of its business. For example, the wholesale side of the business reported sales of $61.8 million, down 29.4% from the $87.5 million reported the same period in 2022. Retail sales declined 19.6% to $60.8 million, compared to $75.6 million last year.
Net income during the quarter was $2.08 million, or 24 cents per share, compared to $47.1 million, or $4.95 per share, the same period last year.
Consolidated operating income totaled $2.5 million during the quarter, or 2.5% of sales, compared to $11 million, or 8.5% of sales, last year. The wholesale segment had operating income of $7 million, or 11.3% of sales, compared to $11.5 million, or 13.1% of sales, last year. The retail segment had $800,000 in operating income during the quarter, or 1.3% of sales, compared to $7.3 million, or 9.7% of sales, the same period last year.
“While our operating results were challenged by industrywide soft demand, we successfully managed our balance sheet and maintained profitability during the second quarter,” said Robert H. Spilman Jr., chairman and chief executive officer. “We are uncertain as to when the current sales environment will markedly improve, but we believe that our dedicated distribution strategy, domestic manufacturing platform, forthcoming e-commerce enhancements and strong financial position will enable us to steadily grow revenue and shareholder returns as time goes on.”
He also noted that despite the 22% decline, consolidated revenues were 4.9% greater than the same period in 2019. He also noted that the company’s operating cash flow of $5.8 million was driven by an 11% reduction in total inventory. Meanwhile, its $2.5 million in operating income included a $1 million valuation adjustment associated with last year’s purchase of e-commerce retailer Noa Home. Operating income, he said, also was negatively impacted by a $1.1 million write-down of its Club Level motion product.
“A significant portion of the existing inventory has been slow moving and includes the high freight costs from mid-2022,” he noted. “We expect better margins in these products over the remainder of 2023.”
He noted that excluding the inventory adjustment charge, wholesale operating margins would have been flat.
“Margins in our Newton, North Carolina, upholstery facility improved as we were able to recognize a greater portion of previously implemented price increases in current period sales partially offset by de-leverage of fixed costs due to lower sales volumes,” he noted. “This was offset by lower margins in our wood operations. Continuing the trend that was discussed at the end of the first quarter, manufacturing headcounts are now 20% below last year’s levels. Work schedules were considerably reduced during the period, although we have partially restored work hours recently in light of Memorial Day sales and new products sold during the High Point Furniture Market. In the end, our ability to return our wholesale margins to pre-pandemic levels is essential to our future success. The high freight costs from 2022 that have plagued our Club Level results also have hampered our import wood margins and, to a lesser extent, our outdoor performance. As our inventory of these items turn over, we will experience a margin boost based on today’s lower freight costs.”
He also noted that the company plans to introduce an opening price point dining collection in the fall to bolster factory work schedules.
“We have already successfully added a new layer of modern casual styling to our domestic solid wood Bench Made assortment,” he added of the wood product mix. “Four new tables and seven dining chairs were responsible for the strongest wood product introduction that we have had for several seasons. This product will be featured with the drop of our consumer catalog in August before the Labor Day event in our stores and Bassett Design Centers. Our BDC network continues to grow and represents an increasingly important element of our portfolio with 101 individual accounts comprising 156 furniture floors that have space dedicated to the prescribed Bassett footprint.”
He added that while the company’s retail results were significantly behind last year’s record quarter, the segment remained profitable. In addition, he said, a closing sale associated with its Northeast clearance center also negatively impacted results in the retail segment.
“While store foot traffic declined during the quarter, our average sales ticket rose slightly,” he added. “The interior design expertise embedded within our retail culture produced makeover sales that represented 47% of total written retail volume. The investment in our new flagship store in Tampa also is well underway with an anticipated opening in time for Labor Day. On the same schedule is the dramatic remodel of our Austin store. Both of these locations will feature expanded design centers, new hospitality areas, home entertainment rooms, large outdoor furniture displays, and expanded assortments of accessories that will complement our ‘whole home’ design offering.”
And while the company has addressed reduction in demand with “cost rationalization in manufacturing, we have not curtailed spending regarding growth initiatives,” he added. “In areas such as new store development, website development, outdoor marketing costs, digital imagery creation and certain other marketing costs, we have elected to spend generally in sync with our original internal budgets in the interest of generating long-term growth. We will continue to monitor this dynamic as the year unfolds. Meanwhile, we will conservatively manage our working capital, maintain or increase our dividend, and continue to repurchase our common stock when deemed appropriate.”