Bassett Furniture Industries, Incorporated Price & Performance (BSET)

Thank you, Kevin, for the introduction. Welcome to Bassett's Furniture's earnings call for the first quarter ending 03/01/2025. I'm Drew Ingram Bassett's Controller I am sitting in this morning for our CFO, Mike Daniel, who is out for an unexpected event in his immediate family. Please keep Mike and his family in your thoughts. Joining me today is our Chairman and CEO, Rob Spielman. We issued our news release yesterday after the market closed and it's available on our website. After today's remarks, we will open up a call for question and answer session. We will post the transcript of the call on Bassett's investor website within forty eight hours of this call. Due to calendar shifts, our first quarter of the fiscal year had thirteen weeks as compared to fourteen weeks in fiscal twenty twenty four. 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 provisions of the Private Securities Litigation Reform Act of 1995. The company cannot agree to or cannot guarantee the accuracy of any forecast 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 ks for the fiscal year ending 11/30/2024. Other filings with the SEC describing risks related to our business are available on our corporate website under the Investor tab. Now I'll turn it over to Rob for comments about our first quarter. Rob?

Thank you, Drew, and good morning, everyone. We are pleased to report improved operating results for our first quarter of twenty twenty five. The streamlining of our cost structure that began last year coupled with higher levels of operating efficiency in both our wholesale and retail segments, combined to produce $4,800,000 of improvement in operating profit.

As I said last quarter, our strategic plan for 2025 was designed to weather another year of tepid demand.

And to keep us disciplined and focused on growth. Our management team is running with a leaner mindset and we are accelerating new ideas and innovative products to position us well and providing quality home furnishings and design services.

We're incorporating more technology into the customer experience and fine tuning our marketing. We plan for housing sales to remain slow and we're working to react quickly to the ups and downs of economic data and changes from Washington. Last week's report that consumer confidence was plummeting was disconcerting but we believe the steps we've taken will help us run efficiently and get through this tough furniture economy. Let's move to the results of our first quarter. Consolidated sales were down by 5.1% for the first quarter. Which was due largely to the comparison of thirteen weeks this year to last year's fiscal fourteen weeks. On a normalized basis, sales revenue for the first quarter increased 2.2%. We had a strong December and January. Due in part to the shorter timeframe between Black Friday and Christmas. The sales environment was a little more challenging in February. Our Presidents' Day promotional event was not as successful as last year, and we've since seen the industry get more aggressive with discounts and credit promotions. Wholesale orders were down by 8.4% for the quarter or 1.4% normalized for the extra week. On a normalized basis compared to last year, orders from our store network increased 4.2% with December and January posting higher increases and February reporting a decrease due to a very aggressive promotional environment around Presidents' Day.

Orders from our traditional wholesale business, however, decreased 10% on a normalized basis with February being the slowest month of the quarter. Orders from our outdoor furniture business were essentially flat. On a normalized basis.

We were pleased that on a normalized basis, written sales in our corporate stores for the quarter increased 5.4% even with the softer February sales. Although retail gross margins fell modestly, cost reductions from our retail warehouse consolidation program and lower marketing expense contributed to our improved results. Our retail warehouse consolidation plan is ongoing and we expect additional improvement in this regard as the year progresses. I'm especially excited with even more progress coming from our e commerce and our drive to improve Bassett's omni channel model.

The investments that we made and will continue to make in bassetfurniture.com are responsible for Q1 e commerce sales being up 36%. While we have not seen higher web traffic so far this year, a higher rate of conversion is currently contributing to sales growth.

We expect that with continued investments in omni channel, we have opportunities for growth in traffic and conversions. For the remainder of the year. We are being more prescriptive in our marketing efforts. While we reduced marketing and advertising costs this quarter, we are disciplined about getting better returns from these investments. Direct mail was especially effective in supporting the launch of our Whole Home Copenhagen line and allows us to reinforce newness and our design services. We plan to incorporate direct mail more frequently in our promotional mix and in digital outreach activities for the remainder of the year.

We continue to focus on our sales efforts outside of the store network. We reached a milestone when we signed dealer number 50 to our Bassett custom studio program in February. The 1,000 square foot concept from the recently acclaimed best custom upholstery company in the industry by Furniture Today is gathering steam. Part of the momentum we are seeing is attributable to last year's addition of 50 options, to our true custom upholstery program. We are also about to unveil a new product visualization and B2B ordering system that will simplify the experience for the retail salespeople and their clients at the store level. With the April high Furniture market around the corner, we continue to integrate greater innovation and newness into our product line to drive higher sales. Three new efforts are particularly noteworthy. First, the Hideaway Benchmade domestic dining program, an extensive collection of tables and chairs in solid maple that feature self storing table leaves and an enhanced array of upholstered dining chairs. This program offers tremendous value in today's marketplace. Next are the two whole home product collections Andorra and Newberry, which will launch later this year. Both feature transitional styling and exciting combinations of finishes and materials.

And third, we are building on our program of Accent Furniture to enhance our retail displays. These products feature stone, metal, woven material, and leather combinations that are also conducive for web sales and round out design projects. Tariffs have been top of mind across the industry for several months. Culminating with President Trump Rose Garden announcement seventeen hours ago. Although 79% of our wholesale shipments in the first quarter were manufactured or assembled in The U. S. Many materials such as fabrics or plywood used in the manufacturing process will now be exposed to tariffs. As well the remaining 21% that we bring in fully assembled. While the reciprocal tariffs are now known, there are additional tariffs on certain materials used in the manufacture of some of our products. The entire industry is working with outside experts to gain clarity on this unusual situation. We will determine what this means for our pricing structure on goods that are affected over the next several days. We do firmly believe that the announced tariff policies will not positively influence the American consumer to invest in home furnishings until the effects of these policies are fully implemented and understood. On March 13, we announced that our board of directors approved our regular [indiscernible] regular quarterly dividend of $0.20 per share.

Dividends are augmented by opportunistic share repurchases, remain a key piece of our capital returns to shareholders. Now, I'll turn things back over to Drew for more details on our financials. Drew?

Thanks, Rob. In my commentary, the comparisons I will discuss will be the first quarter of fiscal twenty twenty five compared to the first quarter of fiscal twenty twenty four unless otherwise noted. And as Rob mentioned earlier, there was an additional week from the prior year period compared to thirteen weeks in the reported quarter. For the first quarter, total consolidated revenue declined $4,400,000 or 5.1% primarily due to the additional week in the prior year quarter. On a normalized basis, sales revenue increased $1,800,000 or 2.2%. This includes a normalized 4.2% increase in wholesale shipments and 6.8% increase in retail delivered sales through our company owned stores. Consolidated gross margins increased 170 basis points due primarily to better margins in the wholesale segment. SG and A expenses were 54% of sales which was a 400 basis was 400 basis points lower than last year as we reap the benefits of last year's restructuring. We reported consolidated operating income of 2,500,000.0 compared to a loss of 2,400,000.0 Diluted earnings per share were $0.21 versus a loss of $0.14 Let me cover more details on the wholesale operations Net sales decreased $1,800,000 or 3.2% from the prior year period due primarily to the additional week in the prior year quarter.

On a comparable basis, sales revenue increased 4.2% or $2,100,000 consisting of a 6.1% increase in shipments to the retail store network and an 11% increase in Lane Venture shipments, partially offset offset by a 2.2% decrease in shipments to the open market Gross margin increased two fifty basis points over the prior year period primarily due to improved margins in our Bassett custom upholstery business from manufacturing efficiency gains increased margins in our Lane venture operations due to improved customer mix, and improved margins in our imported club level business. SG and A expenses as a percent of sales decreased 150 basis points, primarily due to the benefit of cost reductions implemented during the second half of fiscal twenty twenty four. Wholesale backlog at the quarter end was $195,000,000 compared to $21,800,000 at the end of last year and 19,500,000.0 at the end of Q1 twenty twenty four. Now moving on to our retail operations. Net sales decreased 460,000 or 90 basis points due primarily to the additional week in the prior year quarter. On a comparable basis, sales revenue increased 6.8% or 3,400,000.0 Written sales orders written but not delivered, declined 2.1% from the first quarter last year.

On a normalized basis, written sales were up 5.4%. Gross margin for the quarter declined 80 basis points due to due to lower margins for inline and clearance goods as we became slightly more aggressive in cycling through unproductive inventory. Which was part of our Five Point restructuring plan from 2024. SG and A expenses as a percent of sales were down three seventy points primarily due to the benefit of cost reductions, implemented during the second half of fiscal twenty twenty four coupled with lower advertising and marketing costs and efficiency gains in our warehouse and delivery operations. Retail backlog at the end of the first quarter was 36,100,000.0 compared to $37,000,000 at the end of last year and 31,300,000.0 at the end of Q1 twenty twenty four. Our liquidity position remains solid. Although we generated a slight operating cash flow deficit for the quarter, it represented an improvement of $7,700,000 over the prior year. Our first quarter is typically our lowest of the four quarters for cash generation. We ended the quarter with $56,400,000 in cash and short term investments and have no outstanding debt. This year we have projected a range of capital investment in our business of between $8,000,000 and 12,000,000 primarily to cover remodels of existing stores investments in technology, including e commerce and potential store openings.

We continue to pay our quarterly dividend and repurchase shares [indiscernible] We spent $1,700,000 on dividends and $721,000 on share buybacks in Q1. [indiscernible] We remain committed to stockholder returns through dividends and paybacks. Through our restructuring, we made the necessary changes to our operations to return to profitability. As Rob said, we believe we have positioned Bassett well to weather today's challenges, and we are committed to investing in our business in a cautious smart, and calculated fashion while providing our stockholders with a reasonable return. Now we'll open up the line for questions. Kevin, please provide instructions to do so.

Thank you, ladies Our first question comes from Anthony Lebiedzinski with Sidoti and Company. Your line is open.

Good morning, and thank you for taking the questions. And my sympathies to Mike and his family.

I guess, you know, first, you know, and by the way, Rob, thanks for providing the color. About the monthly trends. So just wondering, since then as far as with consumer confidence dropping as you noted, have you guys seen any meaningful change in the trends in your business since the quarter ended, just curious to get your high level thoughts about that.

Well, Anthony, good morning.

Good morning.

I would say you know, when after the election, we we saw a a spike in sales and activity. Our Black Friday was good. As we've noticed last quarter and then December and January were pretty strong. But as we've gotten farther into the year, I would say that our business has fallen off that pace, but but back really to last year's pace that we saw in the first part of last year. So we're on a year over year basis, I think we're kind of trending where we were a year ago. [indiscernible] [indiscernible] the notable bump that we got post election in November, December and January. [indiscernible] Yeah. Yeah. Yes. That that certainly may make sense. Yeah. Thanks for for for providing that color. So as far as your inventory, it was up sequentially from last I'm sorry, from the end of the fiscal year. Just wondering if you could comment on the health of that inventory just wondering if you guys perhaps brought in some additional inventory to to get ahead of the tariffs Well, we really didn't consciously bring in extra inventory for the tariffs. But those collections that I mentioned the Copenhagen, which we did last year and it's selling well.

And then one of those whole home collections, the Andorra, we brought in anticipation of the spring season. And those were really the primary drivers of increased inventory and frankly, I'm now that we know what happened yesterday, I'm glad we did bring in that Andorra ahead of the spring season. So that's basically [indiscernible] of course, now now we got a a new ballgame, so we'll be certainly discussing that today and in the next several days. But that was really the driver.

Got you. So speaking of the new ballgame, far as the announcement yesterday, I know it's still fresh, but just kind of initial kind of thoughts as as to kind of the strategy where you guys go from here. Just wondering if any of those imported products, could they be manufactured in The U. S? Or is that just not feasible? Would love to hear your thoughts on that. I think for us, that's not feasible. What we can do, of course, I mean, as I mentioned, 79% went in the box in The U. S. So we do have a solid domestic footprint. And so we'll be looking at our mix and we'll be looking at really what the full effects of the tariffs are. And we can certainly emphasize the domestic product more purposely and more prominently if we choose to do so. But have some nice selling imported products in a couple that we introduced last year that are making a difference. So we've got a really study that. And but we do have some flexibility given that we have five factories in The U. S. And can do some things. It's not as they were totally relying on on imports.

Understood. Yes. Well, thank you very much and best of luck.

Thank you, Anthony. One moment for our next question. Our next question comes from Brian Gordon with Water Tower Research. Your line is open.

Good morning, everyone. And I would also, want to offer my sympathies to Mike and his family. I guess my question is sort of on the gross margins. I mean, they were very impressive in the quarter. And I'm wondering how sustainable these could be, especially given the the majority of your production being domestic even if there is an impact from the tariffs on that 21% of the business, it feels like, I mean, assuming demand holds up reasonably well, that we could see these levels continuing through the rest of the year.

Well, good morning, Brian. This is Rob. Look. These these are as high gross margin levels we've ever achieved or right up there with it. And [indiscernible] as Drew mentioned in his remarks, the wholesale segment really contributed to that. And our retail margins were down slightly, but not very much. And course, we had the corresponding reduction in the SG and A expenses. I don't I don't see our gross margins going any higher than this. In the short term. And that's because we want to keep our retail inventory lean Anthony asked about increase in inventory and I I failed to mention that our retail inventory did go up some and some of that is goods that we want to move out. So we want to continue to keep that cash flow in of course. And And then the wildcard is of course as of yesterday, knowing now what's going on with the the imports, how do we react to that If it stays like it is, we're going to have to increase prices. At some level on this stuff. And we don't that's what today is about. We're really kind of huddling up and seeing. So I don't see a big diminution in our gross margin coming, but I don't see it getting higher than it currently is or was for this quarter.

Got it. Thank you. That's very helpful. In terms of like the near term strategy for addressing the tariffs, are you thinking about surcharges or list price increases or any other sort of mitigation strategy like that?

We're thinking about everything. But we don't know the answer. We have been reaching out to our best customers and talking to them about this. What's their point of view, what do they see happening from our competitors, that kind of stuff. So we're going to have to reach a conclusion on that. But frankly, since 04:00 yesterday, we've been talking about this, and we've been getting ready for this call. So we when we get up, we'll have a big meeting. So but it it it's it's an unusual time, to say the least.

Yeah. Certainly. Could you talk a little bit more about your plans for new store openings and and maybe your targets for the design studios and how many and in an ideal situation would you like to be at by the end of this year?

Well, if I tell you a number, you remember So I don't know the design studios. But we do see additional white space for us to grow this this program. And I would say significantly. So that is that's a big focus and course, all that's domestic product.

So we'll be pushing that hard at at the market coming up and between now and then. What was the second part of that?

I was just asking about new stories as well. And this stores right I think I think the number was like maybe two Yeah. That's right. We we actually are in the throws Jay, our General Counsel, sitting in here and he's been working with a couple landlords. We usually reveal where they are until we get a little closer to the thing and get things signed. But we do we will sign a couple of new leases in the next in a very short amount of time. It's going to take some time to retrofit the store and turn it into a Bassett footprint. And so we're thinking probably very late in this year or early next year. But both are new markets for us. One of which we've been in before. So we're excited about that. [indiscernible] that's basically all the questions I have at this point. So good luck for the quarter.

Hey, thank you, Brian. We'll be talking to you.

And I'm not showing any further questions at this time. I'd like to turn the call back over to Rob.

Well, thank you, Kevin, and thank everyone for tuning in today. And we are are pleased with the quarter and our progress. But certainly the environment out there is not getting simpler, it's getting more complex and we are going to deal with that [indiscernible] persevere through this and we like what we've done with our cost structure and we we feel our product line is strong and we're just going to focus on dealing with this new environment and heading into, hopefully, a successful market in April. So thank you for your interest in Bassett and have a good day.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.