What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-09-30 compared with 2021-07-01 · 143 added, 105 removed, 292 unchanged (46% of the section changed)

14 unchanged sentences

Important factors that could cause actual results to differ materially from those contemplated by such forward-looking statements include:

the impact of the COVID-19 outbreak upon our ability to maintain normal operations at our retail stores and manufacturing facilities and the resulting effects any future interruption of those operations may have upon our financial condition, results of operations and liquidity, as well as the impact of the outbreak upon general economic conditions, including consumer spending and the strength of the housing market in the United States

the impact of the COVID-19 pandemic and resulting supply chain disruptions upon our ability to maintain normal operations at our retail stores, manufacturing facilities and in our logistical services operations, and the resulting effects any future interruption of those operations may have upon our financial condition, results of operations and liquidity, as well as the impact of the pandemic upon general economic conditions, including consumer spending and the strength of the housing market in the United States

competitive conditions in the home furnishings industry

15 unchanged sentences

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

AUGUST 28, 2021

(Dollars in thousands except share and per share data)

7 unchanged sentences

Our rich 119-year history has instilled the principles of quality, value, and integrity in everything we do, while simultaneously providing us with the expertise to respond to ever-changing consumer tastes and meet the demands of a global economy.

With 97 BHF stores at May 29, 2021, we have leveraged our strong brand name in furniture into a network of Company-owned and licensed stores that focus on providing consumers with a friendly environment for buying furniture and accessories. 

With 97 BHF stores at August 28, 2021, we have leveraged our strong brand name in furniture into a network of Company-owned and licensed stores that focus on providing consumers with a friendly environment for buying furniture and accessories. 

Our store program is designed to provide a single source home furnishings retail store that provides a unique combination of stylish, quality furniture and accessories with a high level of customer service. 

24 unchanged sentences

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

AUGUST 28, 2021

(Dollars in thousands except share and per share data)

We consider our website to be the front door to our brand experience where customers can research our furniture and accessory offerings and subsequently buy online or engage with an in-store design consultant.

Customer acquisition resulting from our digital outreach strategies increased our traffic to the website by 52% for the six months ended May 29, 2021 as compared to the comparable period in 2020.

Customer acquisition resulting from our digital outreach strategies increased our traffic to the website by 14% for the nine months ended August 28, 2021 as compared to the comparable period in 2020.

The migration to digital brand research has caused us to comprehensively evaluate all of our American made custom products.

15 unchanged sentences

These measures had a significant adverse impact upon many sectors of the economy, including non-essential retail commerce, beginning in our second fiscal quarter of 2020.

Therefore, our results of operations for the quarter ended February 29, 2020 were not impacted by COVID-19.

In response to the above and for the protection of our employees and customers, we temporarily closed our dedicated BHF stores, our manufacturing locations and many of our warehouses for several weeks primarily during the second fiscal quarter of 2020.

The disruption to our operations caused by the COVID-19 pandemic resulted in a significant loss for the three and six months ended May 30, 2020.

By the end of the third quarter of fiscal 2020 we had reopened all stores and resumed manufacturing activity, allowing us to return to profitability beginning with the third quarter of fiscal 2020 and continuing through the first half of fiscal 2021.

The disruption to our operations caused by the COVID-19 pandemic resulted in a significant loss for the nine months ended August 29, 2020.

Since restarting our manufacturing operations and reopening stores, the pace of incoming wholesale orders from both the retail stores and our independent dealers outside the BHF store network have far exceeded our post reopening forecasts.

Wholesale orders for the first half of fiscal 2021 increased 90% as compared to the comparable period in 2020.

In addition, wholesale orders for the first half of fiscal 2021 represented a 36% increase as compared to pre-pandemic levels of the first half of fiscal 2019.

However, supply chain disruptions causing shortages of various raw materials, including fabric, foam and plywood, coupled with logistical challenges have created significant delays in order fulfillment resulting in abnormally high backlogs.

In addition, inflationary pressures throughout the supply chain have resulted in us implementing multiple wholesale price increases over the last few months.

Wholesale orders for the first nine months of fiscal 2021 increased 51% as compared to the comparable period in 2020.

In addition, wholesale orders for the first nine months of fiscal 2021 represented a 38% increase as compared to pre-pandemic levels of the first nine months of fiscal 2019.

However, various supply chain disruptions and logistical challenges have created significant delays in order fulfillment resulting in abnormally high backlogs.

In addition, inflationary pressures throughout the supply chain have resulted in us implementing multiple wholesale price increases over the last several months.

We expect that wholesale gross margins will be slightly impacted during the remainder of fiscal 2021 as we cycle through the backlog.

2 unchanged sentences

The added space will also allow us to expand our Bench Made motion program, previously referred to as Magnificent Motion, that has exceeded our sales projections since its debut in early 2020.

PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

(Dollars in thousands except share and per share data)

We continue to closely monitor the COVID-19 pandemic and its lingering impact on the economy, the consumer and our business.

While the rate of incoming orders at both our wholesale and retail segments remains strong, there are continuing logistical challenges faced by us and the entire home furnishings industry resulting from COVID-related labor shortages and supply chain disruptions creating significant delays in order fulfillment and increasing backlogs.

Although unable to predict with certainty, we expect gradual decreases in wholesale and retail backlogs over the remainder of fiscal 2021 driven by an anticipated lower rate of future incoming orders coupled with increased manufacturing and shipping activity.

Although unable to predict with certainty, we expect gradual decreases in wholesale and retail backlogs over the remainder of fiscal 2021 and into fiscal 2022 driven by an anticipated lower rate of future incoming orders coupled with increased manufacturing and shipping activity.

Whereas the progress in mass vaccination programs in the U.S.

has prompted state and local governments to substantially lift most remaining restrictions on commercial retail activity, it is nevertheless possible that a resurgence in COVID-19 cases due to new variants of the coronavirus entering the U.S.

has prompted state and local governments to substantially lift most remaining restrictions on commercial retail activity, it is nevertheless possible that the recent resurgence in COVID-19 cases due to the Delta variant, as well as any future variants of the coronavirus entering the U.S.

could prompt a return to tighter restrictions in certain areas of the country.

Furthermore, pandemic-related labor shortages and supply chain disruptions remain unresolved and order cancellations could result if the present delays in order fulfillment continue for an extended period of time.

Therefore, uncertainty remains regarding the ongoing impact of the COVID-19 outbreak upon our financial condition and future results of operations.

Furthermore, pandemic-related labor shortages and supply chain disruptions are ongoing and order cancellations could result if the present delays in order fulfillment continue.

Therefore, uncertainty remains regarding the ongoing impact of the COVID-19 pandemic upon our financial condition and future results of operations.

PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

AUGUST 28, 2021

(Dollars in thousands except share and per share data)

Results of Operations –

Periods ended May 29, 2021 compared with the periods ended May 30, 2020:

Consolidated results of operations for the three and six months ended May 29, 2021 and May 30, 2020 are as follows:

Periods ended August 28, 2021 compared with the periods ended August 29, 2020:

Consolidated results of operations for the three and nine months ended August 28, 2021 and August 29, 2020 are as follows:

Quarter Ended

Six Months Ended

Nine Months Ended

August 28, 2021

August 29, 2020

August 28, 2021

August 29, 2020

Sales revenue:

7 unchanged sentences

Income (loss) from operations

Total sales revenue for the three and six months ended May 29, 2021 increased $60,258 and $61,811, respectively, from the prior year periods due primarily to the major impact of the COVID-19 pandemic on our operations during fiscal 2020, which forced a nearly total shut-down of our manufacturing and retail operations from late March through early May of last year, followed by an exceptionally strong recovery in demand for home furnishings that has continued into the first half of fiscal 2021.

Cost of furniture and accessories sold as a percentage of total revenue for the three and six months ended May 29, 2021 improved significantly over prior year periods, primarily due to improved leverage on fixed costs during the second quarter of fiscal 2021 versus the prior year period when our operations were temporarily shut down due to the pandemic.

SG&A expenses as a percentage of sales for the three and six months ended May 29, 2021 decreased significantly from comparable fiscal 2020 periods due to increased leverage of fixed costs due to higher sales volume coupled with the fact that we have been able to maintain various expense reductions implemented in the second and third quarters of fiscal 2020 in response to the COVID-19 pandemic.

Other charges of $15,205 incurred during the three and six months ended May 30, 2020 included $11,114 of non-cash asset impairment charges on five underperforming retail stores, including $6,239 for the impairment of operating lease right-of-use assets, and $1,070 of non-cash impairment charges in our wholesale segment, primarily due to the closure of our custom upholstery manufacturing facility in Grand Prairie, Texas in May of 2020, a non-cash charge of $1,971 for the impairment of goodwill associated with our wood reporting unit within our wholesale segment, and $1,050 of litigation costs relating to certain wage and hour violation claims that had been asserted against the Company.

Total sales revenue for the three and nine months ended August 28, 2021 increased $27,347 and $89,158, respectively, from the prior year periods due primarily to the major impact of the COVID-19 pandemic on our operations during fiscal 2020, which forced a nearly total shut-down of our manufacturing and retail operations from late March through early May of last year, followed by an exceptionally strong recovery in demand for home furnishings that has continued into the first nine months of fiscal 2021.

Cost of furniture and accessories sold as a percentage of total revenue for the three and nine months ended August 28, 2021 increased over prior year periods primarily due to rising raw material and inbound freight costs, partially offset by improved leverage on fixed costs for the first nine months of fiscal 2021 versus the prior year period when our operations were temporarily shut down due to the pandemic.

SG&A expenses as a percentage of sales for the three and nine months ended August 28, 2021 decreased significantly from comparable fiscal 2020 periods due to increased leverage of fixed costs due to higher sales volume coupled with the fact that we have been able to maintain various expense reductions implemented in the second and third quarters of fiscal 2020 in response to the COVID-19 pandemic.

This was partially offset by increased operating costs in the logistical services segment.

Other charges of $15,205 incurred during the nine months ended August 29, 2020 included $11,114 of non-cash asset impairment charges on five underperforming retail stores, including $6,239 for the impairment of operating lease right-of-use assets, and $1,070 of non-cash impairment charges in our wholesale segment, primarily due to the closure of our custom upholstery manufacturing facility in Grand Prairie, Texas in May of 2020, a non-cash charge of $1,971 for the impairment of goodwill associated with our wood reporting unit within our wholesale segment, and $1,050 of litigation costs relating to certain wage and hour violation claims that had been asserted against the Company.

These claims have since been settled at no additional cost.

Because of the significant adverse impact that the COVID-19 pandemic had on our operations during the second quarter of fiscal 2020, we believe that a better understanding of the revenue growth that has resulted from our product and marketing initiatives is obtained by comparing our current year revenues to the pre-pandemic levels of fiscal 2019.

For the three and nine months ended August 31, 2019, sales of furniture and accessories were $98,369 and $301,550, respectively.

Sales of furniture and accessories for the three and nine months ended August 28, 2021 increased $6,501 or 6.6% and $14,972 or 5.0%, respectively, over the corresponding quarter and year-to-date periods of fiscal 2019.

This growth as compared to fiscal 2019 is attributable not only to the exceptionally strong demand for home furnishings that has benefited our industry over the past fifteen months, but also due to increases in our wholesale business through growth in our Lane Venture line of outdoor furniture, the introduction of our Bassett Outdoor line of outdoor furniture sold through our BHF store network, and the expansion of our wholesale customer base of independent dealers partially offset by lower retail sales from the closure of seven Company-owned stores since the end of the second quarter of 2019.

PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

AUGUST 28, 2021

(Dollars in thousands except share and per share data)

For the three and six months ended June 1, 2019, sales of furniture and accessories were $95,842 and $203,181, respectively.

Compared to fiscal 2019, sales of furniture and accessories for the three and six months ended May 29, 2021 increased $14,173 or 14.8% and $8,471 or 4.2%, respectively, over the corresponding quarter and year-to-date periods of fiscal 2019.

This growth as compared to fiscal 2019 is attributable not only to the exceptionally strong demand for home furnishings that has benefited our industry over the past twelve months, but also due to increases in our wholesale business through growth in our Lane Venture line of outdoor furniture, the introduction of our Bassett Outdoor line of outdoor furniture sold through our BHF store network, and the expansion of our wholesale customer base of independent dealers partially offset by lower retail sales from the closure of six Company-owned stores since the end of the second quarter of 2019.

Segment Information

14 unchanged sentences

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

AUGUST 28, 2021

(Dollars in thousands except share and per share data)

The following tables illustrate the effects of various intercompany eliminations on income from operations in the consolidation of our segment results:

Quarter Ended May 29, 2021

Quarter Ended August 28, 2021

Sales revenue:

4 unchanged sentences

Cost of logistical services

Income from operations

Quarter Ended May 30, 2020

Income (loss) from operations

Quarter Ended August 29, 2020

Sales revenue:

4 unchanged sentences

Cost of logistical services

Income (loss) from operations before other charges (6)

Six Months Ended May 29, 2021

Income (loss) from operations

Nine Months Ended August 28, 2021

Sales revenue:

5 unchanged sentences

Income from operations

Six Months Ended May 30, 2020

Nine Months Ended August 29, 2020

Sales revenue:

7 unchanged sentences

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

AUGUST 28, 2021

(Dollars in thousands except share and per share data)

2 unchanged sentences

Represents the elimination of logistical services billed to our wholesale segment.

Represents the elimination of purchases by our Company-owned BHF stores from our wholesale segment, as well as the change for the period in the elimination of intercompany profit in ending retail inventory.

Represents the elimination of purchases by our Company-owned BHF stores from our wholesale segment,  as well as the change for the period in the elimination of intercompany profit in ending retail inventory.

Represents the elimination of rent paid by our retail stores occupying Company-owned real estate.

Represents the elimination of the cost of logistical services provided by Zenith to our wholesale segment.

Excludes the effects of goodwill and asset impairment charges as well as litigation costs which are not allocated to our segments. Refer to the reconciliation to income (loss) from operations presented under Non-GAAP Financial Information below.

Excludes the effects of goodwill and asset impairment charges as well as litigation costs which are not allocated to our segments.

Refer to the reconciliation to income (loss) from operations presented under Non-GAAP Financial Information below.

Non-GAAP Financial Information

4 unchanged sentences

Quarter Ended

Six Months Ended

Nine Months Ended

Income (loss) from operations before other charges

4 unchanged sentences

Asset Impairment Charges

During the three and six months ended May 30, 2020 we recorded $11,114 of non-cash asset impairment charges on five underperforming retail stores, including $6,239 for the impairment of operating lease right-of-use assets, and $1,070 of non-cash impairment charges in our wholesale segment, primarily due to the closure of our custom upholstery manufacturing facility in Grand Prairie, Texas.

During the nine months ended August 29, 2020 we recorded $11,114 of non-cash asset impairment charges on five underperforming retail stores, including $6,239 for the impairment of operating lease right-of-use assets, and $1,070 of non-cash impairment charges in our wholesale segment, primarily due to the closure of our custom upholstery manufacturing facility in Grand Prairie, Texas.

Goodwill Impairment Charge

Due to the impact of the COVID-19 pandemic, we performed an interim impairment assessment of our goodwill as of May 30, 2020.

As a result, we recognized a non-cash charge of $1,971 for the impairment of goodwill associated with our wood reporting unit within our wholesale segment (see Note 6 to our Condensed Consolidated Financial Statements).

As a result, during the nine months ended August 29, 2020 we recognized a non-cash charge of $1,971 for the impairment of goodwill associated with our wood reporting unit within our wholesale segment (see Note 6 to our Condensed Consolidated Financial Statements).

Litigation Expense

During the three and six months ended May 30, 2020 we accrued $1,050 for the estimated costs to resolve certain wage and hour violation claims that had been asserted against the Company.

During the nine months ended August 29, 2020 we accrued $1,050 for the estimated costs to resolve certain wage and hour violation claims that had been asserted against the Company.

PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

AUGUST 28, 2021

(Dollars in thousands except share and per share data)

3 unchanged sentences

The following table reconciles the sales, cost of sales and gross profit presented for each of the wholesale and retail segments to the consolidated amounts for sales, cost of sales and the implied gross profit in accordance with GAAP.

Quarter Ended May 29, 2021

Quarter Ended August 28, 2021

Non-GAAP Presentation

3 unchanged sentences

Cost of furniture and accessories sold

Quarter Ended May 30, 2020

Quarter Ended August 29, 2020

Non-GAAP Presentation

3 unchanged sentences

Cost of furniture and accessories sold

Six Months Ended May 29, 2021

Nine Months Ended August 28, 2021

Non-GAAP Presentation

3 unchanged sentences

Cost of furniture and accessories sold

Six Months Ended May 30, 2020

Nine Months Ended August 29, 2020

Non-GAAP Presentation

5 unchanged sentences

Represents the elimination of sales from our wholesale segment to our Company-owned BHF stores.

Represents the elimination of purchases by our Company-owned BHF stores from our wholesale segment, as well as the change for the period in the elimination of intercompany profit in ending retail inventory.

Represents the change for the period in the elimination of intercompany profit in ending retail inventory.

1 unchanged sentence

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

AUGUST 28, 2021

(Dollars in thousands except share and per share data)

Wholesale Segment

Results for the wholesale segment for the periods ended May 29, 2021 and May 30, 2020 are as follows:

Results for the wholesale segment for the periods ended August 28, 2021 and August 29, 2020 are as follows:

Quarter Ended

Six Months Ended

Nine Months Ended

August 28, 2021

August 29, 2020

August 28, 2021

August 29, 2020

Gross profit*

5 unchanged sentences

Quarter Ended

August 28, 2021

August 29, 2020

Bassett Custom Upholstery

2 unchanged sentences

Bassett Casegoods

Six Months Ended

Nine Months Ended

August 28, 2021

August 30, 2020

Bassett Custom Upholstery

3 unchanged sentences

Analysis of Results - Wholesale

Net sales for the three and six months ended May 29, 2021 increased $42,906 and $48,153, respectively, from the prior year periods due primarily to the major impact of the COVID-19 pandemic on our operations during fiscal 2020, which forced a nearly total shut-down of our manufacturing and retail operations from late March through early May of last year, followed by an exceptionally strong recovery in demand for home furnishings that has continued into the first half of fiscal 2021.

The increase in orders resulting from this surge in demand, coupled with continuing supply chain disruptions in the wake of the pandemic, has resulted in a wholesale backlog of $86,693 at May 29, 2021 as compared to $54,874 at November 28, 2020 and $17,270 at May 30, 2020.

Net sales for the three and nine months ended August 28, 2021 increased $17,630 and $65,783, respectively, from the prior year periods due primarily to the major impact of the COVID-19 pandemic on our operations during fiscal 2020, which forced a nearly total shut-down of our manufacturing and retail operations from late March through early May of last year, followed by an exceptionally strong recovery in demand for home furnishings that has continued into the first nine months of fiscal 2021.

The increase in orders resulting from this surge in demand, coupled with continuing supply chain disruptions in the wake of the pandemic, has resulted in a wholesale backlog of $92,839 at August 28, 2021 as compared to $54,874 at November 28, 2020 and $37,408 at August 29, 2020.

As previously discussed, Bassett and most of the home furnishings industry has been faced with continuing logistical challenges from COVID-related labor shortages and supply chain disruptions creating significant delays in order fulfillment and increasing backlogs.

Gross margins for the three and six months ended May 29, 2021 improved significantly over prior year periods, primarily due to improved leverage on fixed costs during the second quarter of fiscal 2021 versus the prior year period when our operations were temporarily shut down due to the pandemic.

SG&A expenses as a percentage of sales for the three and six months ended May 29, 2021 decreased significantly from the comparable fiscal 2020 periods due to increased leverage of fixed costs due to higher sales volume coupled with various expense reductions implemented in the second and third quarters of fiscal 2020 in response to the COVID-19 pandemic.

Gross margins for the three months ended August 28, 2021 declined 220 basis points compared to the prior year period as we have experienced significant increases in material costs primarily in the upholstery operation, partially offset by greater leverage on fixed costs due to higher sales volumes.

For the nine months ended August 29, 2021, gross margins improved primarily due to improved leverage on fixed costs versus the prior year period when our operations were temporarily shut down due to the pandemic.

SG&A expenses as a percentage of sales for the three and nine months ended August 28, 2021 decreased significantly from the comparable fiscal 2020 periods due to increased leverage of fixed costs due to higher sales volume coupled with various expense reductions implemented in the second and third quarters of fiscal 2020 in response to the COVID-19 pandemic.

PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

AUGUST 28, 2021

(Dollars in thousands except share and per share data)

For the three and six months ended June 1, 2019, wholesale sales were $63,131 and $135,912, respectively.

Compared to fiscal 2019, wholesale sales for the three and six months ended May 29, 2021 increased $12,903 or 20.4% and $10,386, or 7.6%, respectively, over the corresponding quarter and year-to-date periods of fiscal 2019.

Shipments to the BHF store network grew 4.8% for the second quarter of fiscal 2021 over the second quarter of fiscal 2019 while shipments for the first half of fiscal 2021 declined 1.5% from the first half of fiscal 2019.

Growth in shipments to the BHF store network of the Bassett Outdoor line of outdoor furniture, introduced in fiscal 2020, was offset by lower retail sales from the closure of six Company-owned stores since the end of the second quarter of 2019.

Shipments to the open market (independent dealers outside of the BHF store network) increased 52.1% and 36.2% for the three and six months ended May 29, 2021, respectively, over the comparable fiscal 2019 periods primarily due to increases from existing dealers along with an expansion of the dealer base.

Shipments of our Lane Venture line of outdoor furniture increased 39.5% and 41.8% for the three and six months ended May 29, 2021, respectively, over the comparable fiscal 2019 periods.

In addition, wholesale orders for the three and six months ended May 29, 2021, increased 51% and 36%, respectively, over the corresponding quarter and year-to-date periods of fiscal 2019.

Wholesale orders from independent dealers increased 126% and 93% for the three and six month periods driven by increases from existing dealers along with an expansion of the dealer base.

Also, orders from the Bassett Home Furnishings store network increased 7.8% and 2.0% over the quarter and year-to-date periods of 2019, respectively, in spite of having six fewer stores in the fleet during 2021.

For the three and nine months ended August 31, 2019, wholesale sales were $62,690 and $198,602, respectively.

Wholesale sales for the three and nine months ended August 28, 2021 increased $10,383 or 16.6% and $20,769, or 10.5%, respectively, over the corresponding quarter and year-to-date periods of fiscal 2019.

Shipments to the BHF store network declined 5.7% for the third quarter of fiscal 2021 as compared to the third quarter of fiscal 2019 while shipments for the first nine months of fiscal 2021 declined 4.9% from the first nine months of fiscal 2019.

Growth in shipments to the BHF store network of the Bassett Outdoor line of outdoor furniture, introduced in fiscal 2020, was offset by lower retail sales from the closure of seven Company-owned stores since the end of the second quarter of 2019.

Shipments to the open market (independent dealers outside of the BHF store network) increased 48% and 36% for the three and nine months ended August 28, 2021, respectively, over the comparable fiscal 2019 periods primarily due to increases from existing dealers along with an expansion of the dealer base.

Shipments of our Lane Venture line of outdoor furniture increased 34% for both the three and nine months ended August 28, 2021, respectively, over the comparable fiscal 2019 periods.

In addition, wholesale orders for the three and nine months ended August 28, 2021, increased 33% and 38%, respectively, over the corresponding quarter and year-to-date periods of fiscal 2019.

Wholesale orders from independent dealers increased 69% and 84% for the three and nine month periods driven by increases from existing dealers along with an expansion of the dealer base.

Also, orders from the Bassett Home Furnishings store network increased 13% and 11% over the quarter and year-to-date periods of 2019, respectively, in spite of having seven fewer stores in the fleet during 2021.

Lane Venture orders increased by 64% and 82%, respectively, for those same periods.

1 unchanged sentence

Company-owned Stores Segment

Results for the retail segment for the periods ended May 29, 2021 and May 30, 2020 are as follows:

Results for the retail segment for the periods ended August 28, 2021 and August 29, 2020 are as follows:

Quarter Ended

Six Months Ended

Nine Months Ended

August 28, 2021

August 29, 2020

August 28, 2021

August 29, 2020

Gross profit*

5 unchanged sentences

Quarter Ended

Six Months Ended

Nine Months Ended

August 28, 2021

August 29, 2020

August 28, 2021

August 29, 2020

Bassett Custom Upholstery

6 unchanged sentences

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

AUGUST 28, 2021

(Dollars in thousands except share and per share data)

Analysis of Results - Retail

Net sales for the three and six months ended May 29, 2021 increased $29,312 and $23,861, respectively, from the prior year periods due primarily to the major impact of the COVID-19 pandemic on our operations in fiscal 2020, which forced a nearly total shut-down of our retail operations from late March through early May of that year, followed by an exceptionally strong recovery in demand for home furnishings that has continued into the first half of fiscal 2021.

The increase in written sales (the value of sales orders taken but not delivered) resulting from this surge in demand has resulted in a retail backlog of $73,489 at May 29, 2021 as compared to $57,041 at November 28, 2020 and $28,949 at May 30, 2020.

Net sales for the three and nine months ended August 28, 2021 increased $10,432 and $34,293, respectively, from the prior year periods due primarily to the major impact of the COVID-19 pandemic on our operations in fiscal 2020, which forced a nearly total shut-down of our retail operations from late March through early May of that year, followed by an exceptionally strong recovery in demand for home furnishings that has continued into the first nine months of fiscal 2021.

The increase in written sales (the value of sales orders taken but not delivered) resulting from this surge in demand has resulted in a retail backlog of $80,977 at August 28, 2021 as compared to $57,041 at November 28, 2020 and $47,904 at August 29, 2020.

Gross margins for the three and six months ended May 29, 2021 increased by 420 and 240 basis points, respectively, primarily driven by lower levels of promotional activity coupled with improved margins on clearance activity.

SG&A expenses for the three and six months ended May 29, 2021 as a percentage of sales decreased significantly as compared to the comparable periods of 2020.

This was driven by workforce reductions, lower advertising spending, and overall cost containment activities.

In addition, over the course of fiscal 2020 we closed seven unprofitable store locations, six of which were closed subsequent to the first quarter of 2020.

Gross margins for the three and nine months ended August 28, 2021 increased by 290 and 250 basis points, respectively, primarily driven by lower levels of promotional activity coupled with improved margins on clearance activity.

SG&A expenses for the three and nine months ended August 28, 2021 as a percentage of sales decreased significantly as compared to the comparable periods of 2020.

This was driven by workforce reductions, overall cost containment activities and greater leverage on fixed costs from higher sales volumes.

In addition, over the course of fiscal 2020 we closed seven unprofitable store locations, three of which were closed subsequent to the second quarter of 2020.

Because of the significant adverse impact that the COVID-19 pandemic had on our operations during the second quarter of fiscal 2020, we believe that a better understanding of the retail revenue trend that has resulted from our product and marketing initiatives is obtained by comparing our current year revenues to the pre-pandemic levels of fiscal 2019.

For the three and six months ended June 1, 2019, retail sales were $62,568 and $132,197, respectively.

Compared to fiscal 2019, retail sales for the three and six months ended May 29, 2021, decreased $85 or 0.1% and $9,319, or 7.0%, respectively, over the corresponding quarter and year-to-date periods of fiscal 2019.

Sales increases from the introduction of the Bassett Outdoor product line were offset by sales decreases from six fewer stores in operation.

Written sales increased 13.8% and 8.1% for the three and six months ended May 29, 2021, respectively, over the corresponding periods of fiscal 2019 in spite of having six fewer stores in operation.

For the three and nine months ended August 31, 2019, retail sales were $66,539 and $198,736, respectively.

Compared to fiscal 2019, retail sales for the three and nine months ended August 28, 2021, decreased $7,963 or 12% and $17,282, or 8.7%, respectively, over the corresponding quarter and year-to-date periods of fiscal 2019.

Sales increases from the introduction of the Bassett Outdoor product line were offset by sales decreases from seven fewer stores in operation.

Written sales increased 2.6% and 6.7% for the three and nine months ended August 28, 2021, respectively, over the corresponding periods of fiscal 2019 in spite of having seven fewer stores in operation.

Logistical Services Segment

Results for our logistical services segment for the periods ended May 29, 2021 and May 30, 2020 are as follows:

Results for our logistical services segment for the periods ended August 28, 2021 and August 29, 2020 are as follows:

Quarter Ended

Six Months Ended

Nine Months Ended

August 28, 2021

August 29, 2020

August 28, 2021

August 29, 2020

Logistical services revenue

3 unchanged sentences

Logistical Services

Net revenues for the three and six months ended May 29, 2021 increased $6,985 and $5,751, respectively, from the prior year periods due primarily to the major impact of the COVID-19 pandemic on our operations in fiscal 2020, which forced a near total shut-down of furniture retail operations throughout the country from late March through early May of last year. 

Operating profit has also increased significantly over the prior year periods, as we were forced during the second quarter of 2020 to run some of our trucks at substantially lower than optimal load levels resulting in inefficiencies and provided freight services for customers outside of the furniture industry in order to maintain some level of revenue and retain our drivers.

These improvements have been partially offset in the current year by higher warehousing labor costs as Zenith has been challenged to find and maintain freight-handling personnel in the warehousing operation due to the previously discussed COVID-related labor shortages.

Other Items Affecting Net Income

Other Loss, Net

Other loss, net, for the three months ended May 29, 2021 was $332 compared to $765 for the three months ended May 30, 2020, a decrease of $433.

The net change was primarily due to lower net costs of Company-owned life insurance in the current year coupled with valuation charges associated with sublease rent receivables which had been incurred in the prior year as a result of the pandemic.

Other loss, net, for the six months ended May 29, 2021 was $669 compared to $1,127 for the six months ended May 30, 2020, a decrease of $458.

Net revenues for the three and nine months ended August 28, 2021 increased $3,352 and $9,103, respectively, from the prior year periods due primarily to the major impact of the COVID-19 pandemic on our operations in fiscal 2020, which forced a near total shut-down of furniture retail operations throughout the country from late March through early May of last year. 

Zenith incurred an operating loss of $486 for the third quarter of fiscal 2021 compared to an operating profit of $1,022 the prior year period primarily due to significantly higher warehousing labor costs as Zenith has been challenged to find and retain freight-handling personnel in the warehousing operation.

For the year to date, operating profit was $1,267 compared to only $15 for the prior year period, when we were forced during the second quarter of 2020 to run some of our trucks at substantially lower than optimal load levels resulting in inefficiencies and provided freight services for customers outside of the furniture industry in order to maintain some level of revenue and retain our drivers.

These improvements in the efficiency of our middle mile trucking operations in fiscal 2021 were partially offset by the rising cost of labor in our warehousing operations.

PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

AUGUST 28, 2021

(Dollars in thousands except share and per share data)

Other Items Affecting Net Income

Other Income (Loss), Net

Other loss, net, for the three months ended August 28, 2021 was $347 compared to other income, net, of $697 for the three months ended August 29, 2020, a net change of $1,044.

The net change was primarily due to a $914 gain recognized in the prior year period for a death benefit from Company-owned life insurance.

Other loss, net, for the nine months ended August 28, 2021 was $1,016 compared to $430 for the nine months ended August 29, 2020, a decrease of $586.

The net change was primarily due to a $914 gain recognized in the prior year period for a death benefit from Company-owned life insurance partially offset by valuation charges associated with sublease rent receivables which had been incurred in the prior year as a result of the pandemic.

We calculate an anticipated effective tax rate for the year based on our annual estimates of pretax income and use that effective tax rate to record our year-to-date income tax provision. 

Any change in annual projections of pretax income could have a significant impact on our effective tax rate for the respective quarter.

Our effective tax rates for the three and six months ended May 29, 2021 of 25.8% and 27.3%, respectively, differ from the federal statutory rate of 21% primarily due to the effects of state income taxes and various permanent differences, including tax benefits (deficiencies) of $18 and ($117) during the three and six months ended May 29, 2021, respectively, arising from stock-based compensation.

Our effective tax rates for the three and nine months ended August 28, 2021 of 27.2% and 27.3%, respectively, differ from the federal statutory rate of 21% primarily due to the effects of state income taxes and various permanent differences, including tax deficiencies of $117 during the nine months ended August 28, 2021, respectively, arising from stock-based compensation.

On March 27, 2020 the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law.

A major provision of the CARES Act allowed net operating losses from the 2018, 2019 and 2020 tax years to be carried back up to five years.

As a result, our effective tax rates for the three and six months ended May 30, 2020 were (36.4%) and (36.5%), respectively, which differ from the federal statutory rate of 21% primarily due to the effects of carrying back our net operating loss from fiscal 2020 to tax years in which the federal statutory rate was 35%, and to the effects of state income taxes and various permanent differences.

As a result, our effective tax rates for the three and nine months ended August 29, 2020 were 36.8% and (36.5%), respectively, which differ from the federal statutory rate of 21% primarily due to the effects of carrying back our net operating loss from fiscal 2020 to tax years in which the federal statutory rate was 35%, and to the effects of state income taxes and various permanent differences.

Liquidity and Capital Resources

Cash provided by operations for the first half of fiscal 2021 was $12,050 compared to $5,747 used in operations for the first half of fiscal 2020, representing an increase in cash provided by operations of $17,797.

This increase in operating cash flow is primarily due to the significant increase in operating income as compared to the second quarter of fiscal 2020 when nearly all operations were temporarily suspended due to the pandemic, along with a substantial current year increase in customer deposits taken against unfilled orders.

These improvements were partially offset by other changes in working capital led by increased investment in inventory as we work to fulfill our order backlog.

Our overall cash position decreased by $23 during the first half of fiscal 2021, compared to an overall decrease of $8,252 during the first half of fiscal 2020, an improvement of $8,229 over the prior year period.

Partially offsetting the improvement in cash flows from operations, net cash used in investing activities during the first half of 2021 increased $3,824 to a net use of $3,722 compared to net cash provided by investing activities of $102 for the prior year period.

This increase was primarily due to proceeds from the sale of our closed Gulfport store location included in the first half of 2020 along with increased capital expenditures in the current year.

Net cash used in financing activities during the first half of 2021 increased $5,744 to a net use of $8,351 as compared to a net use of $2,607 for the prior year period, primarily due to a special dividend of $2,479 declared and paid during the first half of 2021, along with share repurchases of $2,925 during the first half of fiscal 2021 as compared to $1,241 repurchased during the first half of fiscal 2020.

As of May 29, 2021, $5,506 remains authorized under our existing share repurchase plan.

With cash and cash equivalents and short-term investments totaling $63,491 on hand at May 29, 2021, expected future operating cash flows and the availability under our credit line noted below, we believe we have sufficient liquidity to fund operations for the foreseeable future.

Cash provided by operations for the first nine months of fiscal 2021 was $13,676 compared to $17,483 for the first nine months of fiscal 2020, representing a decrease of $3,807.

This decrease in operating cash flow is primarily due to significantly increased investment in inventory as we work to fulfill our order backlog and cope with ongoing supply chain disruptions, partially offset by increased customer deposits associated with the increase in retail backlogs.

Our overall cash position decreased by $7,188 during the first nine months of fiscal 2021, compared to an overall increase of $11,342 during the first nine months of fiscal 2020, a decline of $18,530 from the prior year period.

In addition to the decline in cash flows from operations, net cash used in investing activities during the first nine months of 2021 increased $7,012 to a net use of $8,213 compared to net cash used in investing activities of $1,201 for the prior year period.

This increase was primarily due to increased capital expenditures in the current year while the prior year period also included proceeds from the sale of our closed Gulfport store location.

Net cash used in financing activities during the first nine months of 2021 increased $7,711 to a net use of $12,651 as compared to a net use of $4,940 for the prior year period, primarily due to increased share repurchases of $5,566 during the first nine months of fiscal 2021 as compared to $1,542 repurchased during the first nine months of fiscal 2020 along with a special dividend of $2,479 declared and paid during the first nine months of 2021.

As of August 28, 2021, $19,348 remains authorized under our existing share repurchase plan.

With cash and cash equivalents and short-term investments totaling $56,326 on hand at August 28, 2021, expected future operating cash flows and the availability under our credit line noted below, we believe we have sufficient liquidity to fund operations for the foreseeable future.

PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

AUGUST 28, 2021

(Dollars in thousands except share and per share data)

Debt and Other Obligations

Our bank credit facility provides for a line of credit of up to $25,000.

At May 29, 2021, we had $3,181 outstanding under standby letters of credit against our line, leaving availability under our credit line of $21,819.

At August 28, 2021, we had $3,931 outstanding under standby letters of credit against our line, leaving availability under our credit line of $21,069.

In addition, we have outstanding standby letters of credit with another bank totaling $325.

The line bears interest at the rate of LIBOR plus 1.9%, with a fee of 0.25% charged for the unused portion of the line and is secured by a general lien on our accounts receivable and inventory.

We were in compliance with all covenants under the agreement as of May 29, 2021 and expect to remain in compliance through the end of fiscal 2021.

We were in compliance with all covenants under the agreement as of August 28, 2021 and expect to remain in compliance through the end of fiscal 2021.

The credit facility matures on January 31, 2022.

PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

(Dollars in thousands except share and per share data)

We lease land and buildings that are used in the operation of our Company-owned retail stores as well as in the operation of certain of our licensee-owned stores, and we lease land and buildings at various locations throughout the continental United States for warehousing and distribution hubs used in our logistical services segment.

We also lease tractors, trailers and local delivery trucks used in our logistical services and retail segments.

The present value of our obligations for leases with terms in excess of one year at May 29, 2021 is $143,910 and is included in our accompanying condensed consolidated balance sheet at May 29, 2021.

We were contingently liable under licensee lease obligation guarantees in the amount of $2,073 at May 29, 2021.

The present value of our obligations for leases with terms in excess of one year at August 28, 2021 is $139,056 and is included in our accompanying condensed consolidated balance sheet at August 28, 2021.

We were contingently liable under licensee lease obligation guarantees in the amount of $1,959 at August 28, 2021.

Remaining terms under these lease guarantees range from approximately one to three years.

2 unchanged sentences

We have a substantial investment in real estate acquired for use as retail locations and occupied by Company-owned retail stores.

Such real estate is included in property and equipment, net, in the accompanying condensed consolidated balance sheets and consists of eight properties with an aggregate square footage of 201,096 and a net book value of $17,199 at May 29, 2021.

Critical Accounting Policies and Estimates

7 unchanged sentences

Although the final outcome of these matters cannot be determined, based on the facts presently known, it is our opinion that the final resolution of these matters will not have a material adverse effect on our financial position or future results of operations.

See Note 11 to our condensed consolidated financial statements for further information regarding certain contingencies as of May 29, 2021.

See Note 11 to our condensed consolidated financial statements for further information regarding certain contingencies as of August 28, 2021.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis