What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-10-10 compared with 2024-07-11 · 152 added, 109 removed, 266 unchanged (50% of the section changed)

14 unchanged sentences

the risk of additional charges arising from our decision to close Noa Home Inc.

(“Noa Home”) during the second half of fiscal 2024.

(“Noa Home”) during the fourth quarter of fiscal 2024.

effectiveness and security of our information technology systems and possible disruptions due to cybersecurity threats, including any impacts from a network security incident;

11 unchanged sentences

BASSETT FURNITURE INDUSTRIES INCORPORATED AND SUBSIDIARIES

AUGUST 31, 2024

(Dollars in thousands except share and per share data)

1 unchanged sentence

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 27 weeks of operations for the six months ended June 1, 2024 as compared to 26 weeks included in the quarter ended May 27, 2023.

Accordingly, the information presented below includes 40 weeks of operations for the nine months ended August 31, 2024 as compared to 39 weeks included in the quarter ended August 26, 2023.

Bassett is a leading retailer, manufacturer and marketer of branded home furnishings.

3 unchanged sentences

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 June 1, 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.

With 87 BHF stores at August 31, 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.

9 unchanged sentences

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.

We 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.

2 unchanged sentences

After nearly two years of operating losses, we concluded during the second quarter of 2024 that Noa Home was not likely to achieve profitability at any time in the foreseeable future and have decided to cease operations by selling the inventory in an orderly fashion over the next several months.

In the second quarter of 2024 we have recognized non-cash charges totaling $2,401 related to the impairment of certain long-lived assets of Noa Home and the establishment of a reserve against Noa Home’s remaining inventory.

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 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.

In the second quarter of 2024 we recognized non-cash charges totaling $2,401 related to the impairment of certain long-lived assets of Noa Home and the establishment of a reserve against Noa Home’s remaining inventory.

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.

3 unchanged sentences

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

AUGUST 31, 2024

(Dollars in thousands except share and per share data)

Retail Stores

During the first quarter of 2024 we opened two new Corporate-owned stores located in Tampa, Florida and Houston, Texas.

As of June 1, 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 June 1, 2024 there were 30 licensee-owned stores in operation.

Results of Operations – Periods ended June 1, 2024 compared with the periods ended May 27, 2023:

Consolidated results of operations for the three and six months ended June 1, 2024 and May 27, 2023 are as follows:

As of August 31, 2024, we had 58 Corporate-owned stores operating.

One licensee-owned store in La Jolla, California was closed during the first quarter of 2024 and two licensee-owned stores in Seattle, Washington were closed during the third quarter of 2024.

As of August 31, 2024 there were 29 licensee-owned stores in operation.

Cybersecurity Incident

On July 10, 2024, we detected unauthorized occurrences on a portion of our information technology (IT) systems.

Upon detecting the unauthorized occurrences, we immediately began taking steps to contain, assess and remediate the cybersecurity incident, including beginning an investigation with leading external cybersecurity specialists, activating our incident response plan, and shutting down some systems.

As a result of these and other measures, we believe the threat actor was ejected from our IT systems on July 10, 2024.

After we shut down some of our systems, we experienced disruption to certain of our operations, including interrupted manufacturing at our domestic plants and delayed order fulfillment for our retail network and delay of some wholesale shipments.

Within a few days of the incident, we were able to resume retail order fulfillment and caught up on fulfilling wholesale orders that were delayed as a result of the cybersecurity incident.

We have fully restored the IT systems and data and our investigation has not found evidence that any of our core operating systems for manufacturing, wholesale and retail order processing and fulfillment, or financial reporting were impacted.

While we believe the impacts were not material to our financial condition and results of operations for the fiscal year, we estimate that between $1,000 and $2,000 of sales were lost due to the shutdown during the cybersecurity incident.

During the third quarter of 2024, we also incurred legal and remediation costs related to the incident of approximately $98 which are included in selling, general and administrative expenses.

In addition, cost of goods sold for the three and nine months ended August 31, 2024 includes $609 for wages paid to hourly production employees during the work stoppage resulting from the cybersecurity incident.

Because no inventory was produced during the temporary shutdown of our manufacturing operations, these wages were charged directly to expense.

We will be seeking reimbursement of costs, expenses and losses stemming from the cybersecurity incident by submitting claims to our cybersecurity insurers.

While the timing and amount of any such reimbursements is not known at this time, we are currently in the process of documenting our claim and expect to resolve the final amount during the fourth fiscal quarter of 2024.

PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES INCORPORATED AND SUBSIDIARIES

AUGUST 31, 2024

(Dollars in thousands except share and per share data)

Results of Operations – Periods ended August 31, 2024 compared with the periods ended August 26, 2023:

Consolidated results of operations for the three and nine months ended August 31, 2024 and August 26, 2023 are as follows:

Quarter Ended

Six Months Ended

June 1, 2024*

Nine Months Ended

August 31, 2024

August 26, 2023

August 31, 2024*

August 26, 2023

Net sales of furniture and accessories

1 unchanged sentence

SG&A expenses

Loss on contract abandonment

Asset impairment charges

3 unchanged sentences

Analysis of Quarterly Results:

Total sales revenue for the three months ended June 1, 2024 decreased $17,109 or 17% from the prior year period due primarily to a 15% decline in wholesale sales and a 17% decrease in retail sales through the Company-owned stores.

Gross margins for the three months ended June 1, 2024 decreased 10 basis points from the prior year period primarily due to increased inventory valuation charges of $1,729 in the wholesale segment, $472 in the retail segment and $500 in the Noa Home operation.

Total sales revenue for the three months ended August 31, 2024 decreased $11,598 or 13% from the prior year period due primarily to a 16% decline in wholesale sales and a 10% decrease in retail sales through the Company-owned stores.

In addition, we estimate that between $1,000 and $2,000 of sales were lost due to the shutdown during the cybersecurity incident.

Gross margins for the three months ended August 31, 2024 increased 140 basis points over the prior year period primarily due to improved margins in both the retail and wholesale segments, partially offset by $609 of unproductive labor costs incurred during the temporary shutdown resulting from the cybersecurity incident.

Excluding these unproductive labor costs, our consolidated gross margin would have been 53.8%.

Selling, general and administrative (“SG&A”) expenses as a percentage of sales for the three months ended August 31, 2024 increased 380 basis points from 2023 primarily due to the deleverage of fixed costs caused by lower sales volumes.

Analysis of Year-to-Date Results:

Total sales revenue for the nine months ended August 31, 2024 decreased $49,851 or 17% from the prior year period primarily due to a 18% decline in wholesale sales and a 15% decrease in retail sales through the Company-owned stores.

Gross margins for the nine months ended August 31, 2024 increased 110 basis points over the prior year period.

Included in the current year gross margin are increased inventory valuation charges of $1,729 in the wholesale segment, $472 in the retail segment and $500 in the Noa Home operation, and unproductive labor costs of $609 incurred during the temporary shutdown resulting from the cybersecurity incident.

Excluding these charges, our consolidated gross margin would have been 55.0%.

Selling, general and administrative (“SG&A”) expenses as a percentage of sales for the three months ended June 1, 2024 increased 490 basis points from 2023 primarily due to the deleverage of fixed costs caused by lower sales volumes.

SG&A expenses as a percentage of sales for the nine months ended August 31, 2024 increased 550 basis points from 2023 primarily due to the deleverage of fixed costs caused by lower sales volumes.

PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES INCORPORATED AND SUBSIDIARIES

AUGUST 31, 2024

(Dollars in thousands except share and per share data)

Analysis of Year-to-Date Results:

Total sales revenue for the six months ended June 1, 2024 decreased $38,253 or 18% from the prior year period primarily due to a 19% decline in wholesale sales and a 17% decrease in retail sales through the Company-owned stores.

Gross margins for the six months ended June 1, 2024 increased 110 basis points over the prior year period.

Included in the current year gross margin are increased inventory valuation charges of $1,729 in the wholesale segment, $472 in the retail segment and $500 in the Noa Home operation.

Excluding these charges, our consolidated gross margin would have been 55.5%.

Selling, general and administrative (“SG&A”) expenses as a percentage of sales for the six months ended June 1, 2024 increased 620 basis points from 2023 primarily due to the deleverage of fixed costs caused by lower sales volumes.

Reconciliation of Gross Profit as Reported to Adjusted Gross Profit:

Quarter Ended

Six Months Ended

Nine Months Ended

August 31, 2024

August 26, 2023

August 31, 2024

August 26, 2023

Gross profit as reported

Wages paid during cyber incident shutdown

Additional inventory valuation charges

10 unchanged sentences

We consider our corporate functions to be other business activities and have aggregated them with any of our operating segments that do not meet the requirements to be reportable segments.

As of and for the periods ended June 1, 2024 and May 27, 2023, the only such operating segment included in Corporate and other is Noa Home, which was acquired on September 2, 2022.

As of and for the periods ended August 31, 2024 and August 26, 2023, the only such operating segment included in Corporate and other is Noa Home, which was acquired on September 2, 2022.

All sales reported in our Corporate and other category are attributable to Noa Home, which generates substantially all of its sales outside of the United States.

During the second quarter we concluded that Noa Home was not likely to achieve profitability in the foreseeable future and have decided to cease operations by selling the inventory in an orderly fashion over the next several months.

During the second quarter of 2024 we concluded that Noa Home was not likely to achieve profitability in the foreseeable future and decided to cease operations by selling the inventory in an orderly fashion over the next several months.

Inter-company net sales elimination represents the elimination of wholesale sales to our Company-owned stores.

4 unchanged sentences

BASSETT FURNITURE INDUSTRIES INCORPORATED AND SUBSIDIARIES

AUGUST 31, 2024

(Dollars in thousands except share and per share data)

4 unchanged sentences

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

Quarter Ended June 1, 2024

Quarter Ended August 31, 2024

Non-GAAP Presentation

3 unchanged sentences

Cost of furniture and accessories sold

Asset impairment charges

Loss on contract abandonment

Income (loss) from operations

2 unchanged sentences

Income (loss) before income taxes

Quarter Ended May 27, 2023

Quarter Ended August 26, 2023

Non-GAAP Presentation

3 unchanged sentences

Cost of furniture and accessories sold

Gain revaluation of contingent consideration

Income (loss) from operations

4 unchanged sentences

BASSETT FURNITURE INDUSTRIES INCORPORATED AND SUBSIDIARIES

AUGUST 31, 2024

(Dollars in thousands except share and per share data)

Six Months Ended June 1, 2024

Nine Months Ended August 31, 2024

Non-GAAP Presentation

3 unchanged sentences

Cost of furniture and accessories sold

Loss on contract abandonment

Asset impairment charges

3 unchanged sentences

Income (loss) before income taxes

Six Months Ended May 27, 2023

Nine Months Ended August 26, 2023

Non-GAAP Presentation

3 unchanged sentences

Cost of furniture and accessories sold

Gain revaluation of contingent consideration

Gain on revaluation of contingent consideration

Income from operations

6 unchanged sentences

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

Represents the charge for accruing the remaining minimum payments under a contract for logistical services in Riverside, CA which we no longer utilize.

Represents asset impairment charges of $2,887 and $727 in our retail and wholesale segments, respectively, a $1,827 charge for the impairment of the Noa Home trade name intangible asset, and a $74 charge for the impairment of Noa Home customized software.

2 unchanged sentences

BASSETT FURNITURE INDUSTRIES INCORPORATED AND SUBSIDIARIES

AUGUST 31, 2024

(Dollars in thousands except share and per share data)

Wholesale Segment

Results for the wholesale segment for the three and six months ended June 1, 2024 and May 27, 2023 are as follows:

Results for the wholesale segment for the three and nine months ended August 31, 2024 and August 26, 2023 are as follows:

Quarter Ended

Six Months Ended

June 1, 2024*

Nine Months Ended

August 31, 2024

August 26, 2023

August 31, 2024*

August 26, 2023

Gross profit (1)

6 unchanged sentences

Quarter Ended

May 27, 2023*

August 31, 2024

August 26, 2023*

Bassett Custom Upholstery

2 unchanged sentences

Bassett Casegoods

Six Months Ended

May 27, 2023*

Nine Months Ended

August 31, 2024

August 26, 2023*

Bassett Custom Upholstery

4 unchanged sentences

Analysis of Quarterly Results – Wholesale

Net sales for the three months ended June 1, 2024 decreased $9,165 or 15% from the prior year period due primarily to a 19% decrease in shipments to the open market, a 16% decrease in shipments to our retail store network partially offset by a 2% increase in Lane Venture shipments.

Gross margins for the three months ended June 1, 2024 increased 110 basis points over the prior year primarily due to the expected improvement in the Bassett Leather business.

Net sales for the three months ended August 31, 2024 decreased $8,832 or 16% from the prior year period due primarily to a 22% decrease in shipments to the open market, a 13% decrease in shipments to our retail store network and a 6% decrease in Lane Venture shipments.

Gross margins for the three months ended August 31, 2024 increased 50 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.

This improvement was partially offset by decreased margins in our Bassett Custom Wood business due to increased inventory valuation charges as a result of a plant consolidation and the reduction in the number of active suites in the product line and deleverage of fixed manufacturing costs due to lower sales volumes.

We also recorded increased inventory valuation charges in our Bassett Casegoods business as we plan to be more aggressive in selling certain slow-moving products.

Total additional inventory valuation charges for the wholesale segment were $1,729.

This improvement was partially offset by lower margins in the Bassett Custom Upholstery business due to deleverage of fixed costs from lower sales volumes and $609 of unproductive labor costs, or 1.3% of sales, incurred during the temporary shutdown resulting from the cybersecurity incident.

SG&A expenses as a percentage of sales increased 240 basis points primarily due to reduced leverage of fixed costs from decreased sales.

1 unchanged sentence

BASSETT FURNITURE INDUSTRIES INCORPORATED AND SUBSIDIARIES

AUGUST 31, 2024

(Dollars in thousands except share and per share data)

Analysis of Year-to-Date Results – Wholesale

Net sales for the three months ended June 1, 2024 decreased $24,348 or 19% from the prior year period due primarily to a 19% decrease in shipments to the open market, a 19% decrease in shipments to our retail store network and an 11% decrease in Lane Venture shipments.

Gross margins for the three months ended June 1, 2024 increased 150 basis points over the prior year primarily due to the expected improvement in the Bassett Leather business.

Net sales for the nine months ended August 31, 2024 decreased $33,180 or 18% from the prior year period due primarily to a 20% decrease in shipments to the open market, a 17% decrease in shipments to our retail store network and a 9% decrease in Lane Venture shipments.

Gross margins for the nine months ended August 31, 2024 increased 120 basis points over the prior year primarily due to the expected improvement in the Bassett Leather business.

2 unchanged sentences

Margins in our Bassett Casegoods business also improved as expected primarily due to shipping more product that contained lower in-bound freight costs partially offset by increased inventory valuation charges as we plan to be more aggressive in selling certain slow-moving products.

These improvements were partially offset by decreased margins in our Bassett Custom Wood business due to increased inventory valuation charges as a result of a plant consolidation and the reduction in the number of active suites in the product line and deleverage of fixed manufacturing costs due to lower sales volumes.

Total additional inventory valuation charges for the wholesale segment were $1,729.

These improvements were partially offset by lower margins in the Bassett Custom Upholstery business due to deleverage of fixed costs from lower sales volumes.

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

Wholesale Backlog

Wholesale backlog at June 1, 2024 was $19,373 as compared to $18,478 at November 25, 2023 and $19,693 at May 27, 2023.

Wholesale backlog at August 31, 2024 was $18,481 as compared to $18,478 at November 25, 2023 and $19,895 at August 26, 2023.

Retail – Company-owned Stores Segment

Results for the retail segment for the periods ended June 1, 2024 and May 27, 2023 are as follows:

Results for the retail segment for the periods ended August 31, 2024 and August 26, 2023 are as follows:

Quarter Ended

Six Months Ended

June 1, 2024*

Nine Months Ended

August 31, 2024

August 26, 2023

August 31, 2024*

August 26, 2023

Gross profit (1)

6 unchanged sentences

BASSETT FURNITURE INDUSTRIES INCORPORATED AND SUBSIDIARIES

AUGUST 31, 2024

(Dollars in thousands except share and per share data)

1 unchanged sentence

Quarter Ended

Six Months Ended

June 1, 2024*

Nine Months Ended

August 31, 2024

August 26, 2023

August 31, 2024*

August 26, 2023

Bassett Custom Upholstery

6 unchanged sentences

Analysis of Quarterly Results - Retail

Net sales for the three months ended June 1, 2024 decreased $10,310 or 17% from the prior year period.

Written sales (the value of sales orders taken but not delivered) declined 2.5% from the second quarter of 2023.

Gross margin for the three months ended June 1, 2024 were flat with the prior period as higher margins on in-line goods were offset by lower margins on clearance goods and $472 of additional inventory valuation charges due to our strategy to be more aggressive in selling clearance goods to better control inventory levels.

SG&A expenses as a percentage of sales for the three months ended June 1, 2024 increased 570 basis points primarily due to decreased leverage of fixed costs from lower sales volumes.

Net sales for the three months ended August 31, 2024 decreased $5,008 or 9.6% from the prior year period.

Written sales (the value of sales orders taken but not delivered) declined 4.8% from the third quarter of 2023.

Gross margin for the three months ended August 31, 2024 improved 120 basis points over the prior period due to higher margins on both in-line and clearance goods.

In addition, we were running two store closure sales in 2023 that reduced the gross margin for the third quarter of 2023.

SG&A expenses as a percentage of sales for the three months ended August 31, 2024 increased 150 basis points primarily due to decreased leverage of fixed costs from lower sales volumes partially offset by reduced advertising and fixed delivery costs.

Analysis of Year-to-Date Results - Retail

Net sales for the six months ended June 1, 2024 decreased $21,518 or 17% from the prior year period.

Written sales (the value of sales orders taken but not delivered) declined 3.0% from the first half of 2023.

Gross margin for the six months ended June 1, 2024 improved 50 basis points over the prior period primarily due to higher margins on in-line goods partially offset by lower margins on clearance goods and $472 of additional inventory valuation charges due to our strategy to be more aggressive in selling clearance goods to better control inventory levels.

SG&A expenses as a percentage of sales for the six months ended June 1, 2024 increased 600 basis points primarily due to decreased leverage of fixed costs from lower sales volumes.

Net sales for the nine months ended August 31, 2024 decreased $26,526 or 15% from the prior year period.

Written sales (the value of sales orders taken but not delivered) declined 3.6% from the first nine months of 2023.

Gross margin for the nine months ended August 31, 2024 improved 80 basis points over the prior period primarily due to higher margins on both in-line and clearance goods partially offset by $472 of additional inventory valuation charges in the second quarter of 2024 due to our strategy to be more aggressive in selling clearance goods to better control inventory levels.

SG&A expenses as a percentage of sales for the nine months ended August 31, 2024 increased 480 basis points primarily due to decreased leverage of fixed costs from lower sales volumes.

Retail Backlog

Retail backlog at June 1, 2024 was $31,545 compared to $30,902 at November 25, 2023 and $32,894 at May 27, 2023.

Retail backlog at August 31, 2024 was $33,251 compared to $30,902 at November 25, 2023 and $32,702 at August 26, 2023.

PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES INCORPORATED AND SUBSIDIARIES

AUGUST 31, 2024

(Dollars in thousands except share and per share data)

2 unchanged sentences

Therefore, Noa Home is included within the Corporate and other reconciling category and accounts for all of the sales and gross profit within this reconciling category.

Revenues, costs and expenses of Corporate and other for the periods ended June 1, 2024 and May 27, 2023 are as follows:

Revenues, costs and expenses of Corporate and other for the periods ended August 31, 2024 and August 26, 2023 are as follows:

Quarter Ended

Six Months Ended

Nine Months Ended

August 31, 2024

August 26, 2023

June 1, 2024*

August 26, 2023

SG&A expenses

1 unchanged sentence

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 during the second quarter of 2023 where Noa Home reduced advertising spending to improve advertising efficiency which resulted in lower overall sales but with greater leverage on advertising spending coupled with Noa Home’s exit of the Australia market during the first quarter of 2024.

Included in the gross profit is an inventory valuation charge of $500 due to our decision to cease operations by selling the remaining inventory in an orderly fashion over the next several months.

The $1,267 decrease in SG&A expenses was primarily due to decreased corporate overhead spending from better expense management coupled with lower advertising and warehouse expenses for Noa Home.

Sales and gross profit declined from the prior year period as we began our wind-down of Noa Home’s operations and continued to sell the remaining inventory over the next several months.

The $888 decrease in SG&A expenses was primarily due to reduced advertising and warehouse costs for Noa Home as a result of the on-going wind-down of operations and decreased corporate overhead spending from better expense management, partially offset by costs incurred in connection with the cybersecurity incident.

Analysis of Year-to-Date 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 spending to improve advertising efficiency which resulted in lower overall sales but with greater leverage on advertising spending coupled with Noa Home’s exit of the Australia market during the first quarter of 2024.

Included in the gross profit is an inventory valuation charge of $500 due to our decision to cease operations by selling the remaining inventory in an orderly fashion over the next several months.

The $1,909 decrease in SG&A expenses was primarily due to decreased advertising and warehouse spending by Noa Home coupled with lower corporate overhead spending from better expense management.

Sales and gross profit declined from the prior year period as we began our wind-down of Noa Home’s operations and continued to sell the remaining inventory over the next several months.

Included in the gross profit is an inventory valuation charge of $500 recognized during the second quarter of 2024 due to our decision to cease operations at Noa Home.

The $2,777 decrease in SG&A expenses was primarily due to decreased advertising and warehouse costs for Noa Home as a result of the on-going wind-down of operations and decreased corporate overhead spending from better expense management.

Other Gains and Losses

During the three and six months ended June 1, 2024, we recognized non-cash charges for asset impairments totaling $5,515 which consisted of the following:

During the three and nine months ended August 31, 2024, we recognized a charge of $1,240 to accrue the remaining minimum charges under a logistical services contract with a vendor in Riverside, California.

We ceased utilizing those services during the third quarter of 2024 and expect to pay the minimum monthly charge through January of 2026.

During the nine months ended August 31.

2024, we recognized non-cash charges for asset impairments totaling $5,515 which consisted of the following:

$2,887 in our retail segment which included $1,978 related to the impairment of leasehold improvements and $750 from the impairment of right-of-use assets at certain underperforming retail stores, as well as $159 for the impairment of right-of-use assets at certain warehouse locations resulting from the consolidation of our retail warehouses.

1 unchanged sentence

$1,901 for the impairment of long-lived assets at Noa Home.

During the second quarter we concluded that Noa Home was not likely to achieve profitability in the foreseeable future and have decided to cease operations by selling the remaining inventory in an orderly fashion over the next several months.

During the second quarter we concluded that Noa Home was not likely to achieve profitability in the foreseeable future and decided to cease operations by selling the remaining inventory in an orderly fashion over the next several months.

$1,827 of these charges are for the full impairment of the Noa Home trade name intangible asset, and $74 relates to the full impairment of customized software used in the Noa Home operations.

1 unchanged sentence

BASSETT FURNITURE INDUSTRIES INCORPORATED AND SUBSIDIARIES

AUGUST 31, 2024

(Dollars in thousands except share and per share data)

During the three and six months ended May 27, 2023, we recognized a non-cash gain of $1,013 resulting from the write-down of our contingent consideration obligation to the former owners of Noa Home.

During the nine months ended August 26, 2023, we recognized a non-cash gain of $1,013 resulting from the write-down of our contingent consideration obligation to the former owners of Noa Home.

Subsequent to the acquisition of Noa Home on September 2, 2022, the parties concluded that the revenue and EBITDA targets originally set forth in the purchase agreement by which the Noa Home co-founders were to earn the contingent consideration were likely not to be met within the originally anticipated time frame and therefore agreed to replace the contingent consideration payable that was recognized at the acquisition date with two fixed payments of C$200 each.

2 unchanged sentences

Interest Income

Interest income for the three and six months ended June 1, 2024 was $627 and $1,383, respectively, compared to $569 and $721 for the three and six months, respectively, ended May 27, 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.

Interest income for the three and nine months ended August 31, 2024 was $692 and $2,075, respectively, compared to $923 and $1,644 for the three and nine months, respectively, ended August 26, 2023.

The third quarter decline from the prior year period is primarily due to lower balances of interest-bearing cash and cash equivalents, while for the nine months ended August 31, 2024 the rates earned on our cash and cash equivalents and investments in CDs averaged higher than the preceding year.

Other Loss, Net

Other loss, net, for the three and six months ended June 1, 2024 was $276 and $380, respectively, compared to $505 and $1,072 for the three and six months, respectively, ended May 27, 2023.

Other loss, net, for the three and nine months ended August 31, 2024 was $276 and $380, respectively, compared to $505 and $1,072 for the three and nine months, respectively, ended August 26, 2023.

The net change from the prior year periods was primarily due to lower costs associated with Company-owned life insurance.

1 unchanged sentence

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

Our effective tax rate was 11.2% and 14.5% for the three and six months ended June 1, 2024, respectively.

The effective rates for the three and six months ended June 1, 2024 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 Inc.

(“Noa Home”), the effects of state income taxes and various permanent differences.

Our effective tax rate was 18.4% and 27.1% for the three and six months ended May 27, 2023, respectively.

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 9), 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.

Our effective tax rate was 22.0% and 17.3% for the three and nine months ended August 31, 2024, respectively.

The effective rates for the three and nine months ended August 31, 2024 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.

Our effective tax rate was 18.8% and 43.3% for the three and nine months ended August 26, 2023, respectively.

The effective rates for the three and nine months ended August 26, 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, 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 used in operations for the first half of fiscal 2024 was $1,919 compared to cash provided by operations of $6,413 for the first half of fiscal 2023, representing a decrease of $8,332 in cash flows from operations.

Cash used in operations for the first nine months of fiscal 2024 was $2,323 compared to cash provided by operations of $10,249 for the first nine of fiscal 2023, representing a decrease of $12,572 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.

For the quarter ended June 1, 2024, cash provided by operating activities was $5,820 which was comparable to the quarter ended May 27, 2023.

Our overall cash position declined $9,761 during the first half of 2024.

However, we generated net cash of $2,037 for the quarter ended June 1, 2024.

During the first half of fiscal 2024, we spent $3,683 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 $3,153 in dividends during the first half of 2024.

During the second quarter of 2024 we resumed purchasing shares under our stock repurchase program and repurchased $489 during the first six months of 2024 compared to $3,450 repurchased in the prior year period.

Our overall cash position declined $14,078 during the first nine months of 2024.

During the first nine months of fiscal 2024, we spent $4,720 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, update of the façade of the Greensboro, North Carolina store location and expenditures related to various information technology and manufacturing plant projects.

We also paid $4,909 in dividends during the first nine months of 2024.

During the second quarter of 2024 we resumed purchasing shares under our stock repurchase program and repurchased $1,127 during the first nine months of 2024 compared to $4,056 repurchased in the prior year period.

We expect capital expenditures for the full year to range from $6 million to $8 million.

As of June 1, 2024, $21,333 remains available for future purchases under our stock repurchase plan.

With cash and cash equivalents and short-term investments totaling $60,460 on hand at June 1, 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.

As of August 31, 2024, $20,696 remains available for future purchases under our stock repurchase plan.

With cash and cash equivalents and short-term investments totaling $56,163 on hand at August 31, 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.

PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES INCORPORATED AND SUBSIDIARIES

AUGUST 31, 2024

(Dollars in thousands except share and per share data)

2 unchanged sentences

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

At June 1, 2024, we had $6,013 outstanding under standby letters of credit against our line.

At August 31, 2024, we had $6,013 outstanding under standby letters of credit against our line.

The line bears interest at the One-Month Term Secured Overnight Financing Rate (“One-Month Term SOFR”) plus 1.75% and is secured by our accounts receivable and inventory.

4 unchanged sentences

Consolidated Lease Adjusted Leverage to EBITDAR Ratio not to exceed 3.35 times.

Since our used commitment was less than $8,250 at June 1, 2024, we were not required to test the Consolidated Fixed Charge Coverage Ratio or the Consolidated Lease Adjusted Leverage to EBITDAR Ratio.

Since our used commitment was less than $8,250 at August 31, 2024, we were not required to test the Consolidated Fixed Charge Coverage Ratio or the Consolidated Lease Adjusted Leverage to EBITDAR Ratio.

Had we been required to test those ratios, we would not have been able to achieve the required levels for either ratio.

2 unchanged sentences

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 June 1, 2024 is $109,167 and is included in our accompanying condensed consolidated balance sheet at June 1, 2024.

We were contingently liable under licensee lease obligation guarantees in the amount of $5,322 at June 1, 2024.

The present value of our obligations for leases with terms in excess of one year at August 31, 2024 is $104,133 and is included in our accompanying condensed consolidated balance sheet at August 31, 2024.

We were contingently liable under licensee lease obligation guarantees in the amount of $5,226 at August 31, 2024.

The remaining terms under these lease guarantees extend for six years.

2 unchanged sentences

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

Such real estate is included in property and equipment, net, in the accompanying condensed consolidated balance sheets and consists of eight properties with an aggregate square footage of 203,465 and a net book value of $24,442 at June 1, 2024.

Critical Accounting Policies and Estimates

4 unchanged sentences

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.

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 10 to our condensed consolidated financial statements for further information regarding certain contingencies as of June 1, 2024.

PART I-FINANCIAL INFORMATION-CONTINUED

BASSETT FURNITURE INDUSTRIES INCORPORATED AND SUBSIDIARIES

AUGUST 31, 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.

See Note 10 to our condensed consolidated financial statements for further information regarding certain contingencies as of August 31, 2024.

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