by Company identifies key factors, initiatives that could lead to a turnaround in Q4 and beyond
BASSETT, Va. — Bassett Furniture’s latest results are just one more example of the challenges the industry has experienced of late, in a period that combines slow foot traffic with the need to unload certain goods to make room for new product.
Of course, its numbers showcase both the wholesale and retail sides of the business, offering a window into each segment that most other companies, public and private, can’t as they focus on one or the other.
Here is a quick snapshot of its third-quarter financials released Sept. 28 for the period ended Aug. 26.
Third-quarter retail sales were down 26.2%, to $52.3 million, from $70.9 million the same period last year, and wholesale sales were down 28.2% to $56.7 million, from $79 million last year.
For the first nine months, retail sales totaled $178 million, down from $210.6 million the same period last year, a 15.5% decrease. Wholesale sales totaled $188.3 million during the first nine months, compared to $249.9 million the same period last year, a 24.6% decrease.
Meanwhile, the company had an operating loss of just over $3 million on the retail side of the business during the third quarter, compared to income of $3.9 million the same period last year, while the wholesale side of the business had $6.3 million in operating income during the quarter, down from nearly $10 million last year.
For the first nine months, the retail side of the business had an operating loss of $751,000, compared to $13.8 million in operating income last year, and the wholesale side of the business had operating income of $22.3 million, compared to $31.7 million the same period last year.
In his prepared remarks regarding the latest quarter, company Chairman and CEO Robert H. Spilman Jr. said that writing new business at wholesale and retail proved very difficult in the 12 weeks between Memorial Day and the start of the company’s Labor Day promotion in late August.
“Although we continue to see increased business around the important holiday events, day-to-day store traffic and wholesale order writing between the big events remains very challenging,” he noted, adding that the company first began seeing signs of a slowdown in the third quarter of 2022.
However, there were some bright spots in the report, which also offered some takeaways to an industry looking for any silver lining as we head into what promises to be a turbulent election year.
+ For one, Spilman noted that the company maintains a strong balance sheet that coincides with the company’s execution of growth plans that aim to return it to profitability. Wholesale margins of 11.1%, he said, are comparable to its second-quarter margins despite an 8.5% sequential decline in wholesale revenue.
+ Spilman also noted that while it had a 31% decline in shipments, the domestic upholstery team was able to improve margins over last year. “Their ability to drive efficiency and manage costs in such a demanding environment is impressive,” he said.
+ While margins on imported wood product were down compared to last year, Spilman noted that they improved compared to the second quarter, even with reduced shipments. “The pandemic-related freight costs embedded in our oldest import wood inventory is beginning to burn off, a trend which should accelerate and result in margin expansion in the coming months,” he said, adding that work schedules in its two domestic wood plants in Bassett and Martinsville, Virginia, improved during the third quarter and continued in the first weeks of Q4.
+ Inventories in its imported Club Level motion line fell 49%, from $22 million at the end of August 2022 to $11 million at the end of this past August. And while he estimates that the company has some $6 million in excess and discontinued inventory, he said the company still has some good selling styles in the Club Level line that produce good margins. “Ultimately, we believe that $5 million to $6 million of inventory will be sufficient to support this strategically important assortment,” he said.
+ He noted that the company’s retail results were the primary basis for its overall operating loss for the quarter — “for the period, we did not generate enough retail revenue to break even.” He also noted that while retail gross margins were comparable to last year, despite a 26% decline in sales, the company was not able to reduce its fixed and variable SG&A costs enough to maintain profitability. However, he said, sales in the past five weeks, including the first four of Q4, average weekly sales have improved and were aided by an expected Labor Day boost and several new product intros that were unveiled with the holiday promotion. He added that over the next four months the company plans to open two new stores and reopen an existing location undergoing a remodel.
+ Late in Q3, the company also debuted its new bassettfurniture.com website, following a three-year development process. Spilman noted that this included the complete re-architecture of its product data, which is the foundation of the new platform. “We believe that, over time, we will improve site traffic and enhance both e-commerce and store conversions as a result of this investment,” he said, adding, “We are already seeing that engagement has improved as consumers are spending more time on the new site with each visit compared to previous metrics with our old platform.” He added that the website launch coincided with the mailing of the company’s fall catalog and noted that the “styling of the merchandise and its corresponding imagery represent a fresh style direction for Bassett. The sell-through of the new items is off to a good start.”
He added that the company has completed the first year of its ownership of e-commerce platform Noa Home and “we continue to use their perspective to provide insight for Bassett’s e-commerce journey and to build the future of the Noa Home brand. In addition, he said, Noa management is also “evaluating the contributions of their global markets as they strive to further build North American penetration in Canada and the U.S.”
Obviously, because of a host of issues, the past year or more has not been kind to Bassett and many others in the industry, public and private. But these key points Spilman made during the latest quarterly results show that there are positives on the horizon, offering a path forward to future success in the last months of the year and beyond.
