What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-06-30 compared with 2022-03-31 · 156 added, 97 removed, 193 unchanged (57% 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 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

fluctuations in the cost and availability of raw materials, fuel, labor, delivery costs and sourced products, including those which may result from general price inflation, supply chain disruptions and the imposition of new or increased duties, tariffs, retaliatory tariffs and trade limitations with respect to foreign-sourced products

competitive conditions in the home furnishings industry

3 unchanged sentences

ability to implement our Company-owned retail strategies and realize the benefits from such strategies, including our initiatives to expand and improve our digital marketing capabilities, as they are implemented

fluctuations in the cost and availability of raw materials, fuel, labor, delivery costs and sourced products, including those which may result from supply chain disruptions and the imposition of new or increased duties, tariffs, retaliatory tariffs and trade limitations with respect to foreign-sourced products

results of marketing and advertising campaigns

4 unchanged sentences

concentration of domestic manufacturing, particularly of upholstery products, and the resulting exposure to business interruption from accidents, weather and other events and circumstances beyond our control

the impact of the COVID-19 pandemic and resulting supply chain disruptions 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 pandemic upon general economic conditions, including consumer spending and the strength of the housing market in the United States

Additionally, other risks that could cause actual results to differ materially from those contemplated by such forward-looking statements are set forth in Part I, Item 1A.

4 unchanged sentences

In light of these risks and uncertainties, you should keep in mind that the events described in any forward-looking statement made in this report or elsewhere, might not occur.

Page 23 of 37

PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

FEBRUARY 26, 2022

(Dollars in thousands except share and per share data)

4 unchanged sentences

Our rich 120-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 96 BHF stores at February 26, 2022, 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 96 BHF stores at May 28, 2022, 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 and casual 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. 

8 unchanged sentences

Until a rigorous training and design certification program is completed, Design Consultants are not authorized to perform in-home or virtual design services for our customers.

In the quarter ended May 28, 2022, we opened our first regional fulfillment center in Orlando, Florida where we are stocking our best sellers for much quicker delivery.

This will add an element of immediacy to our proven platform of made to order custom furniture that has driven our strategy for the past two decades. 

We plan to roll this out nationwide over the near term with the next center to be opened in New Jersey in the early fall.

In 2018, we added outdoor furniture to our offerings with the acquisition of the Lane Venture brand.

3 unchanged sentences

We have factories in Newton, North Carolina that manufacture both stationary and motion upholstered furniture for inside the home along with our outdoor furniture offerings.

We also have factories in Martinsville and Bassett, Virginia that assemble and finish our custom dining offerings.

We also have factories in Martinsville and Bassett, Virginia that assemble and finish our custom bedroom and dining offerings.

We currently lease a facility in Haleyville, Alabama where we manufacture aluminum frames for our outdoor furniture.

5 unchanged sentences

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

While our Bench Made line of Custom Upholstery and Custom Dining products continue to be our most successful offerings, most of these items must be purchased in a store as they are not conducive to web transactions due to the number of options available.

While our Bench Made line of custom upholstery and custom bedroom and dining products continue to be our most successful offerings, most of these items must be purchased in a store as they are not conducive to web transactions due to the number of options available.

Consequently, we will continue to methodically re-design each one of these important lines to best serve our customers online, in the store or wherever our customer might be.

1 unchanged sentence

While we work to make it easier to purchase either in store or on-line, we will not compromise our in-store experience or the quality of our in-home makeover capabilities.

Page 24 of 37

PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

FEBRUARY 26, 2022

(Dollars in thousands except share and per share data)

We are engaged in a multi-year cross-functional digital transformation initiative which has begun by examining, enhancing and standardizing our product development and data management and governance processes.

This will result in more consistent underlying data that our merchandising and sales teams can use in analyzing various product and sales trends for making better informed decisions.

It will also provide a uniform view of product data that can be leveraged by our website, retail locations and wholesale partners.

We expect to complete this initial phase in mid-2022 at which time we will begin the process of implementing a new eCommerce platform that we plan to introduce in 2023. 

The new web platform will leverage world class features including enhanced customer research capabilities and streamlined navigation. 

We are engaged in a multi-year cross-functional digital transformation initiative with the first phase consisting of the examination and improvement of our underlying data management processes.

During the second quarter of 2022, we implemented a comprehensive Product Information Management system which will allow us to enhance and standardize our product development and data management and governance processes during the second half of 2022.

This will result in more consistent data that our merchandizing and sales teams can use in analyzing various product and sales trends in order to make better informed decisions.

We are also in the process of implementing a new eCommerce platform that we plan to introduce in 2023. 

The new web platform will leverage world class features including enhanced customer research capabilities and streamlined navigation that we believe will result in increased web traffic and sales. 

We expect to spend between $3,000 and $4,000 this fiscal year on these efforts.

During the first quarter of fiscal 2022 we closed one retail store in Ontario, California upon the expiration of the lease for that location.

Company-owned Retail Stores

As we continually monitor the performance of our Company-owned retail store locations, we may occasionally determine that it is necessary to close underperforming stores in certain markets.

During the first quarter of fiscal 2022 we closed one retail store in Ontario, California, and we plan to close our store in Wichita, Kansas, during the third quarter of fiscal 2022.

We also plan to close our store in Farmingdale, New York, in the first quarter of fiscal 2023 and consolidate its operations with our existing store in nearby Westbury, New York.

All of the above-mentioned closures are occurring at or near the lease expirations.

During the second quarter of 2022, we acquired a 25,000 square foot store property in Tampa, Florida for $7,668.

We are currently in the process of developing plans for store buildout and upfit with a planned opening date in the second quarter of 2023.

We also may occasionally identify opportunities to enhance our presence in existing markets by relocating existing stores to better locations within the same market.

Subsequent to the end of the second quarter of fiscal 2022 we sold the store property of one of our Houston, Texas locations for $8,200, net of closing costs, which will result in a gain of approximately $4,600 in the third quarter of 2022.

For tax purposes, the sale of the Houston store and the purchase of the Tampa store will be treated as a 1031 exchange where the majority of the gain will not be taxed.

We are currently running a store closure sale that will end later in the third quarter at which time the store will officially close.

We expect to open a new leased store in a more upscale shopping area in the vicinity of the closed store in the second quarter of 2023.

During the fourth quarter of fiscal 2022 at the end of the lease term, we expect to close our Dallas, Texas store located at the intersection of McKinney and Knox streets.

We plan to open a replacement store in the nearby iconic Inwood Village shopping center during the fourth quarter of 2022.

We currently have 62 Corporate-owned stores operating and expect to end fiscal 2022 with 58 stores.

Sale of the Assets of Zenith Freight Lines, LLC

2 unchanged sentences

(“J.B.

Hunt”) for approximately $86,900 in cash.

On February 28, 2022 the transaction was completed with us receiving approximately $85,500 after the payment of $400 in certain transaction costs and the funding of $1,000 held in escrow.

The final purchase price is subject to a customary post-closing working capital adjustment.

In the second quarter of 2022, we will recognize a substantial gain on this transaction.

As a result, the operations of our logistical services segment, which consists entirely of the operations of Zenith, are presented in the accompanying condensed consolidated statements of income and in the following discussion as discontinued operations.

Impact of the COVID-19 Pandemic Upon Our Financial Condition and Results of Operations

On March 11, 2020, the World Health Organization declared the coronavirus (“COVID-19”) outbreak to be a global pandemic.

The significant adverse economic impact of the pandemic upon our results of operations was limited to fiscal 2020, however we continue to experience the logistical challenges faced by the entire home furnishings industry resulting from COVID-related labor shortages and supply chain disruptions creating significant delays in order fulfillment and increasing 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 first half of fiscal 2022 as we cycle through the backlog.

Hunt”) for $86,939 in cash.

On February 28, 2022 the transaction was completed with us receiving $85,521 after the payment of $418 in certain transaction costs and the funding of $1,000 held in escrow.

The final purchase price is subject to a customary post-closing working capital adjustment, for which we have accrued an estimate of $1,003 due back to J.B.

In the second quarter of 2022, we recognized a pre-tax gain of $53,254 on this transaction.

As a result of the sale, the operations of our former logistical services segment, which consisted entirely of the operations of Zenith, are presented in the accompanying condensed consolidated statements of income and in the following discussion as discontinued operations.

Page 25 of 37

PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

FEBRUARY 26, 2022

(Dollars in thousands except share and per share data)

Results of Continuing Operations –

Periods ended February 26, 2022 compared with the periods ended February 27, 2021:

Consolidated results of continuing operations for the three months ended February 26, 2022 and February 27, 2021 are as follows:

Periods ended May 28, 2022 compared with the periods ended May 29, 2021:

Consolidated results of continuing operations for the three and six months ended May 28, 2022 and May 29, 2021 are as follows:

Quarter Ended

February 26, 2022

February 27, 2021

Six Months Ended

Net sales of furniture and accessories

2 unchanged sentences

Income from operations

Total sales revenue for the three months ended February 26, 2022 increased $16,209 from the prior year periods primarily due to a 28% increase in wholesale shipments to the open market, along with a 6.1% increase in retail sales.

Gross margins for the three months ended February 26, 2022 decreased 380 basis points from 2021 primarily due to rising raw material and inbound freight costs, including the impact of rising fuel prices.

Analysis of Quarterly Results:

Total sales revenue for the three ended May 28, 2022 increased $18,709 from the prior year period primarily due to a 10% increase in wholesale shipments to the open market, along with a 21% increase in retail sales.

Gross margins for the three months ended May 28, 2022 decreased 70 basis points from 2021 primarily due to rising raw material and inbound freight costs, including the impact of rising fuel prices, partially offset by greater fixed cost leverage from increased sales.

While these rising costs have been somewhat mitigated by price increases implemented since the first quarter of 2021, the increase in order backlogs and order fulfillment times limited our ability to match revised pricing to manufacturing costs.

Another wholesale price increase will be implemented during the second quarter of fiscal 2022, and we will continue to monitor our costs to determine if additional price increases are warranted.

Another wholesale price increase was implemented during the second quarter of fiscal 2022, and we will continue to monitor our costs to determine if additional price increases are warranted.

Selling, general and administrative (“SG&A”) expenses as a percentage of sales for the three months ended May 28, 2022 decreased 280 basis points from 2021 primarily due to improved leverage of fixed costs due to higher sales levels.

Analysis of Year-to-Date Results:

Total sales revenue for the six months ended May 28, 2022 increased $34,918 from the prior year period primarily due to an 18% increase in wholesale shipments to the open market, along with a 14% increase in retail sales.

Gross margins for the six months ended May 28, 2022 decreased 220 basis points from 2021 primarily due to rising raw material and inbound freight costs, including the impact of rising fuel prices, partially offset by greater fixed cost leverage from increased sales.

Another wholesale price increase was implemented during the second quarter of fiscal 2022, and we will continue to monitor our costs to determine if additional price increases are warranted.

SG&A expenses as a percentage of sales for the six months ended May 28, 2022 decreased 330 basis points from 2021 primarily due to improved leverage of fixed costs through higher sales levels.

Page 26 of 37

PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

(Dollars in thousands except share and per share data)

Segment Information

9 unchanged sentences

Our former logistical services segment which represented the operations of Zenith is now presented as discontinued operations.

Page 27 of 37

PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

FEBRUARY 26, 2022

(Dollars in thousands except share and per share data)

3 unchanged sentences

The reconciliation of this non-GAAP financial measure to the most directly comparable financial measure calculated and presented in accordance with GAAP is presented below along with the effects of various other intercompany eliminations on our consolidated results of operations.

Quarter Ended February 26, 2022

Quarter Ended May 28, 2022

Non-GAAP Presentation

3 unchanged sentences

Income from operations

Quarter Ended February 27, 2021

Quarter Ended May 29, 2021

Non-GAAP Presentation

3 unchanged sentences

Income from operations

Six Months Ended May 28, 2022

Non-GAAP Presentation

GAAP Presentation

Net sales of furniture and accessories

Cost of furniture and accessories sold

Income from operations

Six Months Ended May 29, 2021

Non-GAAP Presentation

GAAP Presentation

Net sales of furniture and accessories

Cost of furniture and accessories sold

Income from operations

Page 28 of 37

PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

(Dollars in thousands except share and per share data)

Notes to segment consolidation table:

2 unchanged sentences

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

PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

FEBRUARY 26, 2022

(Dollars in thousands except share and per share data)

Wholesale Segment

Results for the wholesale segment for the periods ended February 26, 2022 and February 27, 2021 are as follows:

Results for the wholesale segment for the periods ended May 28, 2022 and May 29, 2021 are as follows:

Quarter Ended

February 26, 2022

February 27, 2021

Six Months Ended

Gross profit (1)

5 unchanged sentences

Quarter Ended

February 26, 2022

February 27, 2021

Bassett Custom Upholstery

2 unchanged sentences

Bassett Casegoods

Analysis of Results - Wholesale

Net sales for the three months ended February 26, 2022 increased $13,221 from the prior year period due primarily to a 28% increase in shipments to the open market along with a 6.9% increase in shipments to the BHF store network.

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

During the first quarter of fiscal 2022, we made progress in decreasing these backlogs and expect them to continue decreasing as our ability to manufacture and ship product has improved.

At February 26, 2022, wholesale backlog totaled $78,135 as compared to $90,057 at November 27, 2021, $67,469 at February 27, 2021 and $14,617 at February 29, 2020.

Gross margins for the three months ended February 26, 2022 declined 420 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.

Six Months Ended

Bassett Custom Upholstery

Bassett Leather

Bassett Custom Wood

Bassett Casegoods

Analysis of Quarterly Results –

Net sales for the three months ended May 28, 2022 increased $11,467 from the prior year period due primarily to a 10% increase in shipments to the open market along with an 17% increase in shipments to the BHF store network.

Gross margins for the three months ended May 28, 2022 declined 300 basis points compared to the prior year period as we have experienced significant increases in material and other production costs, partially offset by greater leverage of fixed costs due to higher sales volumes.

SG&A expenses as a percentage of sales were flat due primarily to increased marketing and incentive and other compensation costs largely offset by greater leverage of fixed costs from increased sales volumes.

Page 29 of 37

PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

FEBRUARY 26, 2022

(Dollars in thousands except share and per share data)

Analysis of Year-to-Date Results - Wholesale

Net sales for the six months ended May 28, 2022 increased $24,688 from the prior year period due primarily to an 18% increase in shipments to the open market along with an 11% increase in shipments to the BHF store network.

Gross margins for the six months ended May 28, 2022 declined 350 basis points compared to the prior year period as we have experienced significant increases in material and other production costs, partially offset by greater leverage of fixed costs due to higher sales volumes.

SG&A expenses as a percentage of sales decreased due primarily to greater leverage of fixed costs from increased sales volumes partially offset by increased marketing and incentive and other compensation costs.

Wholesale Backlog

Since the beginning of the COVID pandemic in early 2020, Bassett and most of the home furnishings industry have been faced with continuing logistical challenges from COVID-related labor shortages and supply chain disruptions creating significant delays in order fulfillment and increasing backlogs.

During the second quarter of fiscal 2022, we continued to make progress in decreasing these backlogs and expect them to continue decreasing as our ability to manufacture and ship product has improved coupled with a slower rate of new orders.

At May 28, 2022, the wholesale backlog totaled $60,134 as compared to $78,135 at February 26, 2022, $90,057 at November 27, 2021, and 86,693 at May 29, 2021.

At February 29, 2020, the end of our last fiscal quarter prior to the impact of the COVID pandemic upon our operations and the overall economy, our wholesale backlog was $14,617.

Retail –

Company-owned Stores Segment

Results for the retail segment for the periods ended February 26, 2022 and February 27, 2021 are as follows:

Results for the retail segment for the periods ended May 28, 2022 and May 29, 2021 are as follows:

Quarter Ended

February 26, 2022

February 27, 2021

Six Months Ended

Gross profit (1)

5 unchanged sentences

Quarter Ended

February 26, 2022

February 27, 2021

Six Months Ended

Bassett Custom Upholstery

4 unchanged sentences

Includes the sale of goods other than Bassett-branded products, such as accessories and bedding, and also includes the sale of furniture protection plans.

Analysis of Results - Retail

Net sales for the three months ended February 26, 2022 increased $3,712 from the prior year period.

Written sales (the value of sales orders taken but not delivered) declined 2.4% from the first quarter of 2021.

Retail backlog at February 26, 2022 was $84,685 as compared to $82,894 at November 27, 2021, 64,806 at February 27, 2021 and $29,775 at February 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 months ended February 26, 2022 increased by 180 basis points, primarily driven by improved pricing strategies, lower levels of promotional activity and increased margins on clearance activity.

Selling, general and administrative expenses for the three months ended February 26, 2022 as a percentage of sales decreased as compared to the first quarter of 2021 primarily due to greater leverage on fixed costs from higher sales volumes.

Page 30 of 37

PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

FEBRUARY 26, 2022

(Dollars in thousands except share and per share data)

Quarterly Analysis of Results - Retail

Net sales for the three months ended May 28, 2022 increased $13,137 from the prior year period.

Written sales (the value of sales orders taken but not delivered) declined 13% from the second quarter of 2021.

Gross margins for the three months ended May 28, 2022 increased by 160 basis points, primarily driven by improved pricing strategies, lower levels of promotional activity and increased margins on clearance activity.

Selling, general and administrative expenses for the three months ended May 28, 2022 as a percentage of sales decreased as compared to the second quarter of 2021 primarily due to greater leverage on fixed costs from higher sales volumes coupled with lower overall advertising spend.

Year-to-Date Analysis of Results - Retail

Net sales for the six months ended May 28, 2022 increased $16,849 from the prior year period.

Written sales (the value of sales orders taken but not delivered) declined 7.9% from the first half of 2021.

Gross margins for the six months ended May 28, 2022 increased by 170 basis points, primarily driven by improved pricing strategies, lower levels of promotional activity and increased margins on clearance activity.

Selling, general and administrative expenses for the six months ended May 28, 2022 as a percentage of sales decreased as compared to the first half of 2021 primarily due to greater leverage on fixed costs from higher sales volumes coupled with lower overall advertising spend.

Retail Backlog

As previously discussed, since the beginning of the COVID pandemic in early 2020, Bassett and most of the home furnishings industry have been faced with continuing logistical challenges from COVID-related labor shortages and supply chain disruptions creating significant delays in order fulfillment and increasing backlogs.

During the second quarter of fiscal 2022, we began to make progress in decreasing our retail backlog and expect it to continue decreasing as our ability to manufacture and ship product from our wholesale segment has improved coupled with slower written sales at retail.

At May 28, 2022, retail backlog totaled $71,073 as compared to $84,685 at February 26, 2022, $82,894 at November 27, 2021, and $73,489 at May 29, 2021.

At February 29, 2020, the end of our last fiscal quarter prior to the impact of the COVID pandemic upon our operations and the overall economy, our retail backlog was $29,775.

Discontinued Operations –

1 unchanged sentence

Results for the operations of Zenith, which was sold to J.B.

Hunt subsequent to the end of the first quarter, for the periods ended February 26, 2022 and February 27, 2021 are as follows:

Hunt subsequent to the end of the first quarter, for the periods ended May 28, 2022 and May 29, 2021 are as follows:

Quarter Ended

February 26, 2022

February 27, 2021

Six Months Ended

Logistical services revenue

3 unchanged sentences

The amounts shown above represent the results of Zenith’s business transactions with third parties.

The increase in income from discontinued operations for the three months ended February 26, 2022 as compared to the prior year period is primarily due to freight and warehousing rate increases which Zenith primarily implemented during the fourth quarter of fiscal 2021.

During the three months ended February 26, 2022 and February 27, 2021, Zenith also charged Bassett $9,121 and $8,063, respectively, for logistical services provided to our wholesale segment.

Because the sale of Zenith was closed on the first business day of the second fiscal quarter of 2022, operating results for that period are insignificant.

Zenith also charged Bassett $9,121 for logistical services provided to our wholesale segment during the six months ended May 28, 2022, and $8,182 and $16,245 for the three and six months ended May 29, 2021.

These shipping and handling costs are included in selling, general and administrative expenses in the accompanying condensed consolidated statements of income.

1 unchanged sentence

Hunt for the continuation of these services for a period of seven years following the sale of Zenith.

Subsequent to the sale, we incurred $9,543 of expense during the three months ended May 28, 2022 for the performance of logistical services by J.B.

Page 31 of 37

PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

(Dollars in thousands except share and per share data)

Other Items Affecting Net Income

Other Loss, Net

Other loss, net, for the three months ended February 26, 2022 was $629 compared to $299 for the three months ended February 27, 2021, a net increase of $330.

Other loss, net, for the three and six months ended May 28, 2022 was $627 and $1,256, respectively, compared to $259 and $560 for the three and six months ended May 29, 2021, a net increase of $368 over the prior year quarter and $696 over the prior year to date.

The net change was primarily due to higher net costs of Company-owned life insurance.

1 unchanged sentence

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 months ended February 26, 2022 and February 27, 2021 of 26.3% and 29.4%, respectively, differ from the federal statutory rate of 21% primarily due to the effects of state income taxes and various permanent differences, including charges of $135 during the three months ended February 27, 2021 related to the vesting of stock awards.

Our effective tax rate was 26.0% for both the three and six months ended May 28, 2022, and 25.8% and 27.3% for the three and six months ended May 29, 2021, respectively.

These effective rates differ from the federal statutory rate of 21% primarily due to the effects of state income taxes and various permanent differences, including tax of $550 for the three and six months ended May 28, 2022 associated with non-deductible goodwill written off in connection with our sale of Zenith, and tax benefits (deficiencies) of $18 and ($117) during the three and six months ended May 29, 2021 arising from stock-based compensation.

Liquidity and Capital Resources

Cash provided by operations for the first three months of fiscal 2022 was $2,866 compared to $4,984 for the first three months of fiscal 2021, representing a decrease of $2,118. Cash provided by the operating activities of our discontinued operations was $1,681 for the first three months of fiscal 2022 compared to $2,841 for the prior year period, a decline of $1,160. 

Excluding the decline in operating cash flow from discontinued operations, cash provided by continuing operations declined $958 from the prior year period.

This decrease in operating cash flow is primarily due to changes in working capital as we settled accounts payable in the first quarter of 2022 arising from increases in inventory during fiscal 2021 as well as increases in accounts receivable arising from strong sales in our wholesale segment.

Our overall cash position decreased by $2,494 during the first three months of fiscal 2022, compared to a decline of $766 during the first three months of fiscal 2021, a decline of $1,728 from the prior year period.

Excluding the decline in cash flow from discontinued operations, overall cash flow from continuing operations declined $409 from the prior year period.

In addition to the decline in cash flows from operations, net cash used in investing activities during the first three months of 2022 increased $1,691 to a net use of $2,880 compared to net cash used in investing activities of $1,189 for the prior year period.

This increase was primarily due to increased capital expenditures in the current year.

Net cash used in financing activities during the first three months of 2022 decreased $2,081 to a net use of $2,480 as compared to a net use of $4,561 for the prior year period, primarily due to a special dividend of $2,479 declared and paid during the first quarter of 2021 partially offset by increased share repurchases of $765 during the first three months of fiscal 2022 as compared to $534 repurchased during the quarter of fiscal 2021.

On March 9, 2022 our Board of Directors increased the amount authorized under our existing share repurchase plan to $40,000.

With cash and cash equivalents and short-term investments totaling $49,595 on hand at February 26, 2022, expected future operating cash flows, pre-tax cash proceeds of approximately $85,500 subsequently received from the sale of Zenith before a special dividend of $1.50 per share, and the availability under our credit line noted below, we believe we have sufficient liquidity to fund operations for the foreseeable future.

Cash used in operations for the first half of fiscal 2022 was $8,946 compared to cash provided by operations of $12,050 for the first half of fiscal 2021, representing a decrease of $20,996 in cash flows from operations.

Cash provided by the operating activities of our discontinued operations was $1,681 for the first half of fiscal 2022 compared to $3,646 for the prior year period, a decline of $1,965 as Zenith only operated during the first quarter of fiscal 2022.

Excluding the decline in operating cash flow from discontinued operations, cash flows from continuing operations declined $19,031 from the prior year period.

Cash flows from operating activities during the first half of fiscal 2022 included the payment of $14,663 in estimated taxes compared with only $626 for the prior year period, the increase primarily related to the taxable gain on the sale of Zenith.

In addition, cash flows from the collection of retail customer deposits declined $13,250 compared to the first half of 2021 as the pace of written orders has slowed compared to the prior year and we have begun to reduce our retail order backlog.

Changes in working capital for the first half of fiscal 2022 include increases in our investment in inventory as compared to the prior year period as well as increases in accounts receivable arising from strong sales in our wholesale segment.

Our overall cash position increased by $37,236 during the first half of fiscal 2022, compared to a decline of $23 during the first half of fiscal 2021, an increase of $37,259 from the prior year period.

Excluding the decline in overall cash flow from discontinued operations of $812, overall cash flow from continuing operations increased $38,048 from the prior year period.

Offsetting the decline in cash flows from operations, net cash flows from investing activities during the first half of fiscal 2022 increased $78,076 to $72,354 of cash provided by investing activities compared to net cash used in investing activities of $3,722 for the prior year period.

This increase was primarily due to net proceeds of $85,521 received from the sale of Zenith, partially offset by a $9,155 increase in capital expenditures over the prior year, including our purchase of our new retail store site in Tampa, Florida.

Net cash used in financing activities during the first half of 2022 increased $17,821 to a net use of $26,172 as compared to a net use of $8,351 for the prior year period, primarily due to a special dividend of $14,494 declared and paid during the second quarter of 2022 and a $5,717 increase in share repurchases to $8,642 during the first half of fiscal 2022 as compared to $2,925 repurchased during the first half of fiscal 2021.

On March 9, 2022, our Board of Directors increased the amount authorized under our existing share repurchase plan to $40,000, of which $32,448 remains available for future purchases as of May 28, 2022.

With cash and cash equivalents and short-term investments totaling $89,325 on hand at May 28, 2022, 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.

Page 32 of 37

PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

FEBRUARY 26, 2022

(Dollars in thousands except share and per share data)

1 unchanged sentence

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

At February 26, 2022, 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 had outstanding standby letters of credit with another bank totaling $325.

At May 28, 2022, 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 had outstanding standby letters of credit with another bank totaling $325 at May 28, 2022.

The line bears interest at the One-Month Term Secured Overnight Financing Rate (“One-Month Term SOFR”) plus 1.5% and is unsecured.

Our bank will charge a fee of 0.25% on the daily unused balance of the line, payable quarterly.

Our bank charges a fee of 0.25% on the daily unused balance of the line, payable quarterly.

Under the terms of the facility, we must maintain the following financial covenants, measured quarterly on a rolling twelve-month basis:

2 unchanged sentences

Minimum tangible net worth of $140,000.

We were in compliance with these covenants at February 26, 2022 and expect to remain in compliance for the foreseeable future.

We were in compliance with these covenants at May 28, 2022 and expect to remain in compliance for the foreseeable future.

The credit facility will mature on January 27, 2025, at which time any amounts outstanding under the facility will be due.

1 unchanged sentence

We also lease local delivery trucks used in our retail segment.

The present value of our obligations for leases with terms in excess of one year at February 26, 2022 is $115,861 and is included in our accompanying condensed consolidated balance sheet at February 26, 2022.

Lease obligations associated with discontinued obligations totaled $22,834 at February 26, 2022.

These leases were subsequently transferred to J.B.

Hunt in connection with the sale of Zenith.

We were contingently liable under licensee lease obligation guarantees in the amount of $1,854 at February 26, 2022.

The present value of our obligations for leases with terms in excess of one year at May 28, 2022 is $110,002 and is included in our accompanying condensed consolidated balance sheet at May 28, 2022.

We were contingently liable under licensee lease obligation guarantees in the amount of $1,863 at May 28, 2022.

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

1 unchanged sentence

Investment in Retail Real Estate

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 $16,812 at February 26, 2022.

We have a substantial investment in real estate acquired for use as retail locations and occupied by Company-owned retail stores, including a site in Tampa, Florida recently purchased for $7,668 which is expected to open for business during the second quarter of fiscal 2023.

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 203,465 and a net book value of $21,236 at May 28, 2022.

During the second quarter of fiscal 2022, we entered into a contract to sell one of our Company-owned store locations in Houston, Texas for approximately $8,200 net of closing costs.

Accordingly, the $3,146 carrying value of the real property at that location is classified as retail real estate held for sale in the accompanying condensed consolidated balance sheet as of May 28, 2022.

The sale closed on June 24, 2022, and we expect to vacate the premises by the end of the third quarter of fiscal 2022.

This sale, together with our recent purchase of real property in Tampa, Florida, will be treated as an exchange of like-kind property under Section 1031 of the Internal Revenue Code of 1986, as amended, for the purpose of deferring the taxable gain of approximately $4,800 arising from the sale of the Houston property.

Critical Accounting Policies and Estimates

4 unchanged sentences

See Note 10 to our condensed consolidated financial statements for further discussion of lease guarantees, including descriptions of the terms of such commitments and methods used to mitigate risks associated with these arrangements.

PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

FEBRUARY 26, 2022

(Dollars in thousands except share and per share data)

Contingencies

1 unchanged sentence

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 9 to our condensed consolidated financial statements for further information regarding certain contingencies as of February 26, 2022.

See Note 9 to our condensed consolidated financial statements for further information regarding certain contingencies as of May 28, 2022.

Page 33 of 37

PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

(Dollars in thousands except share and per share data)

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