What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-09-29 compared with 2022-06-30 · 145 added, 89 removed, 260 unchanged (47% of the section changed)

36 unchanged sentences

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

AUGUST 27, 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 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. 

With 95 BHF stores at August 27, 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.

During the second quarter of fiscal 2022, we opened our first regional fulfillment center in Orlando, Florida where we are stocking our best sellers for much quicker delivery.

This adds 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 and our next center recently opened near Baltimore, Maryland subsequent to the third quarter of fiscal 2022.

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

4 unchanged sentences

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.

Late in the third quarter of fiscal 2022, we purchased a facility which we had formerly leased in Haleyville, Alabama where we manufacture aluminum frames for our outdoor furniture.

With the purchase, we also obtained two additional buildings which will allow us to expand our footprint at that facility.

Our manufacturing team takes great pride in the breadth of its options, the precision of its craftsmanship, and the speed of its manufacturing process.

11 unchanged sentences

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

AUGUST 27, 2022

(Dollars in thousands except share and per share data)

7 unchanged sentences

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

During the fourth quarter of fiscal 2022 we closed our store in Farmingdale, New York and consolidated its operations with our existing store in nearby Westbury, New York.

All of the above-mentioned closures occurred 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.

1 unchanged sentence

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.

During the third quarter of fiscal 2022 we sold the store property of one of our Houston, Texas locations for $8,217, net of closing costs, which resulted in a gain of $4,595.

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 tax on the gain will be deferred.

The store closure sale was completed early in the fourth quarter of fiscal 2022 at which time the store was officially closed.

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.

1 unchanged sentence

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.

As of August 27, 2022, we had 61 Corporate-owned stores operating and expect to end fiscal 2022 with 59 stores.

Sale of the Assets of Zenith Freight Lines, LLC

4 unchanged sentences

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.

The final purchase price was subject to a customary post-closing working capital adjustment, which was settled in the amount of $987 and paid back to J.B.

Hunt during the third quarter of fiscal 2022.

During the nine months ended August 27, 2022, we recognized a pre-tax gain of $53,061 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.

2 unchanged sentences

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

AUGUST 27, 2022

(Dollars in thousands except share and per share data)

Recent Development –

Acquisition of Noa Home, Inc.

On September 2, 2022, we acquired the capital stock of Noa Home Inc.

(“Noa”), a mid-priced e-commerce furniture retailer headquartered in Montreal, Canada.

Noa has operations in Canada, Australia, Singapore and the United Kingdom and had net revenues of approximately $15,300 (approximately C$19,100) for its most recent fiscal year ended February 28, 2022.

The initial purchase price of approximately $5,900 (approximately C$7,700) included cash payments of approximately $1,500 (approximately C$2,000) paid to the co-founders of Noa and approximately $4,300 (approximately C$5,700) for the repayment of existing debt.

The Noa co-founders will also have the opportunity to receive additional annual cash payments totaling approximately $1,000 per year (approximately C$1,330 per year) for the following three fiscal years based on established increases in net revenues and achieving certain internal EBITDA goals.

Results of Continuing Operations –

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:

Periods ended August 27, 2022 compared with the periods ended August 28, 2021:

Consolidated results of continuing operations for the three and nine months ended August 27, 2022 and August 28, 2021 are as follows:

Quarter Ended

Six Months Ended

Nine Months Ended

August 27, 2022

August 28, 2021

August 27, 2022

August 28, 2021

Net sales of furniture and accessories

1 unchanged sentence

SG&A expenses

Gain on sale of retail real estate

Income from operations

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 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.

Total sales revenue for the three months ended August 27, 2022 increased $13,142 or 12.5% from the prior year period primarily due to a 21% increase in retail sales through the Company-owned stores and a 6% increase in wholesale shipments to the licensee store network.

Gross margins for the three months ended August 27, 2022 increased 130 basis points from 2021 primarily due to a greater portion of total sales coming from the Corporate retail segment, partially offset by lower margins in the retail segment due to increased clearance activity from four store closure sales during the quarter.

Selling, general and administrative (“SG&A”) expenses as a percentage of sales for the three months ended August 27, 2022 increased 90 basis points from 2021 primarily due to increased sales and marketing expenses and increased logistics and warehouse costs, partially offset by greater leverage of fixed costs from increased sales volumes.

During the third quarter of fiscal 2022, we also recognized a gain of $4,595 from the sale of the real estate at a former retail location in Houston, Texas.

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.

Total sales revenue for the nine months ended August 27, 2022 increased $48,060 or 15% from the prior year period primarily due to increases in wholesale shipments to both the open market and the BHF store network, along with a 16% increase in retail sales.

Gross margins for the nine months ended August 27, 2022 decreased 100 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.

Although no increases are currently being contemplated, we will continue to monitor our costs to determine if additional increases are warranted.

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1 unchanged sentence

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

AUGUST 27, 2022

(Dollars in thousands except share and per share data)

SG&A expenses as a percentage of sales for the nine months ended August 27, 2022 decreased 200 basis points from 2021 primarily due to improved leverage of fixed costs through higher sales levels.

During the first nine months of fiscal 2022, we also recognized a gain of $4,595 from the sale of the real estate at a former retail location in Houston, Texas.

Segment Information

12 unchanged sentences

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

AUGUST 27, 2022

(Dollars in thousands except share and per share data)

2 unchanged sentences

Because these intercompany transactions are not eliminated from our segment presentations and because we do not present gross profit as a measure of segment profitability in the accompanying condensed consolidated financial statements, the presentation of gross profit by segment is considered to be a non-GAAP financial measure.

In addition, certain special gains or charges are included in consolidated income from operations are not included in the measures of segment profitability.

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 May 28, 2022

Quarter Ended August 27, 2022

Non-GAAP Presentation

2 unchanged sentences

Cost of furniture and accessories sold

Gain on sale of real estate

Income from operations

Quarter Ended May 29, 2021

Quarter Ended August 28, 2021

Non-GAAP Presentation

3 unchanged sentences

Income from operations

Six Months Ended May 28, 2022

Nine Months Ended August 27, 2022

Non-GAAP Presentation

2 unchanged sentences

Cost of furniture and accessories sold

Gain on sale of real estate

Income from operations

Six Months Ended May 29, 2021

Nine Months Ended August 28, 2021

Non-GAAP Presentation

3 unchanged sentences

Income from operations

Notes to segment consolidation table:

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 elimination of rent paid by our retail stores occupying Company-owned real estate.  the elimination of logisitcal services charged by Zenith to Bassett's wholesale segment as follows:

Represents the gain on the sale of the real estate at a former retail location.

Page 28 of 36

1 unchanged sentence

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

AUGUST 27, 2022

(Dollars in thousands except share and per share data)

Notes to segment consolidation table:

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

Wholesale Segment

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

Results for the wholesale segment for the periods ended August 27, 2022 and August 28, 2021 are as follows:

Quarter Ended

Six Months Ended

Nine Months Ended

August 27, 2022

August 28, 2021

August 27, 2022

August 28, 2021

Gross profit (1)

5 unchanged sentences

Quarter Ended

August 27, 2022

August 28, 2021

Bassett Custom Upholstery

2 unchanged sentences

Bassett Casegoods

Six Months Ended

Nine Months Ended

August 27, 2022

August 28, 2021

Bassett Custom Upholstery

3 unchanged sentences

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.

Net sales for the three months ended August 27, 2022 increased $5,886 or 8.1% from the prior year period due primarily to a 17% increase in shipments to the BHF store network and a 16% increase in Lane Venture shipments.

Shipments to the open market were flat.

Gross margins for the three months ended August 27, 2022 were comparable to the prior year with a 10 basis point increase as we were able to recognize a greater portion of previously implemented price increases in current period sales.

This was offset by lower margins in the Bassett Leather product line due to product discounting.

As this product line is internationally sourced with extended lead times, we received significant amounts of inventory during the second and third quarters of 2022 just as product demand was weakening due to the market downturn in home furnishings.

We expect reduced margins on this product line to continue over the next two quarters as we reduce the inventory to a more normal level.

SG&A expenses as a percentage of sales increased 410 basis points primarily due to increased sales and marketing expenses, employee compensation costs and logistics and warehouse costs partially offset by greater leverage of fixed costs from increased sales volumes.

Page 29 of 36

1 unchanged sentence

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

AUGUST 27, 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.

Net sales for the nine months ended August 27, 2022 increased $30,574 or 14% from the prior year period due primarily to increases in shipments of 13% and 12% to both the BHF store network and to the open market, respectively.

Gross margins for the nine months ended August 27, 2022 declined 230 basis points compared to the prior year period as we 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 increased 90 basis points primarily due to increased sales and marketing expenses, employee compensation costs and logistics and warehouse costs partially offset by greater leverage of fixed costs from increased sales volumes.

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.

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

Many of these issues have subsided due to the industry slowdown in demand for home furnishings that started during the second quarter of 2022.

As a result of the slowdown, our incoming order rates have decreased resulting in decreases in our wholesale backlogs.

While wholesale orders for the third quarter of 2022 decreased 22% against the prior year period, they were comparable to the pre-pandemic level of the third quarter of 2019.

At August 27, 2022, the wholesale backlog totaled $41,693 as compared to $60,134 at May 28, 2022, $78,135 at February 26, 2022, $90,057 at November 27, 2021, and 92,839 at August 28, 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.

1 unchanged sentence

Company-owned Stores Segment

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

Results for the retail segment for the periods ended August 27, 2022 and August 28, 2021 are as follows:

Quarter Ended

Six Months Ended

Nine Months Ended

August 27, 2022

August 28, 2021

August 27, 2022

August 28, 2021

Gross profit (1)

5 unchanged sentences

Quarter Ended

Six Months Ended

Nine Months Ended

August 27, 2022

August 28, 2021

August 27, 2022

August 28, 2021

Bassett Custom Upholstery

7 unchanged sentences

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

AUGUST 27, 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.

Net sales for the three months ended August 27, 2022 increased $12,310 or 21% from the prior year period.

Written sales (the value of sales orders taken but not delivered) declined 9.4% from the third quarter of 2021.

Gross margins for the three months ended August 27, 2022 decreased by 70 basis points as compared to the prior year period, primarily due to increased clearance activity from four store closure sales during the quarter.

Selling, general and administrative expenses as a percentage of sales for the three months ended August 27, 2022 decreased 550 basis points primarily due to greater leverage on fixed costs from higher sales volumes.

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.

Net sales for the nine months ended August 27, 2022 increased $29,159 or 16% from the prior year period.

Written sales (the value of sales orders taken but not delivered) declined 8.4% from the first nine months of 2021.

Gross margins for the nine months ended August 27, 2022 increased by 90 basis points as compared to the prior year period, primarily driven by improved pricing strategies and lower levels of promotional activity, partially offset by increased clearance activity from five store closing events during the year.

Selling, general and administrative expenses for the nine months ended August 27, 2022 as a percentage of sales decreased by 450 basis points as compared to the first nine months of 2021 primarily due to greater leverage on fixed costs from higher sales volumes.

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.

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 logistical challenges from COVID-related labor shortages and supply chain disruptions creating significant delays in order fulfillment and increased backlogs.

Many of these issues have subsided due to the industry slowdown in demand for home furnishings that started during the second quarter of 2022.

As a result of the slowdown, our written sales for the second and third quarters decreased by 13% and 8.4%, respectively, as compared to the corresponding periods of 2021.

Written sales for the second and third quarters of 2022 are comparable to the corresponding periods in 2019.

At August 27, 2022, retail backlog totaled $59,981 as compared to $71,073 at May 28, 2022, $84,685 at February 26, 2022, $82,894 at November 27, 2021, and $73,489 at August 28, 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.

2 unchanged sentences

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 May 28, 2022 and May 29, 2021 are as follows:

Hunt at the beginning of the second quarter, for the periods ended August 27, 2022 and August 28, 2021 are as follows:

Quarter Ended

Six Months Ended

Nine Months Ended

August 27, 2022

August 28, 2021

August 27, 2022

August 28, 2021

Logistical services revenue

4 unchanged sentences

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.

Zenith also charged Bassett $9,121 for logistical services provided to our wholesale segment during the nine months ended August 27, 2022, and $7,164 and $23,409 for the three and nine months ended August 28, 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.

Subsequent to the sale, we have incurred $10,307 and $19,852 of expense during the three and nine months ended August 27, 2022, respectively, for the performance of logistical services by J.B.

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1 unchanged sentence

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

AUGUST 27, 2022

(Dollars in thousands except share and per share data)

1 unchanged sentence

Other Loss, Net

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.

Other loss, net, for the three and nine months ended August 27, 2022 was $594 and $1,850, respectively, compared to $268 and $828 for the three and nine months ended August 28, 2021, a net increase of $336 over the prior year quarter and $1,022 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 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.

Our effective tax rate was 22.8% and 25.6% for the three and nine months ended August 27, 2022, respectively, and 27.2% and 27.3% for the three and nine months ended August 28, 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 those associated with Company-owned life insurance, and tax of $550 for the nine months ended August 27, 2022 associated with non-deductible goodwill written off in connection with our sale of Zenith, and tax deficiencies of $117 during the nine months ended August 28, 2021 arising from stock-based compensation.

Liquidity and Capital Resources

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.

Cash used in operations for the first nine months of fiscal 2022 was $12,295 compared to cash provided by operations of $13,677 for the first nine months of fiscal 2021, representing a decrease of $25,972 in cash flows from operations.

Cash provided by the operating activities of our discontinued operations was $1,681 for the first nine months of fiscal 2022 compared to $3,231 for the prior year period, a decline of $1,550 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 $24,422 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.

Cash flows from operating activities during the first nine months of fiscal 2022 included the payment of $20,722 in estimated taxes (net of refunds) 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 $22,522 compared to the first nine months of 2021 as the pace of written orders has slowed compared to the prior year and we continue to reduce our retail order backlog.

Changes in working capital for the first nine months of fiscal 2022 were favorably impacted by slower growth in our investment in inventory as compared to the prior year period.

Our overall cash position increased by $32,496 during the first nine months of fiscal 2022, compared to a decline of $7,188 during the first nine months of fiscal 2021, an increase of $39,684 from the prior year period.

Excluding the overall cash flow from discontinued operations, overall cash flow from continuing operations increased $38,146 over the prior year period.

Offsetting the decline in cash flows from operations, net cash flows from investing activities during the first nine months of fiscal 2022 increased $82,279 to $74,066 of cash provided by investing activities compared to net cash used in investing activities of $8,213 for the prior year period.

This increase was primarily due to net proceeds of $84,534 received from the sale of Zenith and net proceeds of $8,217 received from the sale of retail real estate in Houston, Texas, partially offset by a $10,125 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 nine months of 2022 increased $16,623 to a net use of $29,275 as compared to a net use of $12,652 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 $4,697 increase in share repurchases to $10,263 during the first nine months of fiscal 2022 as compared to $5,566 repurchased during the first nine months 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 $30,857 remains available for future purchases as of August 27, 2022.

With cash and cash equivalents and short-term investments totaling $84,585 on hand at August 27, 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.

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BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

AUGUST 27, 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 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.

At August 27, 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 August 27, 2022.

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

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Minimum tangible net worth of $140,000.

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

We were in compliance with these covenants at August 27, 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 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.

The present value of our obligations for leases with terms in excess of one year at August 27, 2022 is $104,899 and is included in our accompanying condensed consolidated balance sheet at August 27, 2022.

We were contingently liable under licensee lease obligation guarantees in the amount of $1,871 at August 27, 2022.

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

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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.

During the third quarter of fiscal 2022, sold one of our Company-owned store locations in Houston, Texas for $8,217 net of closing costs.

The sale closed on June 24, 2022, and we expect to vacate the premises early in the fourth 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 $4,300 arising from the sale of the Houston property.

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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 May 28, 2022.

See Note 9 to our condensed consolidated financial statements for further information regarding certain contingencies as of August 27, 2022.

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BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

AUGUST 27, 2022

(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