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 tariffs, retaliatory tariffs, duties 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 increased interest rates • the profitability of the stores (independent licensees and Company-owned retail stores) which may result in future store closings • the risk of additional asset impairment charges arising from the ongoing efforts to consolidate our retail warehouses. • ability to implement our Company-owned retail strategies and realize the benefits from such strategies • 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 30, 2024. 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. 21 of 35 PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES MAY 31, 2025 (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 prior fiscal year ending November 30, 2024 was a 53-week year, with the additional week being included in the first fiscal quarter. Accordingly, the information presented below includes 26 weeks of operations for the six months ended May 31, 2025 as compared to 27 weeks included in the six months ended June 1, 2024. Overview Bassett is a leading retailer, manufacturer and marketer of branded home furnishings. We were founded in 1902 and incorporated under the laws of Virginia in 1930. Our rich 123-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. Approximately 60% of our wholesale sales arise from our network of 87 Company-owned and licensee-owned Bassett Home Furnishings (“BHF”) stores. Our store program is designed to provide a single source home furnishings retail store with a unique combination of stylish, quality furniture and accessories with a high level of customer service. The stores highlight our custom furniture design and manufacturing capabilities, 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. Bassett also has a significant traditional wholesale business with more than 1,000 open market accounts. Most of the open market sales are through Bassett Design Centers and Bassett Custom Studios which function as a store within a multi-line store featuring the Company’s custom furniture capabilities. The wholesale business, including the Lane Venture outdoor brand, also services general furniture stores and a growing number of interior design firms through 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 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. We introduced a new web platform late in 2023 that leverages world class features including enhanced customer research capabilities and streamlined navigation. We know that we are driving a significant percentage of the retail foot traffic to our store network and our open market customers through engagement with www.bassettfurniture.com. Although e-commerce sales continue to be small in relation to in-store sales, we are pleased that we have seen a greater than 35% e-commerce sales increase for the six months ended May 31, 2025 as compared to the same period of 2024. We will continue to invest in ongoing improvements to the aesthetics and user experience that we provide on our website. During the fourth quarter of fiscal 2022 we acquired Noa Home Inc. (“Noa Home”). A mid-priced e-commerce furniture retailer headquartered in Montreal, Canada, Noa Home had operations in Canada, Australia, Singapore and the United Kingdom. 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 decided to cease operations by selling the inventory in an orderly fashion. As of November 30, 2024, we had substantially completed the liquidation of Noa Home’s assets and liabilities. 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 a factory in Martinsville, Virginia that assembles and finishes our custom bedroom and dining offerings. We also own a facility 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. Approximately 80% 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. 22 of 35 PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES MAY 31, 2025 (Dollars in thousands except share and per share data) Results of Operations – Periods ended May 31, 2025 compared with the periods ended June 1, 2024: Consolidated results of operations for the three and six months ended May 31, 2025 and June 1, 2024 are as follows: Quarter Ended Change Six Months Ended* Change May 31, 2025 June 1, 2024 Dollars Percent May 31, 2025 June 1, 2024 Dollars Percent Net sales of furniture and accessories $ 84,348 100.0 % $ 83,410 100.0 % $ 938 1.1 % $ 166,510 100.0 % $ 169,964 100.0 % $ (3,454 ) -2.0 % Cost of furniture and accessories sold 37,439 44.4 % 39,650 47.5 % (2,211 ) -5.6 % 72,771 43.7 % 78,337 46.1 % (5,566 ) -7.1 % Gross profit 46,909 55.6 % 43,760 52.5 % 3,149 7.2 % 93,739 56.3 % 91,627 53.9 % 2,112 2.3 % SG&A expenses 44,412 52.7 % 46,707 56.0 % (2,295 ) -4.9 % 88,787 53.3 % 96,931 57.0 % (8,144 ) -8.4 % Asset impairment charges - 0.0 % 5,515 6.6 % (5,515 ) 100.0 % - 0.0 % 5,515 3.2 % (5,515 ) 100.0 % Income (loss) from operations $ 2,497 3.0 % $ (8,462 ) -10.1 % $ 10,959 N/M $ 4,952 3.0 % $ (10,819 ) -6.4 % $ 15,771 N/M *26 weeks for fiscal 2025 as compared with 27 weeks for fiscal 2024. Analysis of Quarterly Results: Total sales revenue for the three months ended May 31, 2025 increased $938 or 1.1% over the prior year period. This consisted of a $3,764 or 7.5% increase in retail sales from our Company-owned stores partially offset by a $1,742 or 5.5% decline in sales to external wholesale customers and a $1,084 decline in sales by Noa Home, which was closed during the second half of fiscal 2024. Gross margins for the three months ended May 31, 2025 increased 310 basis points over the prior year period as we recorded $2,700 of additional inventory valuation charges during the three months ended June 1, 2024 ($1,729 in the wholesale segment, $471 in the retail segment and $500 associated with Noa Home). Excluding those charges, gross margins would have been essentially flat. Selling, general and administrative (“SG&A”) expenses as a percentage of sales for the three months ended May 31, 2025 decreased 330 basis points from 2024 primarily due to the benefit of cost reductions implemented during the second half of fiscal 2024. Analysis of Year-to-Date Results: Total sales revenue for the six months ended May 31, 2025 decreased $3,454 or 2.0% from the prior year period. Normalizing for the additional week in the first half of 2024, consolidated sales increased 1.7% which included a 7.1% increase in retail sales, partially offset by a 2.5% decrease in sales to external wholesale customers and a $2,946 decline due to the closure of Noa Home during the second half of 2024. Gross margins for the six months ended May 31, 2025 increased 240 basis points over the prior year period. Excluding the above-mentioned additional inventory valuation charges in 2024, gross margins would have increased 80 basis points primarily due to improved margins in the wholesale segment. Selling, general and administrative (“SG&A”) expenses as a percentage of sales for the six months ended May 31, 2025 decreased 370 basis points from 2024 primarily due to the benefit of cost reductions implemented during the second half of fiscal 2024. 23 of 35 PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES MAY 31, 2025 (Dollars in thousands except share and per share data) Segment Information We have strategically aligned our business into two 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. In addition to the two reportable segments described above, we include our remaining business activities and assets in a reconciling category known as Corporate and other. This category 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. In addition to property and equipment and various other assets associated with the shared corporate functions, the identifiable assets of Corporate and other include substantially all of our cash and our investments in CDs. 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 three and six months ended June 1, 2024, the only such operating segment included in Corporate and other is Noa Home, which was acquired on September 2, 2022, subsequently closed during fiscal 2024 and substantially liquidated as of November 30, 2024. All sales reported in our Corporate and other category during fiscal 2024 were attributable to Noa Home, which generated substantially all of its sales outside of the United States. 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. 24 of 35 PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES MAY 31, 2025 (Dollars in thousands except share and per share data) Reconciliation of Segment Results to Consolidated Income (Loss) Before Income Taxes 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 as well as non-operating income and expenses are included in consolidated income (loss) before income taxes are not included in the measures of segment profitability. The reconciliation of this non-GAAP financial measure to the most directly comparable financial measure calculated and presented in accordance with GAAP is presented below along with the effects of various other intercompany eliminations on our consolidated results of operations. Quarter Ended May 31, 2025 Non-GAAP Presentation GAAP Presentation Wholesale Retail Corporate & Other Eliminations Special Items Non-Operating Consolidated Net sales of furniture and accessories $ 54,229 $ 54,232 $ - $ (24,113 ) (1) $ - $ - $ 84,348 Cost of furniture and accessories sold 35,649 25,838 - (24,048 ) (2) - - 37,439 Gross profit 18,580 28,394 - (65 ) - - 46,909 SG&A expense 10,290 27,912 6,521 (311 ) (3) - - 44,412 Income (loss) from operations 8,290 482 (6,521 ) 246 - - 2,497 Interest income - - - - - 521 521 Other loss, net - - - - - (422 ) (422 ) Income (loss) before income taxes $ 8,290 $ 482 $ (6,521 ) $ 246 $ - $ 99 $ 2,596 Quarter Ended June 1, 2024 Non-GAAP Presentation GAAP Presentation Wholesale Retail Corporate & Other Eliminations Special Items Non-Operating Consolidated Net sales of furniture and accessories $ 52,609 $ 50,468 $ 1,084 $ (20,751 ) (1) $ - $ - $ 83,410 Cost of furniture and accessories sold 35,906 23,779 946 (20,981 ) (2) - - 39,650 Gross profit 16,703 26,689 138 230 - - 43,760 SG&A expense 11,016 28,911 7,080 (300 ) (3) - - 46,707 Asset impairment charges - - - - 5,515 (4) 5,515 Income (loss) from operations 5,687 (2,222 ) (6,942 ) 530 (5,515 ) - (8,462 ) Interest income - - - - - 627 627 Other loss, net - - - - - (276 ) (276 ) Income (loss) before income taxes $ 5,687 $ (2,222 ) $ (6,942 ) $ 530 $ (5,515 ) $ 351 $ (8,111 ) 25 of 35 PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES MAY 31, 2025 (Dollars in thousands except share and per share data) Six Months Ended May 31, 2025* Non-GAAP Presentation GAAP Presentation Wholesale Retail Corporate & Other Eliminations Special Items Non-Operating Consolidated Net sales of furniture and accessories $ 107,156 $ 107,526 $ - $ (48,172 ) (1) $ - $ - $ 166,510 Cost of furniture and accessories sold 69,840 50,775 - (47,844 ) (2) - - 72,771 Gross profit 37,316 56,751 - (328 ) - - 93,739 SG&A expense 20,341 56,317 12,747 (618 ) (3) - - 88,787 Income (loss) from operations 16,975 434 (12,747 ) 290 - - 4,952 Interest income - - - - - 1,080 1,080 Other loss, net - - - - - (881 ) (881 ) Income (loss) before income taxes $ 16,975 $ 434 $ (12,747 ) $ 290 $ - $ 199 $ 5,151 Six Months Ended June 1, 2024* Non-GAAP Presentation GAAP Presentation Wholesale Retail Corporate & Other Eliminations Special Items Non-Operating Consolidated Net sales of furniture and accessories $ 107,310 $ 104,222 $ 2,946 $ (44,514 ) (1) $ - $ 169,964 Cost of furniture and accessories sold 72,616 48,519 1,755 (44,553 ) (2) - 78,337 Gross profit 34,694 55,703 1,191 39 - 91,627 SG&A expense 22,248 59,537 15,728 (582 ) (3) - 96,931 Asset impairment charges - - - - 5,515 (4) 5,515 Income (loss) from operations 12,446 (3,834 ) (14,537 ) 621 (5,515 ) - (10,819 ) Interest income - - - - - 1,383 1,383 Other loss, net - - - - - (380 ) (380 ) Income (loss) before income taxes $ 12,446 $ (3,834 ) $ (14,537 ) $ 621 $ (5,515 ) $ 1,003 $ (9,816 ) *26 weeks for fiscal 2025 as compared with 27 weeks for fiscal 2024. 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. (4) 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. 26 of 35 PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES MAY 31, 2025 (Dollars in thousands except share and per share data) Wholesale Segment Results for the wholesale segment for the three and six months ended May 31, 2025 and June 1, 2024 are as follows: Quarter Ended Change Six Months Ended* Change May 31, 2025 June 1, 2024 Dollars Percent May 31, 2025 June 1, 2024 Dollars Percent Net sales $ 54,229 100.0 % $ 52,609 100.0 % $ 1,620 3.1 % $ 107,156 100.0 % $ 107,310 100.0 % $ (154 ) -0.1 % Gross profit (1) 18,580 34.3 % 16,703 31.7 % 1,877 11.2 % 37,316 34.8 % 34,694 32.3 % 2,622 7.6 % SG&A expenses 10,290 19.0 % 11,016 20.9 % (726 ) -6.6 % 20,341 19.0 % 22,248 20.7 % (1,907 ) -8.6 % Income from operations $ 8,290 15.3 % $ 5,687 10.8 % $ 2,603 45.8 % $ 16,975 15.8 % $ 12,446 11.6 % $ 4,529 36.4 % (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. *26 weeks for fiscal 2025 as compared with 27 weeks for fiscal 2024. Wholesale sales by major product category are as follows: Quarter Ended May 31, 2025 June 1, 2024 Total Change External Intercompany Total External Intercompany Total Dollars Percent Bassett Custom Upholstery $ 20,004 $ 14,517 $ 34,521 63.7 % $ 21,921 $ 13,009 $ 34,930 66.4 % $ (409 ) -1.2 % Bassett Leather 3,917 788 4,705 8.7 % 3,563 392 3,955 7.5 % 750 19.0 % Bassett Custom Wood 3,322 4,587 7,909 14.6 % 3,427 4,108 7,535 14.3 % 374 5.0 % Bassett Casegoods 2,873 4,221 7,094 13.1 % 2,947 3,242 6,189 11.8 % 905 14.6 % Total $ 30,116 $ 24,113 $ 54,229 100.0 % $ 31,858 $ 20,751 $ 52,609 100.0 % $ 1,620 3.1 % Six Months Ended* May 31, 2025 June 1, 2024 Total Change External Intercompany Total External Intercompany Total Dollars Percent Bassett Custom Upholstery $ 38,850 $ 30,077 $ 68,927 64.3 % $ 42,222 $ 27,777 $ 69,999 65.2 % $ (1,072 ) -1.5 % Bassett Leather 8,030 1,420 9,450 8.8 % 7,522 927 8,449 7.9 % 1,001 11.8 % Bassett Custom Wood 6,635 8,753 15,388 14.4 % 7,185 9,001 16,186 15.1 % (798 ) -4.9 % Bassett Casegoods 5,469 7,922 13,391 12.5 % 5,867 6,809 12,676 11.8 % 715 5.6 % Total $ 58,984 $ 48,172 $ 107,156 100.0 % $ 62,796 $ 44,514 $ 107,310 100.0 % $ (154 ) -0.1 % *26 weeks for fiscal 2025 as compared with 27 weeks for fiscal 2024. Analysis of Quarterly Results – Wholesale Net sales for the three months ended May 31, 2025 increased $1,620 or 3.1% over the prior year, consisting of a 12.6% increase in shipments to our retail store network, partially offset by a 2.6% decrease in shipments to the open market, and a 22% decrease in Lane Venture shipments, primarily related to the timing of shipments for a significant customer. Gross margins for the three months ended May 31, 2025 increased 260 basis points over the prior year period. Excluding the $1,729 of additional inventory valuation charges in the prior year period, gross margins would have decreased by 70 basis points primarily due to the prior year including a reduction in the warranty and returns reserve from improved experience in warranty and returns claims and improved administration of those claims. SG&A expenses as a percentage of sales decreased 190 basis points primarily due to lower bad debt costs coupled with the benefit of cost reductions implemented during the second half of fiscal 2024. 27 of 35 PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES MAY 31, 2025 (Dollars in thousands except share and per share data) Analysis of Year-to-Date Results – Wholesale Net sales for the six months ended May 31, 2025 decreased $154 or 0.1% from the prior year. Normalizing for the additional the additional week in the first half of 2024, net sales increased 1.7%, consisting of a 9.1% increase in shipments to our retail store network, partially offset by a 2.4% decrease in shipments to the open market and a 9.4% decrease in Lane Venture shipments. Gross margins for the six months ended May 31, 2025 increased 250 basis points over the prior year. Excluding the $1,729 of additional inventory valuation charges in the prior year period, gross margins would have increased by 90 basis points due primarily to improved margins in our Bassett Custom Upholstery business from manufacturing efficiency gains, increased margins in our Lane Venture operations due to improved customer mix and improved margins in the Bassett Leather business, partially offset by the prior year including a reduction in the warranty and returns reserve from improved experience in warranty and returns claims and improved administration of those claims. SG&A expenses as a percentage of sales decreased 170 basis points primarily due to lower bad debt costs coupled with the benefit of cost reductions implemented during the second half of fiscal 2024. Wholesale Backlog Wholesale backlog at May 31, 2025 was $18,418 as compared to $21,750 at November 30, 2024 and $19,373 at June 1, 2024. Retail – Company-owned Stores Segment Results for the retail segment for the periods ended May 31, 2025 and June 1, 2024 are as follows: Quarter Ended Change Six Months Ended* Change May 31, 2025 June 1, 2024 Dollars Percent May 31, 2025 June 1, 2024 Dollars Percent Net sales $ 54,232 100.0 % $ 50,468 100.0 % $ 3,764 7.5 % $ 107,526 100.0 % $ 104,222 100.0 % $ 3,304 3.2 % Gross profit (1) 28,394 52.4 % 26,689 52.9 % 1,705 6.4 % 56,751 52.8 % 55,703 53.4 % 1,048 1.9 % SG&A expenses 27,912 51.5 % 28,911 57.3 % (999 ) -3.5 % 56,317 52.4 % 59,537 57.1 % (3,220 ) -5.4 % Loss from operations $ 482 0.9 % $ (2,222 ) -4.4 % $ 2,704 -121.7 % $ 434 0.4 % $ (3,834 ) -3.7 % $ 4,268 -111.3 % (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. *26 weeks for fiscal 2025 as compared with 27 weeks for fiscal 2024. Retail sales by major product category are as follows: Quarter Ended Change Six Months Ended* Change May 31, 2025 June 1, 2024 Dollars Percent May 31, 2025 June 1, 2024 Dollars Percent Bassett Custom Upholstery $ 29,540 54.5 % $ 27,256 54.0 % $ 2,284 8.4 % $ 59,035 54.9 % $ 57,059 54.7 % $ 1,976 3.5 % Bassett Leather 1,791 3.3 % 1,117 2.2 % 674 60.3 % 3,718 3.5 % 1,944 1.9 % 1,774 91.3 % Bassett Custom Wood 8,468 15.6 % 8,522 16.9 % (54 ) -0.6 % 16,174 15.0 % 16,720 16.0 % (546 ) -3.3 % Bassett Casegoods 7,072 13.0 % 6,390 12.7 % 682 10.7 % 13,724 12.8 % 13,775 13.2 % (51 ) -0.4 % Accessories, mattresses and other (1) 7,361 13.6 % 7,183 14.2 % 178 2.5 % 14,875 13.8 % 14,724 14.1 % 151 1.0 % Total $ 54,232 100.0 % $ 50,468 100.0 % $ 3,764 7.5 % $ 107,526 100.0 % $ 104,222 100.0 % $ 3,304 3.2 % (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. *26 weeks for fiscal 2025 as compared with 27 weeks for fiscal 2024. 28 of 35 PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES MAY 31, 2025 (Dollars in thousands except share and per share data) Analysis of Quarterly Results - Retail Net sales for the three months ended May 31, 2025 increased $3,764 or 7.5% over the prior year period. Written sales (the value of sales orders taken but not delivered) declined 0.8% from the second quarter of 2024. Gross margin for the three months ended May 31, 2025 declined 50 basis points over the prior period. Excluding the $471 of additional inventory valuation charges in the prior year period, gross margins would have decreased by 140 basis points due to lower margins for both in-line and clearance goods as we have become more aggressive in cycling through unproductive inventory. SG&A expenses as a percentage of sales for the three months ended May 31, 2025 decreased 580 basis points primarily due to the benefit of cost reductions implemented during the second half of fiscal 2024 coupled with lower advertising and marketing costs and efficiency gains in our warehouse and delivery operation. In addition, SG&A expense for the three months ended May 31, 2025 was reduced by a $569 gain from the receipt of insurance proceeds for a business interruption claim arising from the previously disclosed cyber incident which occurred during the third quarter of fiscal 2024. Analysis of Year-to-Date Results – Retail Net sales for the six months ended May 31, 2025 increased $3,304 or 3.2% over the prior year period. Normalizing for the additional week in the first half of 2024, net sales increased by 7.1%. Written sales (the value of sales orders taken but not delivered) declined 1.5% from the second quarter of 2024. Normalizing for the additional week in the first half of 2024, written sales increased 2.3%. Gross margin for the six months ended May 31, 2025 declined 60 basis points over the prior period. Excluding the $471 of additional inventory valuation charges in the prior year period, gross margins would have decreased by 110 basis points due to lower margins for both in-line and clearance goods as we have become more aggressive in cycling through unproductive inventory. SG&A expenses as a percentage of sales for the six months ended May 31, 2025 decreased 470 basis points primarily due to the benefit of cost reductions implemented during the second half of fiscal 2024 coupled with lower advertising and marketing costs and efficiency gains in our warehouse and delivery operation. In addition, SG&A expense for the six months ended May 31, 2025 was reduced by a $569 gain from the receipt of insurance proceeds for a business interruption claim arising from the previously disclosed cyber incident which occurred during the third quarter of fiscal 2024. Retail Backlog Retail backlog at May 31, 2025 was $34,091 compared to $37,053 at November 30, 2024 and $31,545 at June 1, 2024. Corporate and Other In addition to the two reportable segments discussed above, we include our remaining business activities and assets in a reconciling category known as Corporate and other, which includes the shared costs of various corporate functions along with any operating segments that do not meet the requirements to be reportable segments. Therefore, prior to fiscal 2025, Noa Home was included within the Corporate and other reconciling category and accounted for all of the sales and gross profit within this reconciling category. Revenues, costs and expenses of Corporate and other for the periods ended May 31, 2025 and June 1, 2024 are as follows: Quarter Ended Change Six Months Ended* Change May 31, 2025 June 1, 2024 Dollars Percent May 31, 2025 June 1, 2024 Dollars Percent Net sales $ - $ 1,084 $ (1,084 ) -100.0 % $ - $ 2,946 $ (2,946 ) -100.0 % Gross profit - 138 (138 ) -100.0 % - 1,191 (1,191 ) -100.0 % SG&A expenses 6,521 7,080 (559 ) -7.9 % 12,747 15,728 (2,981 ) -19.0 % Net expenses $ (6,521 ) $ (6,942 ) $ 421 -6.1 % $ (12,747 ) $ (14,537 ) $ 1,790 -12.3 % *26 weeks for fiscal 2025 as compared with 27 weeks for fiscal 2024. Analysis of Results – Corporate and Other Sales and gross profit declined from the prior year period due to the closure and liquidation of Noa Home during fiscal 2024. The $559 and $2,981 decrease in SG&A expenses for the three and six months ended May 31, 2025, respectively, was primarily due to closure of Noa Home and decreased corporate overhead spending from better expense management, including the benefit of cost reductions implemented during the second half of fiscal 2024, partially offset by increased incentive compensation. 29 of 35 PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES MAY 31, 2025 (Dollars in thousands except share and per share data) Other Items Affecting Net Income (Loss) Interest Income Interest income for the three and six months ended May 31, 2025 was $521 and $1,080, respectively, compared to $627 and $1,383, respectively, for the three and six months ended June 1, 2024. The decline from the prior year period is primarily due to lower balances of interest-bearing cash and cash equivalents, as well as lower average rates earned on our cash and cash equivalents and investments in CDs compared to the preceding year. Other Loss, Net Other loss, net, for the three and six months ended May 31, 2025 was $422 and $881, respectively, compared to $276 and $380, respectively, for the three and six months ended June 1, 2024. The net change from the prior year period was primarily due to higher 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 or loss and use that effective tax rate to record our year-to-date income tax provision. 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 26.1% and 26.8% for the three and six months ended May 31, 2025, respectively. The effective rates for the three and six months ended May 31, 2025 differ from the federal statutory rate of 21% primarily due to the effects of state income taxes and various permanent differences. 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, the effects of state income taxes and various permanent differences. Liquidity and Capital Resources Cash Flows Cash provided by operating activities for the first half of fiscal 2025 was $6,903 compared to cash used in operations of $1,919 for the first half of fiscal 2024, representing an improvement of $8,822 in cash flows from operations. This increase was primarily the result of improved operating income and changes in working capital due to the timing impact of expenditures as a result of an additional week in the first half of 2024. Our overall cash position declined $118 during the first half of 2025. During the first half of fiscal 2025, we spent $2,275 on purchases of property and equipment. We also paid $3,476 in dividends during the first half of 2025. We repurchased $1,158 of shares under our stock repurchase program during the first half of 2025 compared to repurchases of only $489 in the prior year period. We expect capital expenditures for the full year to range from $7 million to $9 million. As of May 31, 2025, $19,245 remains available for future purchases under our stock repurchase plan. With cash and cash equivalents and short-term investments totaling $59,818 on hand at May 31, 2025, 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 On May 15, 2024, we entered into the Credit Facility with our bank. This Credit Facility provides for a line of credit of up to $25,000. At May 31, 2025, we had $8,182 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. Our bank charges a fee of 0.25% on the daily unused balance of the line, payable quarterly. Under the terms of the Credit Facility, Consolidated Minimum Tangible Net Worth shall at no time be less than $120,000. In addition, we must maintain the following financial covenants, measured quarterly on a rolling twelve-month basis and commencing as of the end of the first fiscal quarter after the first date that the used commitment (the sum of any outstanding advances plus standby letters of credit) equals or exceeds $8,250: ● Consolidated Fixed Charge Coverage Ratio of not less than 1.2 times and 30 of 35 PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES MAY 31, 2025 (Dollars in thousands except share and per share data) ● Consolidated Lease Adjusted Leverage to EBITDAR Ratio not to exceed 3.35 times. Since our used commitment was less than $8,250 at May 31, 2025, we were not required to test the Consolidated Fixed Charge Coverage Ratio or the Consolidated Lease Adjusted Leverage to EBITDAR Ratio. However, had we been required to test those ratios, we would have been in full compliance. Our availability under the Credit Facility is currently $16,818. 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 certain personal property such as lift trucks, office equipment and local delivery trucks. The present value of our obligations for leases with terms in excess of one year at May 31, 2025 is $98,405 and is included in our accompanying condensed consolidated balance sheet at May 31, 2025. We were contingently liable under licensee lease obligation guarantees in the amount of $4,639 at May 31, 2025. The remaining terms under these lease guarantees extend for six years. See Note 10 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 $23,848 at May 31, 2025. 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 30, 2024. 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 10 to our condensed consolidated financial statements for further discussion of lease guarantees, including descriptions of the terms of such commitments and methods used to mitigate risks associated with these arrangements. 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 May 31, 2025.