BASSETT, Va., July 10, 2008 (PRIME NEWSWIRE) -- Bassett Furniture Industries, Inc. (Nasdaq:BSET) announced today its results of operations for its fiscal quarter and 27 week period ended May 31, 2008.
Sales for the quarter ended May 31, 2008 were $74.9 million as compared to $75.4 million for the quarter ended May 26, 2007, a decrease of 1%. The 2008 reported sales were positively impacted by reported revenue of $4.1 million due to a change in the Company's business practices with respect to freight for the delivery of wholesale furniture to its retail stores. In July of 2007, the Company began invoicing these customers on a fully landed basis such that the dealer invoice price includes the freight charge for delivery. Gross margins for the second quarter of 2008 and 2007 were 39.4% and 31.7%, respectively. Excluding the effects of the above-mentioned business change, the gross margin for 2008 would have been 35.9%. This significant increase over 2007 results from improved margins in both the wholesale and retail segments. Selling, general and administrative expenses increased $0.9 million for the second quarter of 2008 as compared to 2007 primarily due to the acquisition of additional company-owned retail stores, partially offset by lower spending in the wholesale operation. The Company reported a net loss of $(0.4) million, or $(0.03) per share for the quarter ended May 31, 2008, as compared to a net loss of $(2.4) million, or $(0.20) per share, for the quarter ended May 26, 2007.
Sales for the 27 weeks ended May 31, 2008 were $156.5 million as compared to $148.9 million for the 26 weeks ended May 26, 2007, an increase of 5%. The 2008 reported sales were positively impacted by reported revenue of $8.7 million due to a change in the Company's business practices as described above and an additional week of sales due to its fiscal calendar. Gross margins for the 27 weeks ended May 31, 2008 and 26 weeks ended May 26, 2007 were 39.7% and 31.1%, respectively. Excluding the effects of the above-mentioned business change, the gross margin for 2008 would have been 36.2%. This significant increase over 2007 results from improved margins in both the wholesale and retail segments. Selling, general and administrative expenses increased $2.7 million for the first half of 2008 as compared to 2007 primarily due to additional company-owned retail stores, partially offset by lower spending in the wholesale operation. The Company reported net income of $0.1 million or $0.01 per share for the 27 weeks ended May 31, 2008, as compared to a net loss of $(6.6) million, or $(0.56) per share, for the 26 weeks ended May 26, 2007.
The results for the quarter and 27 weeks ended May 31, 2008 included three unusual pretax items consisting of $1.4 million of legal and other expenses for the proxy contest with Costa Brava Partnership III L.P., a $1.3 million gain associated with the sale of the Company's airplane and a $0.4 million impairment charge associated with the writeoff of leasehold improvements for a closed store. The loss for the quarter ended May 26, 2007 included unusual pretax charges of $1.9 million associated with lease exit costs for certain closed stores, $1.0 million associated with the writeoff of tenant improvements from the downsizing of the Company's showroom space and $0.9 million associated with severance from the closure of the wood manufacturing facility in Bassett, Va. In addition, the 26 week period ended May 26, 2007 included a $3.6 million pretax charge recorded in the first quarter of 2007 for the writedown of the plant and equipment for the closing of the Bassett plant. Excluding these unusual items, the results of operations for the quarters ended May 31, 2008 and May 26, 2007 would have basically been breakeven and the net income for the 27 weeks ended May 31, 2008 would have been $0.4 million as compared to a net loss of $(2.0) million for the 26 weeks ended May 26, 2007, respectively. Please refer to the attached schedule which reconciles net income (loss) as reported to net income (loss) as adjusted.
The Bassett Furniture retail store program had 127 stores in operation as of May 31, 2008. For the first six months of 2008, three new stores were opened (two licensee- and one corporate-owned) and six stores were closed (five licensee- and one corporate-owned). Although management will continue to work closely with its licensee stores to ensure the success of both the licensee and Bassett, the Company expects that an additional nine to ten underperforming stores will close during the remainder of 2008.
"The progress that we achieved during the first part of the year slowed as we moved deeper into the second quarter," said Robert H. Spilman, president and chief executive officer. "Operating results for the quarter improved modestly by $0.6 million excluding unusual items in 2008 and 2007. The weakening of incoming orders from late March through mid-May affected results in the wholesale segment as shipments fell below last year's levels. Corporate retail gross margins improved significantly and store losses were reduced by 14% for the quarter. While comparable Corporate store sales were flat for the period, written sales for the Memorial Day weekend were significantly stronger than the corresponding results for 2007.
"As previously discussed, we continued the ongoing evaluation of our corporate store portfolio. One store closing event was completed during the quarter and another began in early May and finalized in mid-June. Also, the conversion of two existing stores to the new format and the remodeling of three others began in late May with plans to be ready for Labor Day.
"We remain encouraged by the sales results from our new retail prototype despite the ongoing difficult home furnishings environment. Sales per square foot in the new format continue to noticeably outperform our existing fleet average and we eagerly anticipate the conversion of two more stores later this year. As more stores are converted, we will have a meaningful sample with which we can evaluate the appropriate level of investment to allocate to the Bassett Home Furnishings concept in the future.
"We continue to work diligently with certain of our licensees to help them weather this persistently tough retail climate. This has and will continue to include evaluating sales and design talent, merchandising assortments, advertising spending, and store occupancy costs."
Wholesale Segment
Net sales for the wholesale segment were $62.0 million for the second quarter of 2008 as compared to $63.4 million for the second quarter of 2007, a decrease of 2%. The 2008 reported sales were positively impacted by reported revenue of $4.1 million due to a change in the Company's invoicing practices as described above. Approximately 54% of wholesale shipments during the second quarter of 2008 were imported products compared to 44% for second quarter of 2007. Gross margins for the wholesale segment were 29.2% for the second quarter of 2008 as compared to 22.4% for the second quarter of 2007. Excluding the effects of the invoicing change described above, gross margins for the second quarter of 2008 would have been 24.2%, a 1.8 percentage point increase over 2007. This increase is primarily due to an improved product mix associated with increased imported products which carry a higher margin and the significant wind down costs incurred in 2007 related to the closing of the Bassett plant.
Net sales for the wholesale segment were $131.3 million for the 27 weeks ended May 31, 2008 as compared to $125.7 million for the 26 weeks ended May 26, 2007, an increase of 4%. The 2008 reported sales were positively impacted by reported revenue of $8.7 million due to a change in the Company's invoicing practices as described above. Gross margins for the wholesale segment were 29.8% for the 27 weeks ended May 31, 2008 as compared to 21.9% for the 26 weeks ended May 26, 2007. Excluding the effects of the invoicing change described above, gross margins for the second quarter of 2008 would have been 24.8%, a 2.9 percentage point increase over 2007. This increase is primarily due to an improved product mix associated with increased imported products which carry a higher margin and the significant wind down costs incurred in 2007 related to the closing of the Bassett plant.
Retail Segment
Bassett's 31 corporate stores continue to make progress despite difficult conditions at retail with sales of $24.6 million in the second quarter of 2008 as compared to $21.9 million in the second quarter of 2007. These sales increases have primarily resulted from the five additional Company-owned stores acquired during 2007 and a slight increase in comparable store sales (sales for stores open for longer than one year). Gross margins for the quarter increased 2.6 percentage points due to improved pricing and promotional strategies, partially offset by lower margins in the upstate New York market due to the closing of the Henrietta store during the second quarter. The Company's retail segment reduced its total operating losses by $0.4 million, a 14% decrease. For its 25 comparable corporate stores, the Company reduced its operating losses by approximately 27% in the second quarter of 2008 as compared to the second quarter of 2007. The Company believes that the combination of new product introductions, store prototype retrofits, better hiring and training of design consultants and continued improved marketing efforts will lead to further improvement in retail operating results.
Net sales for the 27 weeks ended May 31, 2008 were $50.5 million as compared to $43.1 million for the 26 weeks ended May 26, 2007. These sales increases have primarily resulted from the additional Company owned stores and a slight increase in comparable store sales (sales for stores open for longer than one year). Gross margins for the 2008 period increased 3.3 percentage points due to improved pricing and promotional strategies, partially offset by lower margins in the upstate New York market due to the closing of the Henrietta store during the second quarter of 2008. The Company's retail segment reduced its total operating losses by $0.7 million, a 14% decrease. For its 25 comparable corporate stores, the Company reduced its operating losses by approximately 34% in the 27 weeks ended May 31, 2008 as compared to the 26 weeks ended May 26, 2007.
Other Income
Other income for the quarter and 27 week period ended May 31, 2008 was $0.1 million and $0.3 million as compared to $2.8 million and $3.7 million for the quarter and 26 week period ended May 26, 2007, respectively. These decreases were primarily due to market losses of approximately 1% for the Company's Alternative Asset Fund in 2008 as compared to income of approximately 5% on these investments in 2007.
Balance Sheet and Cash Flow
Net accounts receivable increased $4.3 million during the 27 week period ended May 31, 2008, due primarily to the slower pace of collections from certain store licensees related primarily to the overall retail environment. The Company continually assesses its levels of bad debt reserves and recorded $2.0 million in provision for losses on accounts receivable in 2008. Although the Company believes it has adequate reserves for bad debts, it will continue to work with its licensees to help limit bad debt exposure. The Company expects nine to ten underperforming stores to close during the remainder of 2008.
The Company used $10.8 million of cash in operating activities during the 27 weeks ended May 31, 2008 primarily due to the continued difficult environment at retail as well as increased cash requirements to fund the January new product rollout. Representing one of the most extensive redesigns and rollouts in the Company's recent history, the new product has been well-received at retail and should help to fuel future sales growth. Due to the lead time to source the majority of the new product, inventory and accounts payable balances were unusually high at the end of fiscal 2007. The Company's inventory levels peaked in January and began returning to more normalized levels during the second quarter. Management believes that the inventory levels as of May 31, 2008 represent a sustainable and more normalized level. The Company's accounts payable balance was reduced by $7.9 million during the 27 week period and has returned to a more normalized level. The Company also funded $5.0 million in dividends and repurchased $2.2 million of common stock under the previously announced $20 million share repurchase plan. These cash requirements were primarily funded through $11.3 million of net investment sales and $6.0 million in additional borrowings on the revolving credit facility.
In the fourth quarter of 2007, the Company announced the acquisition of the operations of two stores in the Charleston, South Carolina area from a former licensee and that it had begun the process of acquiring the land and buildings of those stores. During the quarter ended March 1, 2008, the Company completed the acquisition of the land and building for $6.8 million. The Company funded the acquisition through additional real estate debt of $5.0 million and the use of preexisting accounts receivable from the former licensee.
Special Dividend and Status of Investment Redemptions
Subsequent to May 31, 2008, the Company announced that its Board of Directors had approved the first installment of $0.75 per share to be paid as part of the $1.25 special dividend announced in April. Accordingly, $0.75 per share will be paid to shareholders of record as of July 16, 2008 with a payment date of August 1, 2008. The Company received $12.0 million in June from the liquidation of a position in the Alternative Asset Fund which will be used to fund the August dividend payment along with additional repurchases of common stock under the Company's share repurchase plan. The second installment of $0.50 per share is expected to be paid in October 2008 as further proceeds from liquidating additional portions of the Company's investment portfolio are received.
About Bassett Furniture Industries, Inc.
Bassett Furniture Industries, Inc. (Nasdaq:BSET), is a leading manufacturer and marketer of high quality, mid-priced home furnishings. With approximately 125 Bassett stores, Bassett has leveraged its strong brand name in furniture into a growing network of corporate and licensed stores that focus on providing consumers with a friendly environment for buying furniture and accessories. The most significant growth vehicle for Bassett continues to be the Company's dedicated retail store program. Bassett's retail strategy includes affordable custom-built furniture that is ready for delivery in the home within 30 days. The stores also feature the latest on-trend furniture styles, more than 1,000 upholstery fabrics, free in-home design visits, and coordinated decorating accessories. For more information, visit the Company's website at bassettfurniture.com. (BSET-E)
Certain of the statements in this release, particularly those preceded by, followed by or including the words "believes," "expects," "anticipates," "intends," "should," "estimates," or similar expressions, or those relating to or anticipating financial results for periods beyond the end of the second quarter of fiscal 2008, constitute "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended. For those statements, Bassett claims the protection of the safe harbor for forward looking statements contained in the Private Securities Litigation Reform Act of 1995. In many cases, Bassett cannot predict what factors would cause actual results to differ materially from those indicated in the forward looking statements. Expectations included in the forward-looking statements are based on preliminary information as well as certain assumptions which management believes to be reasonable at this time. The following important factors affect Bassett and could cause actual results to differ materially from those indicated in the forward looking statements: delays or difficulties in converting some of Bassett's non-operating assets to cash; economic, competitive, governmental and other factors identified in Bassett's filings with the Securities and Exchange Commission; and the effects of national and global economic or other conditions and future events on the retail demand for home furnishings.
BASSETT FURNITURE INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations - Unaudited
(In thousands, except for per share data)
13 Weeks Ended 13 Weeks Ended 27 Weeks Ended 26 Weeks Ended
May 31, 2008 May 26, 2007 May 31, 2008 May 26, 2007
--------------- --------------- --------------- ---------------
Percent Percent Percent Percent
of Net of Net of Net of Net
Amount Sales Amount Sales Amount Sales Amount Sales
--------------- --------------- --------------- ---------------
Net
sales $ 74,862 100.0% $ 75,432 100.0% $156,460 100.0% $148,852 100.0%
Cost
of
sales 45,344 60.6% 51,486 68.3% 94,316 60.3% 102,595 68.9%
--------------- --------------- --------------- ---------------
Gross
profit 29,518 39.4% 23,946 31.7% 62,144 39.7% 46,257 31.1%
--------------- --------------- --------------- ---------------
Selling,
general
and
admin-
istrat-
ive 26,959 36.0% 26,058 34.5% 54,565 34.9% 51,882 34.9%
Wholesale
deliv-
ery
expen-
ses 4,084 5.5% -- 0.0% 8,693 5.6% -- 0.0%
Proxy
defense
costs 1,418 1.9% -- 0.0% 1,418 0.9% -- 0.0%
Restruct-
uring,
asset
impair-
ment
charges
and
unusual
gains,
net (958) -1.3% 1,935 2.6% (958) -0.6% 5,544 3.7%
Lease
exit
costs -- 0.0% 1,934 2.6% -- 0.0% 1,934 1.3%
--------------- --------------- --------------- ---------------
Loss
from
oper-
ations (1,985) -2.7% (5,981) -7.9% (1,574) -1.0% (13,103) -8.8%
Other
income,
net 97 0.1% 2,782 3.7% 284 0.2% 3,692 2.5%
--------------- --------------- --------------- ---------------
Loss
before
income
taxes (1,888) -2.5% (3,199) -4.2% (1,290) -0.8% (9,411) -6.3%
Income
tax
benefit 1,497 2.0% 779 1.0% 1,416 0.9% 2,804 1.9%
--------------- --------------- --------------- ---------------
Net
income
(loss) $ (391) -0.5% $ (2,420) -3.2% $ 126 0.1% $ (6,607) -4.4%
=============== =============== =============== ===============
Basic
earnings
(loss)
per
share: $ (0.03) $ (0.20) $ 0.01 $ (0.56)
========= ========= ========= =========
Diluted
earnings
(loss)
per
share: $ (0.03) $ (0.20) $ 0.01 $ (0.56)
========= ========= ========= =========
BASSETT FURNITURE INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
unaudited
Assets May 31, Nov. 24,
2008 2007
---------- ----------
Current assets
Cash and cash equivalents $ 6,280 $ 3,538
Accounts receivable, net 42,930 38,612
Inventories 45,341 50,550
Deferred income taxes 7,058 6,001
Other current assets 12,127 12,421
---------- ----------
Total current assets 113,736 111,122
---------- ----------
Property and equipment, net 56,982 53,225
---------- ----------
Investments 63,723 76,924
Retail real estate 30,448 31,207
Notes receivable, net 14,541 14,128
Deferred income taxes 11,247 9,902
Other 12,037 14,195
---------- ----------
131,996 146,356
---------- ----------
Total assets $ 302,714 $ 310,703
========== ==========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 18,233 $ 26,104
Customer deposits 9,021 8,894
Other accrued liabilities 19,968 21,596
---------- ----------
Total current liabilities 47,222 56,594
---------- ----------
Long-term liabilities
Post employment benefit obligations 14,289 14,493
Long-term revolving debt 16,000 10,000
Real estate notes payable 21,757 18,850
Distributions in excess of affiliate earnings 12,629 12,244
Other long-term liabilities 5,040 3,670
---------- ----------
69,715 59,257
---------- ----------
Commitments and Contingencies
Stockholders' equity
Common stock 58,192 59,033
Retained earnings 126,119 131,725
Additional paid-in-capital 1,019 2,180
Accumulated other comprehensive income 447 1,914
---------- ----------
Total stockholders' equity 185,777 194,852
---------- ----------
Total liabilities and stockholders' equity $ 302,714 $ 310,703
========== ==========
BASSETT FURNITURE INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows - Unaudited
(In thousands)
27 Weeks 26 Weeks
Ended Ended
May 31, May 26,
2008 2007
--------- ---------
Operating activities:
Net income (loss) $ 126 $ (6,607)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 3,949 4,779
Equity in undistributed income of investments
and unconsolidated affiliated companies (1,628) (5,027)
Provision for restructuring, asset
impairment charges and unusual gains, net (958) 5,544
Impairment of retail real estate 352 --
Provision for lease exit costs -- 1,934
Income from investments (1,007) (1,496)
Provision for losses on accounts
and notes receivable 2,036 1,388
Deferred income taxes (650) (724)
Other, net 8 122
Changes in operating assets and liabilities
Accounts receivable (7,307) (7,853)
Inventories 5,209 7,002
Other current assets 68 (3,574)
Accounts payable and accrued liabilities (11,019) 3,028
--------- ---------
Net cash used in operating activities (10,821) (1,484)
--------- ---------
Investing activities:
Purchases of property and equipment (1,205) (844)
Purchases of retail real estate (497) --
Proceeds from sales of property and equipment 2,184 1,069
Acquisition of Charleston stores, net (216) --
Proceeds from sales of investments 14,196 11,042
Purchases of investments (2,872) (6,987)
Dividends from an affiliate 2,811 2,811
Net cash received on licensee notes 512 699
Other, net 167 (48)
--------- ---------
Net cash provided by investing activities 15,080 7,742
--------- ---------
Financing activities:
Borrowings under revolving credit facility 6,000 1,000
Repayments of long-term debt -- (770)
Repayments of real estate notes payable (381) (334)
Issuance of common stock 85 348
Repurchases of common stock (2,231) (476)
Cash dividends (4,990) (4,730)
--------- ---------
Net cash used in financing activities (1,517) (4,962)
--------- ---------
Change in cash and cash equivalents 2,742 1,296
Cash and cash equivalents - beginning of year 3,538 6,051
--------- ---------
Cash and cash equivalents - end of quarter $ 6,280 $ 7,347
========= =========
BASSETT FURNITURE INDUSTRIES, INC. AND SUBSIDIARIES
Segment Information - Unaudited
(In thousands)
13 Weeks 13 Weeks 27 Weeks 26 Weeks
Ended Ended Ended Ended
May 31, May 26, May 31, May 26,
2008 2007 2008 2007
--------------------- ---------------------
Net Sales
Wholesale $ 61,991 $ 63,388 $ 131,299 $ 125,734
Retail 24,597 21,909 50,525 43,092
Inter-company elimination (11,726) (9,865) (25,364) (19,974)
--------------------- ---------------------
Consolidated $ 74,862 $ 75,432 $ 156,460 $ 148,852
===================== =====================
Operating Income (loss)
Wholesale $ 670 $ 377 $ 3,553 $ (783)
Retail (2,354) (2,749) (4,411) (5,125)
Inter-company elimination 159 260 (256) 283
Proxy defense costs (1,418) -- (1,418) --
Restructuring, asset
impairment charges
and unusual gains, net 958 (1,935) 958 (5,544)
Lease exit costs -- (1,934) -- (1,934)
--------------------- ---------------------
Consolidated $ (1,985) $ (5,981) $ (1,574) $ (13,103)
===================== =====================
BASSETT FURNITURE INDUSTRIES, INC. AND SUBSIDIARIES
Reconciliation of Net Income as Reported to Net Income as Adjusted
(Unaudited)
(In thousands, except for per share data)
13 Weeks 13 Weeks 27 Weeks 26 Weeks
Ended Ended Ended Ended
May 31, Per May 26, Per May 31, Per May 26, Per
2008 Share 2007 Share 2008 Share 2007 Share
------------------------------- -------------------------------
Net
income
(loss)
as
repor-
ted
$ (391)$ (0.03)$(2,420)$ (0.20)$ 126 $ 0.01 $(6,607)$ (0.56)
Proxy
defense
costs 865 0.07 -- -- 865 0.07 -- --
Restruc-
turing,
asset
impair-
ment
charges
and
unusual
gains,
net (584) (0.05) 1,180 0.10 (584) (0.05) 3,382 0.29
Lease
exit
costs -- 1,180 0.10 -- 1,180 0.10
------------------------------- -------------------------------
Net
income
(loss)
as
adjus-
ted $ (110)$ (0.01)$ (60)$ -- $ 407 $ 0.03 $(2,045)$(0.17)
=============================== ===============================
Adjustments to net income (loss) are net of income taxes at a 39% effective tax rate
The Company has included the "as adjusted" information because it uses, and believes that others may use, such information in comparing the Company's operating results from period to period. However, the items excluded in determining the "as adjusted" information are significant components in understanding and assessing the Company's overall financial performance for the periods covered.