BASSETT FURNITURE INDUSTRIES INC 10-Q

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Safe-harbor, forward-looking statements: This report contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the financial condition, results of operations and business of Bassett Furniture Industries, Incorporated and subsidiaries. Such forward-looking statements are identified by use of forward-looking words such as “ anticipates ”, “ believes ”, “ plans ”, “ estimates ”, “ expects ”, “ aims ” and “ intends ” or words or phrases of similar expression. These forward-looking statements involve certain risks and uncertainties. No assurance can be given that any such matters will be realized. Important factors that could cause actual results to differ materially from those contemplated by such forward-looking statements include: • 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 shortages 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 • overall retail traffic levels in stores and on the web and consumer demand for home furnishings • 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 • 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 and advertising capabilities, as they are implemented • the risk that we may not achieve the strategic benefits of our acquisition of Noa Home • effectiveness and security of our information technology systems and possible disruptions due to cybersecurity threats, including any impacts from a network security incident; and the sufficiency of our insurance coverage, including cybersecurity insurance • future tax legislation, or regulatory or judicial positions • ability to efficiently manage the import supply chain to minimize business interruption • 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 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. Risk Factors in the Company’s Annual Report on Form 10-K for the fiscal year ended November 25, 2023. You should keep in mind that any forward-looking statement made by us in this report or elsewhere speaks only as of the date on which such forward-looking statement is made. New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect us. We have no duty to, and do not intend to, update or revise the forward-looking statements in this discussion after the date hereof, except as may be required by law. 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. 19 of 34 PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED MARCH 2, 2024 (Dollars in thousands except share and per share data) Our fiscal year, which ends on the last Saturday of November, periodically results in a 53-week year instead of the normal 52 weeks. The current fiscal year ending November 30, 2024 is a 53-week year, with the additional week being included in our first fiscal quarter. Accordingly, the information presented below includes 14 weeks of operations for the quarter ended March 2, 2024 as compared to 13 weeks included in the quarter ended February 25, 2023. Overview Bassett is a leading retailer, manufacturer and marketer of branded home furnishings. Our products are sold primarily through a network of Company-owned and licensee-owned branded stores under the Bassett Home Furnishings (“BHF”) name, with additional distribution through other wholesale channels including multi-line furniture stores, many of which feature Bassett galleries or design centers. We also sell our products through our newly redesigned website at www.bassettfurniture.com . We were founded in 1902 and incorporated under the laws of Virginia in 1930. Our rich 122-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 88 BHF stores at March 2, 2024, 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. In order for the Bassett brand to reach markets that cannot be effectively served by our retail store network, we also distribute our products through other wholesale channels including multi-line furniture stores, many of which feature Bassett galleries or design centers. We use a network of over 30 independent sales representatives who have stated geographical territories. These sales representatives are compensated based on a standard commission rate. We believe this blended strategy provides us the greatest ability to effectively distribute our products throughout the United States and ultimately gain market share. The BHF stores feature custom order furniture, free in-home or virtual design visits (“home makeovers”) and coordinated decorating accessories. Our philosophy is based on building strong long-term relationships with each customer. Salespeople are referred to as “Design Consultants” and are trained to evaluate customer needs and provide comprehensive solutions for their home decor. 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 have been 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 also introduced a new web platform in August of 2023 that leverages world class features including enhanced customer research capabilities and streamlined navigation. Since the debut of the new site, we have seen increased engagement with the brand through a greater number of page views per customer along with more time spent on the site. We have also seen an increase in average order value that has resulted in increased e-commerce revenue. We plan to implement several enhancements to the site in 2024 that we believe will improve the overall customer experience and brand presentation. While we have made it easier to purchase on-line, we will not compromise our in-store experience or the quality of our in-home makeover capabilities. During the fourth quarter of fiscal 2022 we acquired Noa Home, a mid-priced e-commerce furniture retailer headquartered in Montreal, Canada. Noa Home has operations in Canada, 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 product assortment and categories offered on the Canadian website. In August of 2023, we introduced the Noa Home brand in the United States. 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 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 products to move from inside the home to outside the home to capitalize on the growing trend of outdoor living. 20 of 34 PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED MARCH 2, 2024 (Dollars in thousands except share and per share data) 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 bedroom and dining offerings. In 2022, we purchased a facility which we had formerly leased in Haleyville, Alabama where we manufacture aluminum frames for our outdoor furniture. 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 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. Retail Stores During the first quarter of 2024 we opened two new Corporate-owned stores located in Tampa, Florida and Houston, Texas. As of March 2, 2024, we had 58 Corporate-owned stores operating. One licensee-owned store in La Jolla, California was closed during the first quarter of 2024. As of March 2, 2024 there were 30 licensee-owned stores in operation. Results of Continuing Operations – Periods ended March 2, 2024 compared with the periods ended February 25, 2023: Consolidated results of continuing operations for the three months ended March 2, 2024 and February 25, 2023 are as follows: Quarter Ended Change March 2, 2024* February 25, 2023 Dollars Percent Net sales of furniture and accessories $ 86,554 100.0 % $ 107,698 100.0 % $ (21,144 ) -19.6 % Cost of furniture and accessories sold 38,687 44.7 % 50,501 46.9 % (11,814 ) -23.4 % Gross profit 47,867 55.3 % 57,197 53.1 % (9,330 ) -16.3 % SG&A expenses 50,224 58.0 % 54,495 50.6 % (4,271 ) -7.8 % Income (loss) from operations $ (2,357 ) -2.7 % $ 2,702 2.5 % $ (5,059 ) -187.2 % *14 weeks for fiscal 2024 as compared with 13 weeks for fiscal 2023. Analysis of Quarterly Results: Total sales revenue for the three months ended March 2, 2024 decreased $21,144 or 20% from the prior year period due to a 22% decline in wholesale sales along with a 17% decrease in retail sales through the Company-owned stores and a 37% decline in sales at Noa Home. Gross margins for the three months ended March 2, 2024 increased 220 basis points over the prior year period. Selling, general and administrative (“SG&A”) expenses as a percentage of sales for the three months ended March 2, 2024 increased 740 basis points from 2023 primarily due to the deleverage of fixed costs caused by lower sales volumes. 21 of 34 PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED MARCH 2, 2024 (Dollars in thousands except share and per share data) Segment Information We have strategically aligned our business into three reportable segments as defined in ASC 280, Segment Reporting , and as described below: ● Wholesale. 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. Our wholesale segment includes our wood and upholstery operations, which includes Lane Venture. ● Retail – Company-owned stores. Our retail segment consists of Company-owned stores and includes the revenues, expenses, assets and liabilities and capital expenditures directly related to these stores and the Company-owned distribution network utilized to deliver products to our retail customers. ● Corporate and other – Corporate and other includes the shared costs of corporate functions such as treasury and finance, information technology, accounting, human resources, legal and others, including certain product development and marketing functions benefitting both wholesale and retail operations. We consider our corporate functions to be other business activities and have aggregated them with our other insignificant operating segment, Noa Home, which was acquired on September 2, 2022. Inter-company net sales elimination represents the elimination of wholesale sales to our Company-owned stores. Inter-company income elimination includes the embedded wholesale profit in the Company-owned store inventory that has not been realized. These profits will be recorded when merchandise is delivered to the retail consumer. The inter-company income elimination also includes rent paid by our retail stores occupying Company-owned real estate. 22 of 34 PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED MARCH 2, 2024 (Dollars in thousands except share and per share data) Reconciliation of Segment Results to Consolidated Results of Operations To supplement the financial measures prepared in accordance with GAAP, we present gross profit by segment inclusive of the effects of intercompany sales by our wholesale segment to our retail segment. 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 March 2, 2024 Non-GAAP Presentation GAAP Presentation Wholesale Retail Corporate & Other Eliminations Special Items Consolidated Net sales of furniture and accessories $ 54,700 $ 53,754 $ 1,862 $ (23,762 )(1) $ - $ 86,554 Cost of furniture and accessories sold 36,709 24,741 809 (23,572 )(2) - 38,687 Gross profit 17,991 29,013 1,053 (190 ) - 47,867 SG&A expense 11,231 30,625 8,648 (280 )(3) - 50,224 Income (loss) from operations $ 6,760 $ (1,612 ) $ (7,595 ) $ 90 $ - $ (2,357 ) Quarter Ended February 25, 2023 Non-GAAP Presentation GAAP Presentation Wholesale Retail Corporate & Other Eliminations Special Items Consolidated Net sales of furniture and accessories $ 69,884 $ 64,962 $ 2,951 $ (30,099 )(1) $ - $ 107,698 Cost of furniture and accessories sold 48,278 30,586 1,433 (29,796 )(2) - 50,501 Gross profit 21,606 34,376 1,518 (303 ) - 57,197 SG&A expense 12,612 32,846 9,289 (252 )(3) - 54,495 Income from operations $ 8,994 $ 1,530 $ (7,771 ) $ (51 ) $ - $ 2,702 Notes to segment consolidation table: (1) Represents the elimination of sales from our wholesale segment to our Company-owned BHF stores. (2) 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. (3) Represents the elimination of rent paid by our retail stores occupying Company-owned real estate. 23 of 34 PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED MARCH 2, 2024 (Dollars in thousands except share and per share data) Wholesale Segment Results for the wholesale segment for the three months ended March 2, 2024 and February 25, 2023 are as follows: Quarter Ended Change March 2, 2024* February 25, 2023 Dollars Percent Net sales $ 54,700 100.0 % $ 69,884 100.0 % $ (15,184 ) -21.7 % Gross profit (1) 17,991 32.9 % 21,606 30.9 % (3,615 ) -16.7 % SG&A expenses 11,231 20.5 % 12,612 18.0 % (1,381 ) -10.9 % Income from operations $ 6,760 12.4 % $ 8,994 12.9 % $ (2,234 ) -24.8 % (1) Gross profit at the segment level is considered a Non-GAAP financial measure due to the included effects of intercompany transactions. Refer to the reconciliation of gross profit by segment to consolidated gross profit presented under the Reconciliation of Segment Results to Consolidated Results of Operations above. *14 weeks for fiscal 2024 as compared with 13 weeks for fiscal 2023. Wholesale sales by major product category are as follows: Quarter Ended March 2, 2024* February 25, 2023 Total Change External Intercompany Total External Intercompany Total Dollars Percent Bassett Custom Upholstery $ 20,375 $ 14,767 $ 35,142 64.2 % $ 24,506 $ 19,344 $ 43,850 62.7 % $ (8,708 ) -19.9 % Bassett Leather 3,955 535 4,490 8.2 % 6,805 18 6,823 9.8 % (2,333 ) -34.2 % Bassett Custom Wood 3,751 4,892 8,643 15.8 % 4,876 5,940 10,816 15.5 % (2,173 ) -20.1 % Bassett Casegoods 2,857 3,568 6,425 11.7 % 3,598 4,797 8,395 12.0 % (1,970 ) -23.5 % Total $ 30,938 $ 23,762 $ 54,700 100.0 % $ 39,785 $ 30,099 $ 69,884 100.0 % $ (15,184 ) -21.7 % *14 weeks for fiscal 2024 as compared with 13 weeks for fiscal 2023. Analysis of Quarterly Results – Wholesale Net sales for the three months ended March 2, 2024 decreased $15,184 or 22% from the prior year period due primarily to a 20% decrease in shipments to the open market, a 21% decrease in shipments to our retail store network and a 26% decrease in Lane Venture shipments. Gross margins for the three months ended March 2, 2024 increased 200 basis points over the prior year primarily due to the expected improvement in the Bassett Leather business. 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 further margin improvement in the second quarter of 2024 with a return to normal margins in the third quarter of 2024. Margins in our Bassett Casegoods business also improved as expected primarily due to shipping more product that contained lower in-bound freight costs. In addition, margins in our Bassett Custom Wood business increased due to lower material costs, partially offset by deleverage of fixed manufacturing costs from lower sales volumes. SG&A expenses as a percentage of sales increased 250 basis points primarily due to reduced leverage of fixed costs from decreased sales. Wholesale Backlog Wholesale backlog at March 2, 2024 was $19,491 as compared to $18,478 at November 25, 2023 and $24,895 at February 25, 2023. 24 of 34 PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED MARCH 2, 2024 (Dollars in thousands except share and per share data) Retail – Company-owned Stores Segment Results for the retail segment for the periods ended March 2, 2024 and February 25, 2023 are as follows: Quarter Ended Change March 2, 2024* February 25, 2023 Dollars Percent Net sales $ 53,754 100.0 % $ 64,962 100.0 % $ (11,208 ) -17.3 % Gross profit (1) 29,013 54.0 % 34,376 52.9 % (5,363 ) -15.6 % SG&A expenses 30,625 57.0 % 32,846 50.6 % (2,221 ) -6.8 % Income (loss) from operations $ (1,612 ) -3.0 % $ 1,530 2.4 % $ (3,142 ) -205.4 % (1) Gross profit at the segment level is considered a Non-GAAP financial measure due to the included effects of intercompany transactions. Refer to the reconciliation of gross profit by segment to consolidated gross profit presented under the Reconciliation of Segment Results to Consolidated Results of Operations above. *14 weeks for fiscal 2024 as compared with 13 weeks for fiscal 2023. Retail sales by major product category are as follows: Quarter Ended Change March 2, 2024* February 25, 2023 Dollars Percent Bassett Custom Upholstery $ 29,803 55.4 % $ 36,159 55.7 % $ (6,356 ) -17.6 % Bassett Leather 827 1.5 % 494 0.8 % 333 67.4 % Bassett Custom Wood 8,198 15.3 % 9,669 14.9 % (1,471 ) -15.2 % Bassett Casegoods 7,385 13.7 % 10,050 15.5 % (2,665 ) -26.5 % Accessories, mattresses and other (1) 7,541 14.0 % 8,590 13.2 % (1,049 ) -12.2 % Total $ 53,754 100.0 % $ 64,962 100.0 % $ (11,208 ) -17.3 % (1) Includes the sale of goods other than Bassett-branded products, such as accessories and bedding, and also includes the sale of furniture protection plans. *14 weeks for fiscal 2024 as compared with 13 weeks for fiscal 2023. Analysis of Quarterly Results - Retail Net sales for the three months ended March 2, 2024 decreased $11,208 or 17% from the prior year period. Written sales (the value of sales orders taken but not delivered) declined 3.5% from the first quarter of 2023. Gross margin for the three months ended March 2, 2024 improved 110 basis points over the prior period primarily due to higher margins on in-line and clearance goods from improved pricing disciplines. SG&A expenses as a percentage of sales for the three months ended March 2, 2024 increased 640 basis points primarily due to decreased leverage of fixed costs from lower sales volumes. Retail Backlog Retail backlog at March 2, 2024 was $31,307 compared to $30,902 at November 25, 2023 and $41,763 at February 25, 2023. 25 of 34 PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED MARCH 2, 2024 (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 March 2, 2023 and February 25, 2023 are as follows: Quarter Ended Change March 2, 2024* February 25, 2023 Dollars Percent Net sales $ 1,862 $ 2,951 $ (1,089 ) -36.9 % Gross profit 1,053 1,518 (465 ) -30.6 % SG&A expenses 8,648 9,289 (641 ) -6.9 % Net expenses $ (7,595 ) $ (7,771 ) $ 176 -2.3 % *14 weeks for fiscal 2024 as compared with 13 weeks for fiscal 2023. Analysis of Quarterly Results – Corporate and Other The decreases in sales and gross profit from the prior year period were primarily due to a shift in the second quarter of 2023 where Noa Home reduced advertising spend to improve advertising efficiency which resulted in lower overall sales but with greater leverage on advertising spend coupled with Noa Home’s exit of the Australia market during the first quarter of 2024. The $641 decrease in SG&A expenses was primarily due to decreased advertising and marketing spending by Noa Home partially offset by a slight increase in overall corporate overhead spending. Other Items Affecting Net Income (Loss) Interest Income Interest income for the three months ended March 2, 2024 was $756 compared to $152 for the three months ended February 25, 2023. The net change from the prior year period was primarily due to higher interest income on our cash equivalents and investments in certificates of deposit. Other Loss, Net Other loss, net, for the three months ended March 2, 2024 was $104 compared to $567 for the three months ended February 25, 2023. The net change from the prior year periods was primarily due to lower costs associated with Company-owned life insurance. Income Taxes 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 30.0% and 36.8% for the three months ended March 2, 2024 and February 25, 2023, respectively. The effective rates differed from the federal statutory rate of 21% primarily due to 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. Liquidity and Capital Resources Cash Flows Cash used in operations for the first quarter of fiscal 2024 was $7,736 compared to cash provided by operations of $563 for the first quarter of fiscal 2023, representing a decrease of $8,302 in cash flows from operations. This decrease was primarily the result of changes in working capital due to the timing impact of expenditures as a result of an additional week in the first quarter of 2024 coupled with lower net income. 26 of 34 PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED MARCH 2, 2024 (Dollars in thousands except share and per share data) Our overall cash position declined $11,798 during the first quarter of 2024 compared to a decrease of $6,733 for the first quarter of 2023. During the first quarter of fiscal 2024, we spent $2,076 on purchases of property and equipment primarily consisting of the upfit of the new Tampa, Florida and Houston, Texas stores that opened in the first quarter of 2024, final payments on the Austin, Texas store remodel and expenditures related to various information technology and manufacturing plant projects. We also paid $1,573 in dividends during the first quarter of 2024. We made no purchases under our stock repurchase program during the first quarter of 2024 compared to $1,421 repurchased in the prior year period. We expect capital expenditures for the full year to range from $12 million to $14 million. As of March 2, 2024, $21,823 remains available for future purchases under our stock repurchase plan. With cash and cash equivalents and short-term investments totaling $58,384 on hand at March 2, 2024, 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 March 2, 2024, 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. 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: ● Consolidated fixed charge coverage ratio of not less than 1.4 times, ● Consolidated lease-adjusted leverage ratio not to exceed 3.0 times, and ● Minimum tangible net worth of $140,000. Due to our results of operations in 2023, we were not in compliance with certain of these covenants at the end of our 2023 fiscal year. Consequently, our bank agreed to reduce the consolidated fixed charge coverage ratio to 1.0 times and increase the consolidated lease-adjusted leverage ratio to 3.75 times, as defined, for the year ended November 25, 2023 and the quarter ended March 2, 2024. We were in compliance with the amended covenants at November 25, 2023 and at March 2, 2024. The respective ratios will revert back to the previous values for the quarter ending June 1, 2024. We are in negotiations with our bank and plan to have an amended, restated or new agreement with a similar line of credit in place by the end of the second quarter of 2024. We lease land and buildings that are used in the operation of our Company-owned retail stores as well as in the operation of one 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 March 2, 2024 is $113,143 and is included in our accompanying condensed consolidated balance sheet at March 2, 2024. We were contingently liable under a licensee lease obligation guarantee in the amount of $1,750 at March 2, 2024. The remaining term under this lease guarantee extends for four and a half years. See Note 9 to our condensed consolidated financial statements for additional details regarding our lease guarantees. 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 203,465 and a net book value of $24,193 at March 2, 2024. Critical Accounting Policies and Estimates There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, included in our Annual Report on Form 10-K for the fiscal year ended November 25, 2023. Off-Balance Sheet Arrangements We utilize stand-by letters of credit in the procurement of certain goods in the normal course of business. In addition, we have guaranteed certain lease obligations of licensee operators for some of their store locations. See Note 9 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. 27 of 34 PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED MARCH 2, 2024 (Dollars in thousands except share and per share data) Contingencies We are involved in various legal and environmental matters which arise in the normal course of business. 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 March 2, 2024.