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 29, 2025. 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 30, 2026 (Dollars in thousands except share and per share data) 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 124-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. The Lane Venture outdoor brand was recently introduced in the Bassett Home Furnishings stores representing a new outlet for that brand. 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 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. Digital outreach strategies have been the primary vehicle for brand advertising and customer acquisition. We began supplementing the digital outreach strategy with added direct mail and television late in 2024 and expect to continue with a balanced blend of both digital and traditional direct mail and television in 2026. We introduced a new web platform late in 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. Building on the 25% increase in web sales for fiscal 2025, written sales orders for the web increased 34% for the six months ended May 30, 2026 while delivered sales increased 30%. Although e-commerce sales continue to be small relative to in-store sales, we will continue to invest in ongoing improvements to the aesthetics and user experience on our website while not compromising on our in-store experience or the quality of our in-home makeover capabilities. 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 have a factory in Martinsville, Virginia that assembles and finishes our custom bedroom and dining offerings. We also have 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. 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. During the second fiscal quarter we acquired one retail store from a former licensee in Cherry Hill, New Jersey and opened a new Company-owned store in the Cincinnati, Ohio market. A second new Company-owned store in the Orlando, Florida market is expected to open by the end of fiscal 2026. 22 of 35 PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES MAY 30, 2026 (Dollars in thousands except share and per share data) Results of Operations – Period ended May 30, 2026 compared with the period ended May 31, 2025: Historically, housing activity, both new home sales and sales of existing homes, is a primary driver of furniture and home furnishings sales. Since the COVID boom, housing prices have increased significantly along with the mortgage rates charged for home loans. Many homeowners with historically low mortgage rates are reluctant to sell their homes, and buyers are hesitant to commit amid high prices, higher mortgage rates and economic uncertainty. As a result, housing activity is significantly slower than historical trends resulting in reduced demand for furniture and home furnishings. This has put pressure on furniture and home furnishings retailers and we have seen an increase in those retailers exiting the industry. While our sales levels have decreased from the COVID period, we believe our sales have somewhat stabilized over the last couple of years. In addition, we have gained efficiencies in our operations and reduced our overall expense structure to improve our results of operations. Consolidated results of operations for the three and six months ended May 30, 2026 and May 31, 2025 are as follows: Quarter Ended Change Six Months Ended Change May 30, 2026 May 31, 2025 Dollars Percent May 30, 2026 May 31, 2025 Dollars Percent Net sales $ 83,753 100.0 % $ 84,348 100.0 % $ (595 ) -0.7 % $ 164,093 100.0 % $ 166,510 100.0 % $ (2,417 ) -1.5 % Cost of goods sold 36,406 43.5 % 37,439 44.4 % (1,033 ) -2.8 % 71,581 43.6 % 72,771 43.7 % (1,190 ) -1.6 % Gross profit 47,347 56.5 % 46,909 55.6 % 438 0.9 % 92,512 56.4 % 93,739 56.3 % (1,227 ) -1.3 % SG&A expenses 44,631 53.3 % 44,412 52.7 % 219 0.5 % 88,544 54.0 % 88,787 53.3 % (243 ) -0.3 % New store pre-opening costs 473 0.6 % - 0.0 % 473 100.0 % 568 0.3 % - 0.0 % 568 100.0 % Income from operations $ 2,243 2.7 % $ 2,497 3.0 % $ (254 ) -10.2 % $ 3,400 2.1 % $ 4,952 3.0 % $ (1,552 ) -31.3 % Analysis of Quarterly Results: Total sales revenue for the three months ended May 30, 2026 decreased $595 or 0.7% from the prior year period. This consisted of a $1,911 or 6.3% decrease in sales to external wholesale customers partially offset by a $1,316 or 2.4% increase in retail sales from our Company-owned stores. Gross margins for the three months ended May 30, 2026 increased 90 basis points over the prior year period primarily due to higher margins in the wholesale business partially offset by lower margins in the retail business. Selling, general and administrative (“SG&A”) expenses (excluding new store pre-opening costs) as a percentage of sales for the three months ended May 30, 2026 increased 60 basis points from 2025. Excluding $698 of proceeds from business interruption insurance recorded as a reduction to SG&A expense in the second quarter of 2025 as a result of a cyber incident in fiscal 2024, SG&A expenses as a percentage of sales decreased 20 basis points as compared to 2025. Refer to the following discussions of quarterly results by segment for additional details. Analysis of Year-to-Date Results: Total sales revenue for the six months ended May 30, 2026 decreased $2,417 or 1.5% from the prior year period. This consisted of a $2,984 or 5.1% decrease in sales to external wholesale customers partially offset by a $567 or 0.5% increase in retail sales from our Company-owned stores. Gross margins for the six months ended May 30, 2026 increased 10 basis points over the prior year period primarily due to lower margins in the retail business partially offset by improved margins in the wholesale business. SG&A expenses (excluding new store pre-opening costs) as a percentage of sales for the six months ended May 30, 2026 increased 70 basis points from 2025. Excluding $698 of proceeds from business interruption insurance recorded as a reduction to SG&A expense in the second quarter of 2025 as a result of a cyber incident in fiscal 2024, SG&A expenses as a percentage of sales increased 30 basis points as compared to 2025. Refer to the following discussions of quarterly results by segment for additional details. 23 of 35 PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES MAY 30, 2026 (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 benefiting 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 May 30, 2026 and May 31, 2025, Corporate and other included no other operating segments. 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 30, 2026 (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 30, 2026 Non-GAAP Presentation GAAP Presentation Wholesale Retail Corporate & Other Eliminations Special Items Non-Operating Consolidated Net sales $ 53,147 $ 55,548 $ - $ (24,942 ) (1) $ - $ - $ 83,753 Cost of goods sold 34,356 27,085 - (25,035 ) (2) - - 36,406 Gross profit 18,791 28,463 - 93 - - 47,347 SG&A expense 10,560 28,320 6,059 (308 ) (3) - - 44,631 New store pre-opening costs - 473 - - - 473 Income (loss) from operations 8,231 (330 ) (6,059 ) 401 - - 2,243 Interest income - - - - - 446 446 Other income, net - - - - - 87 87 Income (loss) before income taxes $ 8,231 $ (330 ) $ (6,059 ) $ 401 $ - $ 533 $ 2,776 Quarter Ended May 31, 2025 Non-GAAP Presentation GAAP Presentation Wholesale Retail Corporate & Other Eliminations Special Items Non-Operating Consolidated Net sales $ 54,229 $ 54,232 $ - $ (24,113 ) (1) $ - $ - $ 84,348 Cost of goods 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 25 of 35 PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES MAY 30, 2026 (Dollars in thousands except share and per share data) Six Months Ended May 30, 2026 Non-GAAP Presentation GAAP Presentation Wholesale Retail Corporate & Other Eliminations Special Items Non-Operating Consolidated Net sales $ 106,108 $ 108,093 $ - $ (50,108 ) (1) $ - $ - $ 164,093 Cost of goods sold 68,823 52,562 - (49,804 ) (2) - - 71,581 Gross profit 37,285 55,531 - (304 ) - - 92,512 SG&A expense 20,658 56,327 12,176 (617 ) (3) - - 88,544 New store pre-opening costs - 568 - - - - 568 Income (loss) from operations 16,627 (1,364 ) (12,176 ) 313 - - 3,400 Interest income - - - - - 999 999 Other loss, net - - - - - (105 ) (105 ) Income (loss) before income taxes $ 16,627 $ (1,364 ) $ (12,176 ) $ 313 $ - $ 894 $ 4,294 Six Months Ended May 31, 2025 Non-GAAP Presentation GAAP Presentation Wholesale Retail Corporate & Other Eliminations Special Items Non-Operating Consolidated Net sales $ 107,156 $ 107,526 $ - $ (48,172 ) (1) $ - $ - $ 166,510 Cost of goods 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 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. 26 of 35 PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES MAY 30, 2026 (Dollars in thousands except share and per share data) Wholesale Segment Results for the wholesale segment for the three and six months ended May 30, 2026 and May 31, 2025 are as follows: Quarter Ended Change Six Months Ended Change May 30, 2026 May 31, 2025 Dollars Percent May 30, 2026 May 31, 2025 Dollars Percent Net sales $ 53,147 100.0 % $ 54,229 100.0 % $ (1,082 ) -2.0 % $ 106,108 100.0 % $ 107,156 100.0 % $ (1,048 ) -1.0 % Gross profit (1) 18,791 35.4 % 18,580 34.3 % 211 1.1 % 37,285 35.1 % 37,316 34.8 % (31 ) -0.1 % SG&A expenses 10,560 19.9 % 10,290 19.0 % 270 2.6 % 20,658 19.5 % 20,341 19.0 % 317 1.6 % Income from operations $ 8,231 15.5 % $ 8,290 15.3 % $ (59 ) -0.7 % $ 16,627 15.7 % $ 16,975 15.8 % $ (348 ) -2.1 % (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 Income (Loss) Before Income Taxes above. Wholesale sales by major product category are as follows: Quarter Ended May 30, 2026 May 31, 2025 (1) Total Change External Intercompany Total External Intercompany Total Dollars Percent Bassett Custom Upholstery $ 19,132 $ 15,188 $ 34,320 64.6 % $ 20,004 $ 14,517 $ 34,521 63.7 % $ (201 ) -0.6 % Bassett Leather Imports 4,012 1,381 5,393 10.1 % 3,917 788 4,705 8.7 % 688 14.6 % Bassett Custom Wood 2,693 4,003 6,696 12.6 % 3,021 4,587 7,608 14.0 % (912 ) -12.0 % Bassett Casegoods 2,368 4,370 6,738 12.7 % 3,174 4,221 7,395 13.6 % (657 ) -8.9 % Total $ 28,205 $ 24,942 $ 53,147 100.0 % $ 30,116 $ 24,113 $ 54,229 100.0 % $ (1,082 ) -2.0 % Six Months Ended May 30, 2026 May 31, 2025 (1) Total Change External Intercompany Total External Intercompany Total Dollars Percent Bassett Custom Upholstery $ 37,111 $ 30,632 $ 67,743 63.8 % $ 38,850 $ 30,077 $ 68,927 64.3 % $ (1,184 ) -1.7 % Bassett Leather 8,103 2,355 10,458 9.9 % 8,030 1,420 9,450 8.8 % 1,008 10.7 % Bassett Custom Wood 5,514 8,138 13,652 12.9 % 6,006 8,753 14,759 13.8 % (1,107 ) -7.5 % Bassett Casegoods 5,272 8,983 14,255 13.4 % 6,098 7,922 14,020 13.1 % 235 1.7 % Total $ 56,000 $ 50,108 $ 106,108 100.0 % $ 58,984 $ 48,172 $ 107,156 100.0 % $ (1,048 ) -1.0 % (1) Certain amounts within the Bassett Custom Wood and Bassett Casegoods categories have been reclassified to conform with the 2026 presentation. Analysis of Quarterly Results – Wholesale Net sales for the three months ended May 30, 2026 decreased $1,082 or 2.0% from the prior year, consisting of a 5.5% decrease in shipments to the open market partially offset by a 1.0% increase in Lane Venture shipments to wholesale customers and a 0.8% increase in shipments to our retail store network. The increase in shipments to our retail store network includes shipments of the Lane Venture brand, which we introduced in the BHF stores during the first quarter of 2026. Total shipments of the Lane Venture brand, including the shipments to the retail store network, increased 17.9% from the prior year. Gross margins for the three months ended May 30, 2026 increased 110 basis points from the prior year period primarily due to improved efficiencies in our domestic upholstery and wood operations coupled with improved pricing strategies in our imported wood offerings. SG&A expenses as a percentage of sales increased 90 basis points compared with the prior year period primarily due to increased outbound freight expenses from higher fuel costs. 27 of 35 PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES MAY 30, 2026 (Dollars in thousands except share and per share data) Analysis of Year-to-Date Results – Wholesale Net sales for the six months ended May 30, 2026 decreased $1,048 or 1.0% from the prior year, consisting of a 5.4% decrease in shipments to the open market partially offset by a 0.7% increase in shipments to our retail store network and a 3.4% increase in Lane Venture shipments to wholesale customers. The increase in shipments to our retail store network includes shipments of the Lane Venture brand, which we introduced in the BHF stores during the first quarter of 2026. Total shipments of the Lane Venture brand, including the shipments to the retail store network, increased 23.6% from the prior year. Gross margins for the six months ended May 30, 2026 increased 30 basis points from the prior year period primarily due to improved efficiencies in our domestic wood operations coupled with improved pricing strategies in our imported wood offerings. SG&A expenses as a percentage of sales increased 50 basis points compared with the prior year period primarily due to increased outbound freight expenses from higher fuel costs. Wholesale Backlog Wholesale backlog at May 30, 2026 was $18,859 as compared to $19,519 at November 29, 2025 and $18,418 at May 31, 2025. Retail – Company-owned Stores Segment Results for the retail segment for the periods ended May 30, 2026 and May 31, 2025 are as follows: Quarter Ended Change Six Months Ended Change May 30, 2026 May 31, 2025 Dollars Percent May 30, 2026 May 31, 2025 Dollars Percent Net sales $ 55,548 100.0 % $ 54,232 100.0 % $ 1,316 2.4 % $ 108,093 100.0 % $ 107,526 100.0 % $ 567 0.5 % Gross profit (1) 28,463 51.2 % 28,394 52.4 % 69 0.2 % 55,531 51.4 % 56,751 52.8 % (1,220 ) -2.1 % SG&A expenses 28,320 51.0 % 27,912 51.5 % 408 1.5 % 56,327 52.1 % 56,317 52.4 % 10 0.0 % New store pre-opening costs 473 0.9 % - 0.0 % 473 100.0 % 568 0.5 % - 0.0 % 568 100.0 % Loss from operations $ (330 ) -0.6 % $ 482 0.9 % $ (812 ) N/M $ (1,364 ) -1.3 % $ 434 0.4 % $ (1,798 ) N/M (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 Income (Loss) Before Income Taxes above. Retail sales by major product category are as follows: Quarter Ended Change Six Months Ended Change May 30, 2026 May 31, 2025 (1) Dollars Percent May 30, 2026 May 31, 2025 (1) Dollars Percent Bassett Custom Upholstery $ 32,301 58.1 % $ 30,998 57.2 % $ 1,303 4.2 % $ 61,625 57.0 % $ 62,185 57.8 % $ (560 ) -0.9 % Bassett Leather Imports 772 1.4 % 333 0.6 % 439 131.8 % 1,319 1.2 % 568 0.5 % 751 132.2 % Bassett Custom Wood 8,119 14.6 % 8,468 15.6 % (349 ) -4.1 % 16,261 15.0 % 16,174 15.0 % 87 0.5 % Bassett Casegoods 7,080 12.7 % 7,072 13.0 % 8 0.1 % 14,807 13.7 % 13,724 12.8 % 1,083 7.9 % Accessories, mattresses and other (2) 7,276 13.1 % 7,361 13.6 % (85 ) -1.2 % 14,081 13.0 % 14,875 13.8 % (794 ) -5.3 % Total $ 55,548 100.0 % $ 54,232 100.0 % $ 1,316 2.4 % $ 108,093 100.0 % $ 107,526 100.0 % $ 567 0.5 % (1) Certain amounts within Bassett Custom Upholstery and Bassett Leather Imports have been reclassified to conform to the 2026 presentation. (2) Includes the sale of goods other than Bassett-branded products, such as accessories and bedding, and also includes the sale of furniture protection plans. Analysis of Quarterly Results - Retail Net sales for the three months ended May 30, 2026 increased $1,316 or 2.4% over the prior year period. Written sales (the value of sales orders taken but not delivered) increased 9.5% over the second quarter of 2025. Gross margin for the three months ended May 30, 2026 declined 120 basis points from the prior period primarily due to lower margins on in-line goods as the full effect of the mid-January price increase was not realized for the entire quarter coupled with lower margins on clearance goods as we continue to be more aggressive in cycling through returned goods and floor samples. SG&A expenses (excluding new store pre-opening costs) as a percentage of sales for the three months ended May 30, 2026 decreased 50 basis points from the prior year period. Excluding $569 of proceeds from business interruption insurance recorded as a reduction to SG&A expense in the second quarter of 2025 as a result of a cyber incident in fiscal 2024, SG&A expenses as a percentage of sales decreased 150 basis points as compared to 2025. This decrease was primarily due to lower health insurance and workers compensation costs from better claim experience and improved efficiency in the warehouse and delivery operation. 28 of 35 PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES MAY 30, 2026 (Dollars in thousands except share and per share data) During the three months ended May 30, 2026, we incurred $473 of new store pre-opening costs associated with new stores in the Cincinnati, Ohio market, which opened late in the second quarter, and Orlando, Florida market, expected to open by the end of the third quarter of fiscal 2026. Prior to opening a new store we incur such expenses as rent, training costs and other payroll-related costs. These costs generally range between $200 to $400 per store depending on the overall rent costs for the location and the period between the time when we take physical possession of the store space and the time of the store opening. Generally, rent payments during a buildout period between delivery of possession and opening of a new store are deferred and therefore straight-line rent expense recognized during that time does not require cash. Inherent in our retail business model, we also incur losses in the two to three months of operation following a new store opening. Like other furniture retailers, we do not recognize a sale until the furniture is delivered to our customer. Because our retail business model does not involve maintaining a stock of retail inventory that would result in quick delivery and because of the custom nature of many of our furniture offerings, delivery to our customers usually occurs about 30 to 45 days after an order is placed. We generally require a deposit at the time of order and collect the remaining balance when the furniture is delivered, at which time the sale is recognized. Coupled with the previously discussed store pre-opening costs, total start-up losses can range from $400 to $600 per store. We generally expect that new stores will operate at or above a retail break-even level within a reasonable period of time following store opening. Factors affecting the length of time required to achieve this goal on a store-by-store basis may include the level of brand recognition, the degree of local competition and the depth of penetration in a particular market. Even as new stores ramp up to break even, we do realize additional wholesale sales volume sold through each new store that leverages the fixed costs in our wholesale business. Analysis of Year-to-Date Results - Retail Net sales for the six months ended May 30, 2026 increased $567 or 0.5% over the prior year. Written sales (the value of sales orders taken but not delivered) increased 4.6% over the first six months of 2025. Gross margin for the six months ended May 30, 2026 declined 140 basis points from the prior period primarily due to lower margins on in-line goods as we did not institute a price increase related to the increased tariff costs until mid-January of 2026 coupled with lower margins on clearance goods as we continue to be more aggressive in cycling through returned goods and floor samples. SG&A expenses (excluding new store pre-opening costs) as a percentage of sales for the six months ended May 30, 2026 decreased 30 basis points from the prior year period. Excluding $569 of proceeds from business interruption insurance recorded as a reduction to SG&A expense in the second quarter of 2025 as a result of a cyber incident in fiscal 2024, SG&A expenses as a percentage of sales decreased 80 basis points as compared to 2025. This decrease was primarily due to lower health insurance and workers compensation costs from better claim experience and improved efficiency in the warehouse and delivery operation. During the six months ended May 30, 2026, we incurred $568 of new store pre-opening costs associated with new stores in the Cincinnati, Ohio market, which opened late in the second quarter, and Orlando, Florida market, expected to open by the end of the third quarter of fiscal 2026. Retail Backlog Retail backlog at May 30, 2026 was $34,701 compared to $34,402 at November 29, 2025 and $34,091 at May 31, 2025. 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. SG&A expenses of Corporate and other for the periods ended May 30, 2026 and May 31, 2025 are as follows: Quarter Ended Change Six Months Ended Change May 30, 2026 May 31, 2025 Dollars Percent May 30, 2026 May 31, 2025 Dollars Percent SG&A expenses $ 6,059 $ 6,521 $ (462 ) -7.1 % $ 12,176 $ 12,747 $ (571 ) -4.5 % 29 of 35 PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES MAY 30, 2026 (Dollars in thousands except share and per share data) Analysis of Results – Corporate and Other SG&A expenses included in Corporate and other for the three and six months ended May 30, 2026 decreased $462 or 7.1%, and $571 or 4.5%, respectively, from the prior year periods due primarily to lower incentive compensation costs. Other Items Affecting Net Income Interest Income Interest income for the three months ended May 30, 2026 declined $75 or 14.4% from the prior year due to lower interest income from CDs and interest-bearing cash. Interest income for the six months ended May 30, 2026 declined $81 or 7.5% from the prior year as lower interest income on CDs and interest-bearing cash equivalents was partially offset by $99 of interest received as a Federal income tax refund during the first quarter of fiscal 2026. Other Income (Loss), Net Other income, net, for the three months ended May 30, 2026 was $87 compared to a net loss of $422 for the prior year period, primarily due to increases in the cash surrender value of Company-owned life insurance. Other loss, net, for the six months ended May 30, 2026 declined $776 or 88% from the prior year period due to increases in the cash surrender value of Company-owned life insurance partially offset by increased interest expense from finance leases compared to the prior year period. 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 26.5% for the three and six months ended May 30, 2026. The effective rate differs 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 26.1% and 26.8% for the three and six months ended May 31, 2025, respectively. The effective rate differs from the federal statutory rate of 21% primarily due to the effects of state income taxes and various permanent differences. Liquidity and Capital Resources Cash Flows Cash provided by operating activities for the first six months of fiscal 2026 was $1,896 compared to cash provided by operations of $6,903 for the first six months of fiscal 2025, representing a decline of $5,007 in cash flows from operations. This decrease was primarily the result of lower income levels and negative changes in working capital which had been expected. Our overall cash position declined $5,375 during the first six months of 2026. During the first six months of fiscal 2026, we spent $2,592 on purchases of property and equipment, including tenant improvements to our new locations in Cincinnati, Ohio and Orlando, Florida as well as our new wholesale showroom space in High Point, North Carolina. We paid $470 to a former licensee to acquire a BHF located in Cherry Hill, New Jersey. We also paid $3,443 in dividends during the first six months of 2026. We repurchased $653 worth of shares under our stock repurchase program during the first six months of 2026 compared to repurchases of $1,158 in the prior year period. We expect capital expenditures for the full year to range from $10 million to $12 million. As of May 30, 2026, $17,601 remains available for future purchases under our stock repurchase plan. With cash and cash equivalents and short-term investments totaling $53,890 on hand at May 30, 2026, 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. 30 of 35 PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES MAY 30, 2026 (Dollars in thousands except share and per share data) 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 30, 2026, we had $5,866 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 ● Consolidated Lease Adjusted Leverage to EBITDAR Ratio not to exceed 3.35 times. At May 30, 2026, we were in compliance with the Consolidated Minimum Tangible Net Worth requirement. Since our used commitment was less than $8,250 at May 30, 2026, 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 $19,134. On January 9, 2026, the Credit Facility was amended to extend the expiration date to January 31, 2029. 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 30, 2026 is $88,517 and is included in our accompanying condensed consolidated balance sheet at May 30, 2026. We were contingently liable under licensee lease obligation guarantees in the amount of $3,656 at May 30, 2026. The remaining terms under these lease guarantees extend for five years. See Note 10 to our condensed consolidated financial statements for additional details regarding our lease guarantees. We provide post-employment benefits to certain current and former executives and management level employees of the Company. Included among these benefits are two defined-benefit plans with a combined projected benefit obligation of $6,950 at May 30, 2026, the current portion of which is $815. We also have deferred compensation plans with a total liability of $6,240 at May 30, 2026, the current portion of which is $327. See Note 9 to our condensed consolidated financial statements for additional information regarding these plans. 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 29, 2025. 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 30, 2026. 31 of 35 PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES MAY 30, 2026 (Dollars in thousands except share and per share data)