What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-06-29 compared with 2023-03-30 · 164 added, 130 removed, 203 unchanged (59% of the section changed)

17 unchanged sentences

overall retail traffic levels in stores and on the web and consumer demand for home furnishings

ability of our customers and consumers to obtain credit

ability of our customers and consumers to obtain affordable credit due to rising interest rates

the profitability of the stores (independent licensees and Company-owned retail stores) which may result in future store closings

6 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 a resurgence of the COVID-19 pandemic or any other similar health emergency and any 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.

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BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

FEBRUARY 25, 2023

(Dollars in thousands except share and per share data)

4 unchanged sentences

Our rich 121-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 92 BHF stores at February 25, 2023, 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 91 BHF stores at May 27, 2023, 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. 

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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.

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.

Digital outreach strategies have become the primary vehicle for brand advertising and customer acquisition.

As a result, 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 fiscal 2022, we implemented a comprehensive Product Information Management system which allows us to enhance and standardize our product development and data management and governance processes. 

This results 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 the second half of 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.

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. 

We expect to spend approximately $4,500 on these efforts in 2023, approximately $2,400 of which has been spent through May 27, 2023.

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

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We plan to evaluate the performance of these five RFCs before considering any additional locations.

During the fourth quarter of fiscal 2022 we acquired Noa Home (see Note 3 to the Consolidated Financial Statements for additional information regarding the acquisition).

A mid-priced e-commerce furniture retailer headquartered in Montreal, Canada, Noa Home has operations in Canada, Australia, Singapore and the United Kingdom.

With a lean staffing model, the Noa Home team has built an operational blueprint that has the potential for significant growth.

We believe the acquisition will provide Bassett with a greater online presence and will allow us to attract more digitally native consumers.

We are currently in the process of expanding Noa Home’s North American product assortment and plan to introduce the Noa Home brand in the United States in the fourth quarter of 2023 through a limited geography test.

PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

(Dollars in thousands except share and per share data)

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

Our strategy is to distribute these products outside of our BHF store network through a network of over 10 independent sales representatives.

Our strategy is to distribute these products outside of our BHF store network through independent sales representatives each of which have a stated geographic territory.

Using Lane Venture as a platform, we developed the Bassett Outdoor brand that is only marketed through the BHF store network.

This allows Bassett branded product to move from inside the home to outside the home to capitalize on the growing trend of outdoor living.

This allows Bassett branded products to move from inside the home to outside the home to capitalize on the growing trend of outdoor living.

In the second quarter of 2023, we debuted the Bassett Outdoor contract line at the HD Expo Show in Las Vegas targeting the hospitality segment.

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.

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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.

In addition to the furniture that we manufacture domestically, we source most of our formal bedroom and dining room furniture (casegoods) and certain leather upholstery offerings from several foreign plants, primarily in Vietnam, Thailand and China.

Over 75% of our wholesale revenues are derived from products that are manufactured in the United States using a mix of domestic and globally sourced components and raw materials.

PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

FEBRUARY 25, 2023

(Dollars in thousands except share and per share data)

Customer acquisition resulting from our digital outreach strategies has significantly increased our traffic to the website since 2019.

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 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.

Our intent is to continue to offer the consumer custom options that will help them personalize their home but to do so in an edited fashion that will provide a better web experience in the research phase and will also allow the final purchase to be made either on the web or in the store.

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.

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 allows us to enhance and standardize our product development and data management and governance processes.

This results 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 the second half of 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 approximately $2,000 on these efforts in 2023.

During the fourth quarter of fiscal 2022 we acquired Noa Home (see Note 3 to the Consolidated Financial Statements for additional information regarding the acquisition).

A mid-priced e-commerce furniture retailer headquartered in Montreal, Canada, Noa Home has operations in Canada, Australia, Singapore and the United Kingdom.

With a lean staffing model, the Noa Home team has built an operational blueprint that has the potential for significant growth.

We believe the acquisition will provide Bassett with a greater online presence and will allow us to attract more digitally native consumers.

While still in the planning phase, we expect to introduce the Noa Home brand in the United States during 2023.

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 2022, we closed three stores with the operations of one those stores being consolidated into another store in the same market.

During 2022, we closed three stores with the operations of one those stores being consolidated into another store in the same market. We are also in the process of closing our northeast clearance center and our store located in Birmingham, Alabama.

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

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In 2022, we acquired a 25,000 square foot property in Tampa, Florida.

We will begin upfitting the property early in April with a planned opening date in late 2023.

As of February 25, 2023, we had 59 Corporate-owned stores operating.

We are in the process of upfitting the space with a planned opening date in the third quarter of 2023.

As of May 27, 2023, we had 59 Corporate-owned stores operating.

Sale of the Assets of Zenith Freight Lines, LLC

4 unchanged sentences

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

FEBRUARY 25, 2023

(Dollars in thousands except share and per share data)

Results of Continuing Operations –

Period ended February 25, 2023 compared with the period ended February 26, 2022:

Consolidated results of continuing operations for the three months ended February 25, 2023 and February 26, 2022 are as follows:

Periods ended May 27, 2023 compared with the periods ended May 28, 2022:

Consolidated results of continuing operations for the three and six months ended May 27, 2023 and May 28, 2022 are as follows:

Quarter Ended

February 25, 2023

February 26, 2022

Six Months Ended

Net sales of furniture and accessories

1 unchanged sentence

SG&A expenses

Gain on revaluation of contingent consideration

Income from operations

Analysis of Quarterly Results:

Total sales revenue for the three months ended February 25, 2023 decreased $10,166 or 8.6% from the prior year period primarily due to a 16% decline in wholesale sales partially offset by a 1.3% increase in retail sales through the Company-owned stores and the addition of Noa Home in 2023.

Gross margins for the three months ended February 25, 2023 increased 440 basis points from 2022 primarily due to higher margins in the wholesale segment along with a greater portion of total sales coming from the Corporate retail segment.

These increases were partially offset by lower margins in the retail segment.

Selling, general and administrative (“SG&A”) expenses as a percentage of sales for the three months ended February 25, 2023 increased 740 basis points from 2022 primarily due to a greater portion of total sales coming from the Corporate retail segment along with the deleverage of fixed costs caused by lower sales volumes.

Total sales revenue for the three months ended May 27, 2023 decreased $28,187 or 22% from the prior year period primarily due to a 29% decline in wholesale sales along with a 20% decrease in retail sales through the Company-owned stores, partially offset by the addition of Noa Home in 2023.

Gross margins for the three months ended May 27, 2023 increased 140 basis points from 2022 primarily due to higher margins in the wholesale segment along with the realization during the second quarter of 2023 of deferred gross profit on intercompany sales made during the preceding quarter due to the decline in retail inventory levels since the end of the first quarter.

Selling, general and administrative (“SG&A”) expenses as a percentage of sales for the three months ended May 27, 2023 increased 840 basis points from 2022 primarily due to the deleverage of fixed costs caused by lower sales volumes.

During the second quarter of 2023 we recognized a gain of $1,013 resulting from the write-down of our contingent consideration obligation associated with the acquisition of Noa Home.

See Note 3 to the condensed consolidated financial statements.

Analysis of Year-to-Date Results:

Total sales revenue for the six months ended May 27, 2023 decreased $38,353 or 16% from the prior year period primarily due to a 23% decline in wholesale sales along with a 10% decrease in retail sales through the Company-owned stores partially offset by the addition of Noa Home in 2023.

Gross margins for the six months ended May 27, 2023 increased 280 basis points from 2022 primarily due to higher margins in the wholesale segment along with a greater portion of total sales coming from the Company-owned stores retail segment. 

SG&A expenses as a percentage of sales for the six months ended May 27, 2023 increased 790 basis points from 2022 primarily due to the deleverage of fixed costs caused by lower sales volumes along with a greater portion of total sales coming from the Company-owned stores retail segment.

During the first half of 2023 we recognized a gain of $1,013 resulting from the write-down of our contingent consideration obligation associated with the acquisition of Noa Home.

See Note 3 to the condensed consolidated financial statements.

PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

(Dollars in thousands except share and per share data)

Segment Information

Beginning with the three months ended February 25, 2023, we have strategically aligned our business into three reportable segments as defined in ASC 280, Segment Reporting , and as described below:

Beginning in fiscal 2023, we strategically aligned our business into three reportable segments as defined in ASC 280, Segment Reporting , and as described below:

The wholesale home furnishings segment is involved principally in the design, manufacture, sourcing, sale and distribution of furniture products to a network of Bassett stores (Company-owned and licensee-owned retail stores) and independent furniture retailers.

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The inter-company income elimination also includes rent paid by our retail stores occupying Company-owned real estate.

Prior to the current period, the functions included in Corporate and other were included in our wholesale segment reportable segment, and Noa Home was included in our retail reportable segment for the fourth quarter of fiscal 2022 following its acquisition on September 2, 2022.

Prior to the beginning of fiscal 2023, the functions included in Corporate and other were included in our wholesale segment reportable segment, and Noa Home was included in our retail reportable segment for the fourth quarter of fiscal 2022 following its acquisition on September 2, 2022.

We believe that the new alignment of our reporting segments provides our chief operating decision maker with clearer information with which to assess the operating results of our wholesale segment.

Noa Home does not meet the requirements to be a separate reportable segment.

The segment information presented below for the three months ended February 26, 2022 has been restated to reflect the new alignment of our reportable segments.

PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

FEBRUARY 25, 2023

(Dollars in thousands except share and per share data)

The segment information presented below for the three and six months ended May 28, 2022 has been restated to reflect the new alignment of our reportable segments.

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

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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 February 25, 2023

PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

(Dollars in thousands except share and per share data)

Quarter Ended May 27, 2023

Non-GAAP Presentation

1 unchanged sentence

Corporate & Other

Special Items

Net sales of furniture and accessories

Cost of furniture and accessories sold

Gain revaluation of contingent consideration

Income from operations

Quarter Ended February 26, 2022

Quarter Ended May 28, 2022

Non-GAAP Presentation

1 unchanged sentence

Corporate & Other

Special Items

Net sales of furniture and accessories

1 unchanged sentence

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.

Six Months Ended May 27, 2023

Non-GAAP Presentation

GAAP Presentation

Corporate & Other

Special Items

Net sales of furniture and accessories

Cost of furniture and accessories sold

Gain revaluation of contingent consideration

Income from operations

Six Months Ended May 28, 2022

Non-GAAP Presentation

GAAP Presentation

Corporate & Other

Special Items

Net sales of furniture and accessories

Cost of furniture and accessories sold

Income from operations

PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

FEBRUARY 25, 2023

(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.

Represents the gain resulting from the write-down of the contingent consideration payable on the acquisition of Noa Home.

Wholesale Segment

Results for the wholesale segment for the periods ended February 25, 2023 and February 26, 2022 are as follows:

Results for the wholesale segment for the three and six months ended May 27, 2023 and May 28, 2022 are as follows:

Quarter Ended

February 25, 2023

February 26, 2022

Six Months Ended

Gross profit (1)

5 unchanged sentences

Quarter Ended

February 25, 2023

February 26, 2022

Bassett Custom Upholstery

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Bassett Casegoods

Six Months Ended

Bassett Custom Upholstery

Bassett Leather

Bassett Custom Wood

Bassett Casegoods

PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

(Dollars in thousands except share and per share data)

Analysis of Quarterly Results –

Net sales for the three months ended February 25, 2023 decreased $13,601 or 16% from the prior year period due primarily to a 29% decrease in shipments to the open market, a 20% decrease in Lane Venture shipments and a 3.4% decrease in shipments to our retail store network.

Gross margins for the three months ended February 25, 2023 improved 230 basis points over the prior year 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.

Net sales for the three months ended May 27, 2023 decreased $10,665 or 29% from the prior year period due primarily to a 30% decrease in shipments to the open market, a 28% decrease in shipments to our retail store network and a 19% decrease in Lane Venture shipments.

Gross margins for the three months ended May 27, 2023 improved 50 basis points over the prior year primarily due to increased margins in our Custom Upholstery business as we were able to recognize a greater portion of previously implemented price increases in current period sales coupled with improved overall product warranty and returns experience and overall lower unit costs as measured on a last-in, first-out (LIFO) basis.

These margin improvements were partially offset by lower margins in the Bassett Leather business due to increased product discounting and excess and obsolete reserve charges.

As the Bassett Leather 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.

Also, the ocean freight costs associated with the majority of the product received was at significantly higher costs than are currently being realized on current product receipts.

We expect reduced margins on this product line to continue through the third quarter of 2023 as we reduce the inventory to a more normal level.

SG&A expenses as a percentage of sales increased 160 basis points primarily due to reduced leverage of fixed costs from decreased sales along with higher warehousing and shipping costs.

We expect improved margins over the remainder of 2023.

Margins in the Bassett Casegoods business were lower due primarily to realizing the high freight costs incurred during mid-2022 in the income statement for the current period.

We expect improved margins over the remainder of 2023.

Lastly, margins for Bassett Custom Wood products were lower due to lower sales volume.

SG&A expenses as a percentage of sales increased 220 basis points primarily due to reduced leverage of fixed costs from decreased sales.

Analysis of Year-to-Date Results –

Net sales for the six months ended May 27, 2023 decreased $39,328 or 23% from the prior year period due primarily to a 29% decrease in shipments to the open market, a 17% decrease in shipments to our retail store network and a 19% decrease in Lane Venture shipments.

Gross margins for the six months ended May 27, 2023 improved 240 basis points over the prior year primarily due to increased margins in our Custom Upholstery business as we were able to recognize a greater portion of previously implemented price increases in current period sales coupled with improved overall product warranty and returns experience and overall lower unit costs as measured on a last-in, first-out (LIFO) basis.

These margin improvements were partially offset by lower margins in the Bassett Leather business due to increased product discounting and excess and obsolete reserve charges.

Also, the ocean freight costs associated with the majority of the product received was at significantly higher costs than are currently being realized on current product receipts. 

We expect improved margins over the remainder of 2023. 

Margins in the Bassett Casegoods business were lower due primarily to realizing the high freight costs incurred during mid-2022 in the income statement for the current period.

We expect improved margins over the remainder of 2023.

Lastly, margins for Bassett Custom Wood products were lower due to lower sales volume.

SG&A expenses as a percentage of sales increased 190 basis points primarily due to reduced leverage of fixed costs from decreased sales.

Wholesale Backlog

Wholesale backlog at February 25, 2023 was $24,895 as compared to $35,336 at November 26, 2022 and $78,135 at February 26, 2022.

While wholesale orders for the first quarter of 2023 decreased 18% against the prior year period, they were 5.6% higher than the pre-pandemic level of the first quarter of 2020.

Wholesale backlog at May 27, 2023 was $19,693 as compared to $35,336 at November 26, 2022 and $60,134 at May 28, 2022.

PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

FEBRUARY 25, 2023

(Dollars in thousands except share and per share data)

1 unchanged sentence

Company-owned Stores Segment

Results for the retail segment for the periods ended February 25, 2023 and February 26, 2022 are as follows:

Results for the retail segment for the periods ended May 27, 2023 and May 28, 2022 are as follows:

Quarter Ended

February 25, 2023

February 26, 2022

Six Months Ended

Gross profit (1)

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Quarter Ended

February 25, 2023

Six Months Ended

February 25, 2023

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

Quarterly Analysis of Results - Retail

Net sales for the three months ended February 25, 2023 increased $855 or 1.3% from the prior year period.

Written sales (the value of sales orders taken but not delivered) declined 16% from the first quarter of 2022.

Gross margins for the three months ended February 25, 2023 were flat compared to the prior period as increased promotional activity in the current quarter coupled with higher in-bound freight costs were offset by lower unit costs as measured on a last-in, first-out basis.

Selling, general and administrative expenses as a percentage of sales for the three months ended February 25, 2023 increased 180 basis points primarily due to increased advertising costs to drive more customer engagement, higher consumer financing costs from higher interest rates and increased warehousing and delivery costs.

Analysis of Quarterly Results - Retail

Net sales for the three months ended May 27, 2023 decreased $14,842 or 20% from the prior year period.

Written sales (the value of sales orders taken but not delivered) declined 17% from the second quarter of 2022.

Gross margin for the three months ended May 27, 2023 was essentially flat compared to the prior period as increased promotional activity and lower margins from store closure sales in the current quarter were offset by lower unit costs as measured on a LIFO basis.

SG&A expenses as a percentage of sales for the three months ended May 27, 2023 increased 820 basis points primarily due to decreased leverage of fixed costs from lower sales volumes coupled with increased warehousing and delivery costs.

Analysis of Year-to-Date Results - Retail

Net sales for the six months ended May 27, 2023 decreased $13,987 or 10% from the prior year period.

Written sales (the value of sales orders taken but not delivered) declined 16% from the first half of 2022.

Gross margin for the six months ended May 27, 2023 was essentially flat compared to the prior period as increased promotional activity was offset by lower unit costs as measured on a LIFO basis.

SG&A expenses as a percentage of sales for the six months ended May 27, 2023 increased 180 primarily due to decreased leverage of fixed costs from lower sales volumes coupled with increased warehousing and delivery costs.

Retail Backlog

Retail backlog at February 25, 2023 was $41,763 compared to $51,041 at November 26, 2022 and $84,645 at February 26, 2022.

Although the retail backlog continues to be elevated as compared to pre-pandemic levels, we expect a more normalized and sustainable level by the end of the second quarter of 2023.

Retail backlog at May 27, 2023 was $32,894 compared to $51,041 at November 26, 2022 and $71,073 at May 28, 2022.

PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

FEBRUARY 25, 2023

(Dollars in thousands except share and per share data)

Corporate and Other

Revenues, costs and expenses of corporate and other for the three months ended February 25, 2023 and February 22, 2022 are as follows:

Revenues, costs and expenses of corporate and other for the three and six months ended May 27, 2023 and May 28, 2022 are as follows:

Quarter Ended

February 25, 2023

February 26, 2022

Six Months Ended

SG&A expenses

Analysis of Quarterly Results –

Corporate and Other

The increases in sales and gross profit over the prior year period were due to the acquisition of Noa Home on September 2, 2022.

The $3,044 increase in SG&A expenses was primarily due to the addition of Noa Home coupled with increased corporate marketing and information technology expenses primarily in connection with our digital transformation initiatives.

The $798 increase in SG&A expenses was primarily due to the addition of Noa Home and increased corporate consulting expenses associated with our digital transformation efforts and the development of a new store prototype design partially offset by lower corporate incentive compensation expenses.

Analysis of Year-to-Date Results –

Corporate and Other

The increases in sales and gross profit over the prior year period were due to the acquisition of Noa Home on September 2, 2022.

The $3,843 increase in SG&A expenses was primarily due to the addition of Noa Home and increased corporate consulting expenses associated with our digital transformation efforts and the development of a new store prototype design partially offset by lower corporate incentive compensation expenses.

Discontinued Operations –

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Quarter Ended

February 26, 2022

Six Months Ended

Logistical services revenue

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Income from discontinued operations before tax

The first quarter of 2022 was the final period during which Zenith operated as a consolidated subsidiary of Bassett.

During the three months ended February 26, 2022, Zenith generated a pre-tax profit of $1,712 on sales to third party customers of $16,776.

Zenith also charged Bassett $9,121 for logistical services provided to our wholesale segment during the three months ended February 26, 2022.

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

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 for logistical services provided to our wholesale segment in the amount of $9,121 during the six months ended May 28, 2022.

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

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

We incurred $8,434 of expense during the three months ended February 25, 2023 for logistical services performed by J.B.

Other Items Affecting Net Income

Other Loss, Net

Other loss, net, for the three months ended February 25, 2023 and February 26, 2022 was $415 and $629, respectively, a net decrease of $214 from the prior year period.

The net change was primarily due to higher interest income on our investment in certificates of deposit.

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 rate was 36.8% and 26.3% for the three months ended February 25, 2023 and February 26, 2022, respectively.

These effective rates differ from the federal statutory rate of 21% primarily due to increases in the valuation allowance placed on deferred tax assets associated with Noa Home, the effects of state income taxes and various permanent differences.

We incurred expense for logistical services performed by J.B.

Hunt of $6,717 and $14,094 during the three and six months ended May 27, 2023, respectively, and $9,546 for the three and six months ended May 28, 2022, respectively.

PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

FEBRUARY 25, 2023

(Dollars in thousands except share and per share data)

Other Items Affecting Net Income

Other Income (Loss), Net

Other income (loss), net, for the three and six months ended May 27, 2023 was $64 and $(351), respectively, compared to $(627) and $(1,256) for the three and six months ended May 28, 2022.

The net change from the prior year periods was primarily due to higher interest income on our cash equivalents and investments in certificates of deposit.

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 rate was 18.6% and 27.0% for the three and six months ended May 27, 2023, respectively, and 26.0% for both the three and six months ended May 28, 2022.

The effective rates for the three and six months ended May 27, 2023 differ from the federal statutory rate of 21% primarily due to the non-taxable gain on revaluation of contingent consideration associated with the acquisition of Noa Home (see Note 3), increases in the valuation allowance placed on deferred tax assets associated with Noa Home and the effects of state income taxes and various permanent differences. For the three and six months ended May 28, 2022, the 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 $522 associated with the non-deductible goodwill written off in connection with the sale of Zenith and included in income tax on discontinued operations.

Liquidity and Capital Resources

Cash provided by operations for the first quarter of fiscal 2023 was $563 compared to cash provided by operations of $2,866 for the first quarter of fiscal 2022, representing a decrease of $2,303 in cash flows from operations.

Cash provided by the operating activities of our discontinued operations was $1,681 for the first quarter of fiscal 2022.

Excluding the decline in operating cash flow from discontinued operations, cash flows from continuing operations declined $622 for the first quarter of fiscal 2023 from the prior year period.

This decline was primarily the result of lower income from continuing operations and reduced customer deposits from lower written retail sales, partially offset by reduced investment in inventory.

Our overall cash position decreased by $6,733 during the first quarter of fiscal 2023, compared to a decline of $2,484 during the first quarter of fiscal 2022, an increased net use of $4,239 from the prior year period.

Excluding the overall cash flow from discontinued operations, overall cash flow from continuing operations decreased $3,074 from the prior year period.

In addition to the decline in cash flows from operations, net cash used in investing activities during the first quarter of fiscal 2023 increased $1,024 to $3,904 compared to net cash used in investing activities of $2,880 for the prior year period.

This increase was primarily due to higher capital expenditures over the prior year primarily consisting of expenditures related to our digital transformation project, upfit of the recently opened Inwood store in Dallas, TX and the remodel of two other stores in the Dallas, TX market.

Cash provided by operations for the first half of fiscal 2023 was $6,413 compared to cash used in operations of $8,946 for the first half of fiscal 2022, representing an increase of $15,359 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.

Excluding the decline in operating cash flow from discontinued operations, cash flows from continuing operations increased $17,040 for the first half of fiscal 2023 from the prior year period.

This increase was primarily the result of significantly lower investment in inventory partially offset by lower income from continuing operations and other changes in working capital.

Our overall cash position declined $7,022 during the first half of 2023 compared to an increase of $37,236 for the first half of 2022, which had included the proceeds from the sale of Zenith.

During the first half of fiscal 2023, we spent $7,405 on purchases of property and equipment primarily consisting of expenditures related to our digital transformation project, upfit of the new Tampa, FL store that is expected to open in the third quarter of 2023 and the recently opened Inwood store in Dallas, TX and the remodel of two other stores in the Dallas, TX market.

We also paid $2,832 in dividends during the six months ended May 27, 2023, a $14,338 decrease from the corresponding period in 2022 as the prior year included a $1.50 per share special dividend.

Finally, we repurchased 209,337 shares spending $3,450 during the current year, a $5,192 decrease compared to the prior period.

We expect capital expenditures for the full year to range from $16 million to $19 million.

Net cash used in financing activities during the first quarter of 2022 increased $883 to a net use of $3,363 as compared to a net use of $2,480 for the prior year period, primarily due to a $1,079 increase in share repurchases to $1,844 during the first quarter of fiscal 2023 as compared to $765 repurchased during the first quarter of fiscal 2022.

As of February 25, 2023, $24,154 remains available for future purchases under our stock repurchase plan.

With cash and cash equivalents and short-term investments totaling $72,617 on hand at February 25, 2023, 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.

As of May 27, 2023, $22,550 remains available for future purchases under our stock repurchase plan.

With cash and cash equivalents and short-term investments totaling $72,328 on hand at May 27, 2023, 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.

Debt and Other Obligations

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

At February 25, 2023, we had $3,731 outstanding under standby letters of credit against our line, leaving availability under our credit line of $21,269.

In addition, we had outstanding standby letters of credit with another bank totaling $250 at February 25, 2023.

At May 27, 2023, we had $3,731 outstanding under standby letters of credit against our line, leaving availability under our credit line of $21,269.

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 February 25, 2023 and expect to remain in compliance for the foreseeable future.

We were in compliance with these covenants at May 27, 2023 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.

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 used in our wholesale manufacturing operations.

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 25, 2023 is $113,120 and is included in our accompanying condensed consolidated balance sheet at February 25, 2023.

We were contingently liable under a licensee lease obligation guarantee in the amount of $1,889 at February 25, 2023.

The present value of our obligations for leases with terms in excess of one year at May 27, 2023 is $108,665 and is included in our accompanying condensed consolidated balance sheet at May 27, 2023.

We were contingently liable under a licensee lease obligation guarantee in the amount of $1,897 at May 27, 2023.

The remaining term under this lease guarantee extends for five 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, including a site in Tampa, Florida acquired in 2022 with a planned opening late in 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 $21,164 at February 25, 2023.

PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED

FEBRUARY 25, 2023

(Dollars in thousands except share and per share data)

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 10 to our condensed consolidated financial statements for further information regarding certain contingencies as of February 25, 2023.

See Note 10 to our condensed consolidated financial statements for further information regarding certain contingencies as of May 27, 2023.

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