BASSETT FURNITURE INDUSTRIES INC Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Housing Market Impact: Weak US housing market pressured sales, though mortgage rates started to ease. Hurricane Helene affected the Catawba County distribution center, and the East Coast dock strike pushed shipments back.
• Third Quarter Results: Revenue down in both wholesale and retail, with retail affected more due to fixed costs. Memorial Day and 4th of July events had increases, but in-between weeks were tough. Third quarter is typically the weakest. Cyber-attack led to manufacturing shutdowns.
• Restructuring Plan:
  • Drive organic growth through Bassett branded retail, omnichannel, and customization. Remaking product lines, expanding dining program, targeting interior design community.
  • Rationalize US wood manufacturing from two sites to one.
  • Optimize inventory and drop unproductive lines.
  • Improve cost structure in retail (consolidating warehouses) and wholesale (completing West Coast distribution center move).
  • Close Noa Home.
• New Products and Digital: Strong initial sell-through of fall upholstery, added custom studio dealers, continued digital transformation with e-commerce growth expected.
• Balance Sheet: Ended quarter with $56.2 million in cash and short-term investments, limited operating cash flow deficit to $400,000.

Segment Performance

• Wholesale: Net sales decreased $8.8 million or 16% from the prior year period, primarily due to a 22% decrease in shipments to the open market, a 13% decrease in shipments to the retail store network, and a 6% decrease in Lane Venture shipments. Gross margins increased 50 basis points over the prior year, but were partially offset by $609,000 of unproductive labor costs from the cyber incident. Wholesale backlog at quarter end was $18.5 million.
• Retail: Net sales decreased $5 million or 9.6% from the prior year. Written sales declined 4.8% compared to the prior year. Gross margin improved 120 basis points due to higher margins in both in line and clearance goods and higher delivery income. Retail backlog at the end of the third quarter was $33.3 million, up from $31.5 million at the end of the second quarter.

Guidance

• Projected annual cost savings of $5.5 million to $6.5 million starting fiscal 2025 from restructuring efforts.
• Capital spending for fiscal 2024 expected to range between $6 million to $8 million, with $1.5 million to $2.5 million for the fourth quarter.
• Expect gross margin improvement further, though competitive market affects pricing strategy.
• Aim to increase efficiency and align operating expenses with revenue.

Risks

• Cyber Incident: Interrupted manufacturing, estimated loss of $1 million to $2 million, with impact on orders and margins.
• Hurricane Helene: Damaged distribution center and I-40 infrastructure, affecting logistics.
• East Coast Dock Strike: Pushed shipments back 1-2 weeks.
• Weak Housing Market: Continued pressure on sales and affordability.

Question and Answer

Q: (Anthony Lebiedzinski) Comment on Q3 results, near-term outlook, Labor Day impact, average ticket growth, gross margin improvement potential, and Bassett Design Studio concept.

A: (Rob Spilman) July was tough due to limited operations. Back half of August and September improved, but still in tough environment. Average ticket around $4,000, expected to stay. Gross margin can improve further despite challenges. Bassett Design Studio has 40 out, aiming for 50, with potential in certain markets.

Q: (Brian Gordon) Dig into retail orders, cyber event impact, demand bottoming, retail growth plans, new store prospects.

A: (Mike Daniel, Rob Spilman) Cyber event affected sales and shipments, with retail customers turning away due to system issues. Retail orders down 4.8%, but seeing improvement. Looking at one new store, focusing on refurbishing current fleet and e-commerce growth, with steady growth expected for Bassett Custom Studio.