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BASSETT FURNITURE INDUSTRIES INC - Quarter Report: 2023 August (Form 10-Q)

bset20230826_10q.htm
 
 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended August 26, 2023

 

OR

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _____________________________ to _______________________

 

Commission File No. 000-00209

 

BASSETT FURNITURE INDUSTRIES, INCORPORATED

(Exact name of Registrant as specified in its charter)

 

Virginia   54-0135270
(State or other jurisdiction   (I.R.S. Employer
of incorporation or organization)   Identification No.)

 

3525 Fairystone Park Highway

Bassett, Virginia 24055

(Address of principal executive offices)

(Zip Code)

 

(276) 629-6000

(Registrant's telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol

 

Name of exchange on which registered

Common Stock ($5.00 par value)

 

BSET

 

NASDAQ

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer   Accelerated Filer
Non-accelerated Filer   Smaller Reporting Company
      Emerging Growth Company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes    ☐    No    ☒

 

At September 22, 2023, 8,819,992 shares of common stock of the Registrant were outstanding.

 

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BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

 

TABLE OF CONTENTS

 

ITEM   PAGE
     
  PART I - FINANCIAL INFORMATION  
     
1. Condensed Consolidated Financial Statements as of August 26, 2023 (unaudited) and November 26, 2022 and for the three and nine months ended August 26, 2023 (unaudited) and August 27, 2022 (unaudited)  
     
  Condensed Consolidated Statements of Operations 3
     
  Condensed Consolidated Statements of Comprehensive Income (Loss) 4
     
  Condensed Consolidated Balance Sheets 5
     
  Condensed Consolidated Statements of Cash Flows 6
     
  Notes to Condensed Consolidated Financial Statements 7
     
2. Management's Discussion and Analysis of Financial Condition and Results of Operations 23
     
3. Quantitative and Qualitative Disclosures About Market Risk 35
     
4. Controls and Procedures 35
     
  PART II - OTHER INFORMATION  
     
1. Legal Proceedings 36
     
2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities 36
     
3. Defaults Upon Senior Securities 36
     
6. Exhibits 36

 

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PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE PERIODS ENDED AUGUST 26, 2023 AND AUGUST 27, 2022 UNAUDITED

(In thousands except per share data)

 

    Quarter Ended    

Nine Months Ended

 
                                 
   

August 26, 2023

   

August 27, 2022

   

August 26, 2023

   

August 27, 2022

 
                                 

Net sales of furniture and accessories

  $ 87,217     $ 118,012     $ 295,434     $ 364,582  

Cost of furniture and accessories sold

    42,173       57,240       140,360       180,479  

Gross profit

    45,044       60,772       155,074       184,103  
                                 

Selling, general and administrative expenses

    48,848       54,695       154,709       160,536  

Gain on sale of real estate

    -       4,595       -       4,595  

Gain on revaluation of contingent consideration

    -       -       1,013       -  

Income (loss) from operations

    (3,804 )     10,672       1,378       28,162  
                                 

Interest income

    923       120       1,644       132  

Other loss, net

    (309 )     (714 )     (1,381 )     (1,982 )

Income (loss) from continuing operations before income taxes

    (3,190 )     10,078       1,641       26,312  
                                 

Income tax expense (benefit)

    (599 )     2,305       711       6,505  
                                 

Income (loss) from continuing operations

    (2,591 )     7,773       930       19,807  
                                 

Discontinued operations:

                               

Income from operations of logistical services

    -       -       -       1,712  

Gain on disposal (less adjustments)

    -       (193 )     -       53,061  

Income tax expense (benefit)

    -       (48 )     -       14,261  
                                 

Income (loss) from discontinued operations, net of tax

    -       (145 )     -       40,512  
                                 

Net income (loss)

  $ (2,591 )   $ 7,628     $ 930     $ 60,319  
                                 
Basic earnings (loss) per share:                                

Income (loss) from continuing operations

  $ (0.30 )   $ 0.84     $ 0.11     $ 2.08  

Income (loss) from discontinued operations

    -       (0.02 )     -       4.26  

Basic earnings (loss) per share

  $ (0.30 )   $ 0.82     $ 0.11     $ 6.34  
                                 

Diluted earnings (loss) per share:

                               

Income (loss) from continuing operations

  $ (0.30 )   $ 0.84     $ 0.11     $ 2.08  

Income (loss) from discontinued operations

    -       (0.02 )     -       4.26  

Diluted earnings (loss) per share

  $ (0.30 )   $ 0.82     $ 0.11     $ 6.34  
                                 

Regular dividends per share

  $ 0.18     $ 0.16     $ 0.50     $ 0.44  
                                 

Special dividend per share

  $ -     $ -     $ -     $ 1.50  

 

The accompanying notes to condensed consolidated financial statements are an integral part of the condensed consolidated financial statements.

 

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PART I FINANCIAL INFORMATION CONTINUED

ITEM 1. FINANCIAL STATEMENTS

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

FOR THE PERIODS ENDED AUGUST 26, 2023 AND AUGUST 27, 2022 UNAUDITED

(In thousands)

 

   

Quarter Ended

   

Nine Months Ended

 
   

August 26, 2023

   

August 27, 2022

   

August 26, 2023

   

August 27, 2022

 
                                 

Net income (loss)

  $ (2,591 )   $ 7,628     $ 930     $ 60,319  
Other comprehensive income (loss):                                

Foreign currency translation adjustments

    42       -       (237 )     -  

Income taxes related to foreign currency translation adjustments

    (11 )     -       63       -  

Amortization associated with Long Term Cash Awards (LTCA)

    31       33       98       99  

Income taxes related to LTCA

    (8 )     (8 )     (28 )     (24 )

Amortization associated with supplemental executive retirement defined benefit plan (SERP)

    -       31       -       93  

Income taxes related to SERP

    -       (8 )     -       (24 )
                                 

Other comprehensive income (loss), net of tax

    54       48       (104 )     144  
                                 

Total comprehensive income (loss)

  $ (2,537 )   $ 7,676     $ 826     $ 60,463  

 

The accompanying notes to condensed consolidated financial statements are an integral part of the condensed consolidated financial statements.

 

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PART I FINANCIAL INFORMATION CONTINUED

ITEM 1. FINANCIAL STATEMENTS

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

AUGUST 26, 2023 AND NOVEMBER 26, 2022

(In thousands)

 

 

   

(Unaudited)

         

 

 

August 26, 2023

    November 26, 2022  
Assets            

Current assets

               

Cash and cash equivalents

  $ 48,012     $ 61,625  

Short-term investments

    17,743       17,715  

Accounts receivable, net

    15,339       17,838  

Inventories

    66,866       85,477  

Recoverable income taxes

    3,777       2,353  

Other current assets

    9,340       11,487  

Total current assets

    161,077       196,495  
                 

Property and equipment, net

    84,247       77,001  
                 

Deferred income taxes

    5,117       5,528  

Goodwill and other intangible assets

    21,547       21,727  

Right of use assets under operating leases

    89,993       99,472  

Other

    7,050       6,050  

Total long-term assets

    123,707       132,777  

Total assets

  $ 369,031     $ 406,273  
                 

Liabilities and Stockholders Equity

               

Current liabilities

               

Accounts payable

  $ 17,117     $ 20,359  

Accrued compensation and benefits

    9,524       12,921  

Customer deposits

    23,626       35,963  

Current portion operating lease obligations

    19,608       18,819  

Other current liabilites and accrued expenses

    12,168       12,765  

Total current liabilities

    82,043       100,827  
                 

Long-term liabilities

               

Post employment benefit obligations

    10,668       9,954  

Long-term portion of operating lease obligations

    85,875       97,477  

Other long-term liabilities

    1,668       2,406  

Total long-term liabilities

    98,211       109,837  
                 
                 

Stockholders equity

               

Common stock

    43,800       44,759  

Retained earnings

    145,031       150,800  

Additional paid-in capital

    -       -  

Accumulated other comprehensive income (loss)

    (54 )     50  

Total stockholders' equity

    188,777       195,609  

Total liabilities and stockholders equity

  $ 369,031     $ 406,273  

 

The accompanying notes to condensed consolidated financial statements are an integral part of the condensed consolidated financial statements.

 

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PART I FINANCIAL INFORMATION CONTINUED

ITEM 1. FINANCIAL STATEMENTS

BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE PERIODS ENDED AUGUST 26, 2023 AND AUGUST 27, 2022 UNAUDITED

(In thousands)

 

   

Nine Months Ended

 
   

August 26, 2023

   

August 27, 2022

 

Operating activities:

               

Net income

  $ 930     $ 60,319  
Adjustments to reconcile net income to net cash provided by (used in) operating activities:                

Depreciation and amortization

    7,502       8,732  

Gain on disposal of discontinued operations

    -       (53,061 )

Gain on sale of property and equipment

    -       (4,603 )

Gain on revaluation of contingent consideration

    (1,013 )     -  

Deferred income taxes

    473       (2,856 )

Other, net

    1,781       1,425  

Changes in operating assets and liabilities:

               

Accounts receivable

    2,499       57  

Inventories

    18,611       (13,677 )

Other current assets

    (289 )     2,961  

Right of use assets under operating leases

    13,668       15,881  

Customer deposits

    (12,337 )     (11,181 )

Accounts payable and other liabilities

    (6,586 )     1,227  

Obligations under operating leases

    (14,990 )     (17,519 )

Net cash provided by (used in) operating activities

    10,249       (12,295 )
                 

Investing activities:

               

Purchases of property and equipment

    (14,657 )     (17,266 )

Proceeds from sales of property and equipment

    -       8,226  

Proceeds from the disposal of discontinued operations, net

    1,000       84,534  

Other

    (1,664 )     (1,428 )

Net cash provided by (used in) investing activities

    (15,321 )     74,066  
                 

Financing activities:

               

Cash dividends

    (4,406 )     (18,734 )

Other issuance of common stock

    275       340  

Repurchases of common stock

    (4,056 )     (10,263 )

Taxes paid related to net share settlement of equity awards

    (109 )     -  
Repayments of finance lease obligations     (208 )     (618 )

Net cash used in financing activities

    (8,504 )     (29,275 )

Effect of exchange rate changes on cash and cash equivalents

    (37 )     -  

Change in cash and cash equivalents

    (13,613 )     32,496  

Cash and cash equivalents - beginning of period

    61,625       34,374  
              .  

Cash and cash equivalents - end of period

  $ 48,012     $ 66,870  

 

The accompanying notes to condensed consolidated financial statements are an integral part of the condensed consolidated financial statements.

 
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PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
AUGUST 26, 2023
(Dollars in thousands except share and per share data)

 

 

1. Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by accounting principles generally accepted in the United States (“GAAP”) for complete financial statements. In our opinion, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.

 

References to “ASC” included hereinafter refer to the Accounting Standards Codification established by the Financial Accounting Standards Board (“FASB”) as the source of authoritative GAAP.

 

The condensed consolidated financial statements include the accounts of Bassett Furniture Industries, Incorporated (“Bassett”, “we”, “our”, or the “Company”) and our wholly-owned subsidiaries of which we have a controlling interest. In accordance with ASC Topic 810, we have evaluated our licensees and certain other entities to determine whether they are variable interest entities (“VIEs”) of which we are the primary beneficiary and thus would require consolidation in our financial statements. To date we have concluded that none of our licensees represent VIEs. During the second and third fiscal quarters of 2022, we were the primary beneficiary of one VIE by virtue of our control over the activities that most significantly impact the entity’s economic performance. This VIE was created to effect a Section 1031 like-kind exchange involving the purchase of real property in Tampa, Florida, for $7,668 during the second quarter of 2022 and the sale of real property in Houston, Texas for $8,217 during the third quarter of 2022 for the purpose of deferring approximately $4,300 of the taxable gain resulting from the sale of the Houston property. Subsequent to the completion of the exchange transactions during the third quarter of fiscal 2022, the sole equity interest in the VIE was transferred to Bassett and the entity is now consolidated as a wholly owned subsidiary.

 

Revenue from the sale of furniture and accessories is reported in the accompanying condensed consolidated statements of operations net of estimates for returns and allowances.

 

On January 31, 2022, we entered into a definitive agreement to sell substantially all of the assets of our wholly-owned subsidiary, Zenith Freight Lines, LLC (“Zenith”) to J.B. Hunt Transport Services, Inc. (“J.B. Hunt”). The sale was completed on February 28, 2022. Accordingly, the operations of our logistical services segment for the three and nine months ended August 27, 2022 are presented in the accompanying condensed consolidated statements of operations as discontinued operations. See Note 12, Discontinued Operations, for additional information. Costs incurred by Bassett for logistical services performed for Bassett by Zenith were included in selling, general and administrative expenses for the nine months ended August 27, 2022.

 

On September 2, 2022, we acquired 100% of the capital stock of Noa Home Inc. (“Noa Home”), a mid-priced e-commerce furniture retailer headquartered in Montreal, Canada. Noa Home has operations in Canada, Australia, Singapore and the United Kingdom. Since acquisition, Noa Home has been consolidated as a wholly-owned subsidiary. See Note 3 for additional information.

 

Certain prior year amounts have been reclassified to conform to the current year presentation (see Note 13, Segments).

 

 

2. Interim Financial Presentation and Other Information

 

All intercompany accounts and transactions have been eliminated in the condensed consolidated financial statements. The results of operations for the three and nine months ended August 26, 2023 are not necessarily indicative of results for the full fiscal year. These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended November 26, 2022.

 

Income Taxes

 

We calculate an anticipated effective tax rate for the year based on our annual estimates of pretax income and use that effective tax rate to record our year-to-date income tax provision. Any change in annual projections of pretax income could have a significant impact on our effective tax rate for the respective quarter.

 

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PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
AUGUST 26, 2023
(Dollars in thousands except share and per share data)

 

Our effective tax rate was 18.8% and 43.3% for the three and nine months ended August 26, 2023, respectively, and 22.8% and 25.6% for the three and nine months ended August 27, 2022, respectively. The effective rate for the three months ended August 26, 2023 differs from the federal statutory rate of 21% primarily due the effect of a change in our estimate of annual pretax income on our anticipated effective rate for the full year, offset by increases in the valuation allowance placed on deferred tax assets associated with Noa Home and the effects of state income taxes and various permanent differences. For the nine months ended August 26, 2023, the effective rate differs from the federal statutory rate primarily due to the non-taxable gain on revaluation of contingent consideration associated with the acquisition of Noa Home (see Note 3), offset by increases in the valuation allowance placed on deferred tax assets associated with Noa Home and the effects of state income taxes and various permanent differences. For the three and nine months ended August 27, 2022, the effective rates differ from the federal statutory rate of 21% primarily due to the effects of state income taxes and various permanent differences, including those associated with Company-owned life insurance, and a tax of $522 for the nine months ended August 27, 2022 associated with the non-deductible goodwill written off in connection with the sale of Zenith and included in income tax on discontinued operations.

 

Non-cash Investing and Financing Activity

 

During the nine months ended August 26, 2023 and August 27, 2022, $6,026 and $6,957, respectively, of lease right-of-use assets were added through the recognition of the corresponding lease obligations.

 

 

3. Business Combinations

 

On September 2, 2022, we acquired 100% of the capital stock of Noa Home, a mid-priced e-commerce furniture retailer headquartered in Montreal, Canada. Noa Home has operations in Canada, Australia, Singapore and the United Kingdom. The initial purchase price (denominated in Canadian dollars) of approximately C$7,700 included cash payments of C$2,000 paid to the co-founders of Noa Home and approximately C$5,700 for the repayment of existing debt owed by Noa Home. Per the terms of the agreement at the acquisition date, the Noa Home co-founders also had the opportunity to receive additional cash payments totaling approximately C$1,330 per year for the three fiscal years following the year of acquisition based on established increases in net revenues and achieving certain internal EBITDA goals.

 

Under the acquisition method of accounting, the fair value of the consideration transferred was allocated to the tangible and intangible assets acquired and the liabilities assumed based on their estimated fair values as of the acquisition date with the remaining unallocated amount recorded as goodwill.

 

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PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
AUGUST 26, 2023
(Dollars in thousands except share and per share data)

 

The allocation of the fair value of the acquired business has been based on a preliminary valuation. Our estimates and assumptions are subject to change as we obtain additional information for our estimates during the measurement period (up to one year from the acquisition date). The primary areas of the preliminary allocation of the fair value of consideration transferred that are not yet finalized relate to the fair values of certain tangible and intangible assets acquired and the residual goodwill. As of August 26, 2023, there have been no changes to the preliminary allocation of the purchase price (translated into U.S. dollars as of the acquisition date) which is as follows:

 

Fair value of consideration given in exchange for 100% of Noa Home:        

Cash

  $ 5,878  

Fair value of contingent consideration as of acquisition date

    1,375  

Total fair value of consideration given

  $ 7,253  
         
Allocation of the fair value of consideration transferred:        
Identifiable assets acquired:        

Cash

  $ 296  

Inventory

    1,585  

Other current assets

    317  

Property & equipment

    155  

Intangible asset - trade name

    1,929  

Total identifiable assets acquired

    4,282  
Liabilities assumed:        

Accounts payable

    (1,227 )

Customer deposits

    (1,059 )

Other current liabilities and accrued expenses

    (458 )

Total liabilities assumed

    (2,744 )

Net identifiable assets acquired

    1,538  

Goodwill

    5,715  

Total net assets acquired

  $ 7,253  

 

Goodwill was determined based on the residual difference between the fair value of the consideration transferred and the value assigned to the tangible and intangible assets and liabilities recognized in connection with the acquisition and is deductible for tax purposes. Among the factors that contributed to a purchase price resulting in the recognition of goodwill are the expected synergies arising from combining the Company’s manufacturing and distribution capabilities with Noa Home’s position in the international e-commerce market for home furnishings and accessories.

 

A portion of the fair value of the consideration transferred in the amount of $1,929 has been assigned to the identifiable intangible asset associated with the Noa Home trade name. This intangible asset is considered to have an indefinite life. The indefinite-lived intangible asset and goodwill are not amortized but will be tested for impairment annually or between annual tests if an indicator of impairment exists and the Company determines it is more likely than not that the fair value of the goodwill is below its book value.

 

The fair values of consideration transferred and net assets acquired were determined using a combination of Level 2 and Level 3 inputs as specified in the fair value hierarchy in ASC 820, Fair Value Measurements and Disclosures.

 

Subsequent to the acquisition date, the parties concluded that the targets originally set forth by which the Noa Home co-founders were to earn the contingent consideration would likely not be met within the initially anticipated time frame. Therefore, we have agreed to replace the contingent consideration with two fixed payments of C$200 each, the first of which was paid in June of 2023 with the second to be paid in December of 2024. As a result of the write-down of the contingent consideration payable that was recognized at the acquisition date, we recorded a gain of $1,013 for the nine months ended August 26, 2023.

 

The revenues and results of operations of Noa Home for the three and nine months ended August 26, 2023 were not material. The pro forma impact of the acquisition has not been presented because it was not material to our consolidated results of operations for the three and nine months ended August 27, 2022.

 

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PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
AUGUST 26, 2023
(Dollars in thousands except share and per share data)

 

 

4. Financial Instruments and Investments

 

Financial Instruments

 

Our financial instruments include cash and cash equivalents, short-term investments in certificates of deposit (CDs), accounts receivable, and accounts payable. Because of their short maturities, the carrying amounts of cash and cash equivalents, short-term investments in CDs, accounts receivable, and accounts payable approximate fair value.

 

Investments

 

Our short-term investments of $17,743 and $17,715 at August 26, 2023 and November 26, 2022 consisted of CDs. At August 26, 2023, the CDs had original terms averaging seven months, bearing interest at rates ranging from 0.7% to 5.45%. At August 26, 2023, the weighted average remaining time to maturity of the CDs was approximately six months and the weighted average yield of the CDs was approximately 5.09%. Each CD is placed with a federally insured financial institution and all deposits are within federal deposit insurance limits. Due to the nature of these investments and their relatively short maturities, the carrying amount of the short-term investments at August 26, 2023 and November 26, 2022 approximates their fair value.

 

 

5. Accounts Receivable

 

Accounts receivable consists of the following:

 

   

August 26, 2023

   

November 26, 2022

 

Gross accounts receivable

  $ 15,791     $ 19,099  

Allowance for doubtful accounts

    (452 )     (1,261 )

Accounts receivable, net

  $ 15,339     $ 17,838  

 

We maintain an allowance for credit losses for estimated losses resulting from the inability of our customers to make required payments. The allowance for credit losses is based on a review of specifically identified accounts in addition to an overall aging analysis which is applied to accounts pooled on the basis of similar risk characteristics. Judgments are made with respect to the collectability of accounts receivable within each pool based on historical experience, current payment practices and current economic trends based on our expectations over the expected life of the receivables, which is generally ninety days or less. Actual credit losses could differ from those estimates.

 

Activity in the allowance for credit losses for the nine months ended August 26, 2023 was as follows:

 

Balance at November 26, 2022

  $ 1,261  

Additions charged to expense

    124  

Write-offs against allowance

    (933 )

Balance at August 26, 2023

  $ 452  

 

We believe that the carrying value of our net accounts receivable approximates fair value. The inputs into these fair value estimates reflect our market assumptions and are not observable. Consequently, the inputs are considered to be Level 3 as specified in the fair value hierarchy in ASC Topic 820, Fair Value Measurements and Disclosures. See Note 4.

 

10 of 38

PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
AUGUST 26, 2023
(Dollars in thousands except share and per share data)

 

 

6. Inventories

 

Domestic furniture inventories are valued at the lower of cost, which is determined using the last-in, first-out (LIFO) method, or market. Imported inventories and those applicable to our Lane Venture and Bassett Outdoor lines are valued at the lower of cost, which is determined using the first-in, first-out (FIFO) method, or net realizable value.

 

Inventories were comprised of the following:

 

   

August 26, 2023

   

November 26, 2022

 

Wholesale finished goods

  $ 32,258     $ 46,607  

Work in process

    606       620  

Raw materials and supplies

    19,021       22,859  

Retail merchandise

    33,048       32,974  

Total inventories on first-in, first-out method

    84,933       103,060  

LIFO adjustment

    (11,785 )     (12,416 )

Reserve for excess and obsolete inventory

    (6,282 )     (5,167 )
    $ 66,866     $ 85,477  

 

We estimate an inventory reserve for excess quantities and obsolete items based on specific identification and historical write-offs, taking into account future demand, market conditions and the respective valuations at LIFO. The need for these reserves is primarily driven by the normal product life cycle. As products mature and sales volumes decline, we rationalize our product offerings to respond to consumer tastes and keep our product lines fresh. If actual demand or market conditions in the future are less favorable than those estimated, additional inventory write-downs may be required. In determining reserves, we calculate separate reserves on our wholesale and retail inventories. Our wholesale inventories tend to carry the majority of the reserves for excess quantities and obsolete inventory due to the nature of our distribution model. These wholesale reserves primarily represent design and/or style obsolescence. Typically, product is not shipped to our retail warehouses until a consumer has ordered and paid a deposit for the product. We do not typically hold retail inventory for stock purposes. Consequently, floor sample inventory and inventory for delivery to customers account for the majority of our inventory at retail. Retail reserves are based on accessory and clearance floor sample inventory in our stores and any inventory that is not associated with a specific customer order in our retail warehouses.

 

Activity in the reserves for excess quantities and obsolete inventory by segment are as follows:

 

   

Wholesale

Segment

   

Retail Segment

   

Total

 
                         

Balance at November 26, 2022

  $ 4,103     $ 1,064     $ 5,167  

Additions charged to expense

    3,228       586       3,814  

Write-offs

    (2,086 )     (613 )     (2,699 )

Balance at August 26, 2023

  $ 5,245     $ 1,037     $ 6,282  

 

Our estimates and assumptions have been reasonably accurate in the past. We have not made any significant changes to our methodology for determining inventory reserves in 2023 and do not anticipate that our methodology is likely to change in the future.

 

11 of 38

PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
AUGUST 26, 2023
(Dollars in thousands except share and per share data)

 

 

7. Goodwill and Other Intangible Assets

 

Goodwill and other intangible assets consisted of the following:

 

   

August 26, 2023

 
       
   

Gross Carrying

Amount

   

Accumulated Amortization

   

Intangible

Assets, Net

 
Intangibles subject to amortization                        

Customer relationships

  $ 512     $ (322 )   $ 190  
                         
Intangibles not subject to amortization:                        

Trade names

                    8,688  

Goodwill

                    12,669  

Total goodwill and other intangible assets

                  $ 21,547  

 

   

November 26, 2022

 
       
   

Gross Carrying

Amount

   

Accumulated Amortization

   

Intangible

Assets, Net

 
Intangibles subject to amortization                        

Customer relationships

  $ 512     $ (280 )   $ 232  
                         
Intangibles not subject to amortization:                        

Trade names

                    8,723  

Goodwill

                    12,772  

Total goodwill and other intangible assets

                  $ 21,727  

 

Changes in the carrying amounts of goodwill by reportable segment were as follows:

 

   

Wholesale

   

Retail

   

Corporate & Other

   

Total

 
                                 

Balance as of November 26, 2022

  $ 7,217     $ -     $ 5,554     $ 12,771  

Foreign currency translation adjustments

    -       -       (102 )     (102 )

Balance as of August 26, 2023

  $ 7,217     $ -     $ 5,452     $ 12,669  

 

Accumulated impairment losses at both August 26, 2023 and November 26, 2022 were $3,897.

 

Due to the decline in the share price of our common stock through the end of the third quarter of 2023, we performed a qualitative analysis of our goodwill as of August 26, 2023 and concluded that it was not more likely than not that the carrying value of our reporting units with goodwill exceeded their fair values.

 

12 of 38

PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
AUGUST 26, 2023
(Dollars in thousands except share and per share data)

 

Amortization expense associated with intangible assets during the three and nine months ended August 26, 2023 and August 27, 2022 was as follows:

 

   

Quarter Ended

   

Nine Months Ended

 
   

August 26, 2023

   

August 27, 2022

   

August 26, 2023

   

August 27, 2022

 
                                 

Intangible asset amortization expense

  $ 14     $ 14     $ 43     $ 42  

 

Estimated future amortization expense for intangible assets that exist at August 26, 2023 is as follows:

 

Remainder of fiscal 2023

  $ 14  

Fiscal 2024

    57  

Fiscal 2025

    57  

Fiscal 2026

    57  

Fiscal 2027

    5  

Fiscal 2028

    -  

Total

  $ 190  

 

 

8. Bank Credit Facility

 

Our bank credit facility provides for a line of credit of up to $25,000. At August 26, 2023, we had $3,731 outstanding under standby letters of credit against our line, leaving availability under our credit line of $21,269. The line bears interest at the One-Month Term Secured Overnight Financing Rate (“One-Month Term SOFR”) plus 1.5% and is unsecured. Our bank charges a fee of 0.25% on the daily unused balance of the line, payable quarterly. Under the terms of the bank credit facility, we must maintain the following financial covenants, measured quarterly on a rolling twelve-month basis:

 

 

Consolidated fixed charge coverage ratio of not less than 1.4 times,

 

 

Consolidated lease-adjusted leverage ratio not to exceed 3.0 times, and

 

 

Minimum tangible net worth of $140,000.

 

We were in compliance with these covenants at August 26, 2023. The credit facility will mature on January 27, 2025, at which time any amounts outstanding under the facility will be due.

 

 

9. Post Employment Benefit Obligations

 

Defined Benefit Plans

 

We have an unfunded Supplemental Retirement Income Plan (the “Supplemental Plan”) that covers one current and certain former executives. The liability for the Supplemental Plan was $6,049 and $5,987 as of August 26, 2023 and November 26, 2022, respectively.

 

We also have the Bassett Furniture Industries, Incorporated Management Savings Plan (the “Management Savings Plan”) which was established in the second quarter of fiscal 2017. The Management Savings Plan is an unfunded, nonqualified deferred compensation plan maintained for the benefit of certain highly compensated or management level employees. As part of the Management Savings Plan, we have made Long Term Cash Awards (“LTC Awards”) totaling $2,000 to certain management employees in the amount of $400 each. The liability for the LTC Awards was $1,350 and $1,275 as of August 26, 2023 and November 26, 2022, respectively.

 

13 of 38

PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
AUGUST 26, 2023
(Dollars in thousands except share and per share data)

 

The combined pension liability for the Supplemental Plan and LTC Awards is recorded as follows in the condensed consolidated balance sheets:

 

   

August 26, 2023

    November 26, 2022  

Accrued compensation and benefits

  $ 698     $ 698  

Post employment benefit obligations

    6,701       6,564  

Total pension liability

  $ 7,399     $ 7,262  

 

Components of net periodic pension costs for our defined benefit plans for the three and nine months ended August 26, 2023 and August 27, 2022 are as follows:

 

   

Quarter Ended

   

Nine Months Ended

 
   

August 26, 2023

   

August 27, 2022

   

August 26, 2023

   

August 27, 2022

 

Service cost

  $ 7     $ 9     $ 20     $ 27  

Interest cost

    93       58       278       173  

Amortization of prior service costs

    31       31       94       94  

Amortization of loss

    -       33       -       100  

Net periodic pension cost

  $ 131     $ 131     $ 392     $ 394  

 

The components of net periodic pension cost other than the service cost component, which is included in selling, general and administrative expenses, are included in other loss, net in our condensed consolidated statements of operations.

 

Deferred Compensation Plans

 

We have an unfunded deferred compensation plan that covers one current executive and certain former executives and provides for voluntary deferral of compensation. This plan has been frozen with no additional participants or deferrals permitted. Our liability under this plan was $1,645 and $1,616 as of August 26, 2023 and November 26, 2022, respectively.

 

We also have an unfunded, nonqualified deferred compensation plan maintained for the benefit of certain highly compensated or management level employees which was established under the Management Savings Plan. Our liability under this plan, including both accrued Company contributions and participant salary deferrals, was $2,618 and $2,070 as of August 26, 2023 and November 26, 2022, respectively.

 

Our combined liability for all deferred compensation arrangements, including Company contributions and participant deferrals under the Management Savings Plan, is recorded as follows in the condensed consolidated balance sheets:

 

   

August 26, 2023

    November 26, 2022  

Accrued compensation and benefits

  $ 296     $ 296  

Post employment benefit obligations

    3,967       3,390  

Total deferred compensation liability

  $ 4,263     $ 3,686  

 

14 of 38

PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
AUGUST 26, 2023
(Dollars in thousands except share and per share data)

 

We recognized expense under our deferred compensation arrangements during the three and nine months ended August 26, 2023 and August 27, 2022 as follows:

 

   

Quarter Ended

   

Nine Months Ended

 
   

August 26, 2023

   

August 27, 2022

   

August 26, 2023

   

August 27, 2022

 

Deferred compensation expense (benefit)

  $ 166     $ (7 )   $ 363     $ 54  

 

 

10. Commitments and 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, we believe that the final resolution of these matters will not have a material adverse effect on our financial position or future results of operations.

 

Lease Guarantees

 

We were contingently liable under a licensee lease obligation guarantee in the amounts of $1,906 and $1,880 at August 26, 2023 and November 26, 2022, respectively. The remaining term under this lease guarantee extends for five years.

 

In the event of default by an independent dealer under the guaranteed lease, we believe that the risk of loss is mitigated through a combination of options that include, but are not limited to, arranging for a replacement dealer or liquidating the collateral (primarily inventory). The proceeds of the above options are expected to cover the estimated amount of our future payments under the guarantee obligation, net of recorded reserves. The fair value of this lease guarantee (an estimate of the cost to the Company to perform on the guarantee) at August 26, 2023 and November 26, 2022 was not material.

 

15 of 38

PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
AUGUST 26, 2023
(Dollars in thousands except share and per share data)

 

 

11. Earnings (Loss) Per Share

 

The following reconciles basic and diluted earnings (loss) per share:

 

   

Net Income

(Loss)

   

Weighted Average

Shares

   

Net Income

(Loss) Per

Share

 

For the quarter ended August 26, 2023:

                       
                         

Basic loss per share - continuing operations

  $ (2,591 )     8,736,096     $ (0.30 )
Add effect of dilutive securities:                        

Restricted shares*

    -       -       -  

Diluted loss per share - continuing operations

  $ (2,591 )     8,736,096     $ (0.30 )
                         
                         

For the quarter ended August 27, 2022:

                       
                         

Basic earnings per share - continuing operations

  $ 7,773       9,238,185     $ 0.84  
Add effect of dilutive securities:                        

Options and restricted shares

    -       28,927       -  

Diluted earnings per share - continuing operations

  $ 7,773       9,267,112     $ 0.84  
                         

Basic loss per share - discontinued operations

  $ (145 )     9,238,185     $ (0.02 )
Add effect of dilutive securities:                        

Options and restricted shares*

    -       -       -  

Diluted loss per share - discontinued operations

  $ (145 )     9,238,185     $ (0.02 )
                         
                         

For the nine months ended August 26, 2023:

                       
                         

Basic earnings per share - continuing operations

  $ 930       8,804,718     $ 0.11  

Add effect of dilutive securities:

                       

Restricted shares

    -       15,934       -  

Diluted earnings per share - continuing operations

  $ 930       8,820,652     $ 0.11  
                         
                         

For the nine months ended August 27, 2022:

                       
                         

Basic earnings per share - continuing operations

  $ 19,807       9,503,937     $ 2.08  

Add effect of dilutive securities:

                       

Options and restricted shares

    -       5,688       -  

Diluted earnings per share - continuing operations

  $ 19,807       9,509,625     $ 2.08  
                         

Basic earnings per share - discontinued operations

  $ 40,512       9,503,937     $ 4.26  

Add effect of dilutive securities:

                       

Options and restricted shares

    -       5,688       -  

Diluted earnings per share - discontinued operations

  $ 40,512       9,509,625     $ 4.26  

 

*Due to the net loss for the period, potentially dilutive securities would have been anti-dilutive and are therefore excluded.

 

16 of 38

PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
AUGUST 26, 2023
(Dollars in thousands except share and per share data)

 

For the three and nine months ended August 26, 2023 and August 27, 2022, the following potentially dilutive shares were excluded from the computations as their effect was anti-dilutive:

 

   

Quarter Ended

   

Nine Months Ended

 
   

August 26, 2023

   

August 27, 2022

   

August 26, 2023

   

August 27, 2022

 
                                 

Unvested shares

    100,313       15,799       66,113       67,099  

 

 

12. Discontinued Operations

 

On January 31, 2022, we entered into a definitive agreement to sell substantially all of the assets of Zenith to J.B. Hunt. The sale was completed on February 28, 2022. During the second quarter of fiscal 2022, we received the following net proceeds:

 

Sales price prior to post-closing working capital adjustment

  $ 86,939  
Less:        

Amount held in escrow for contingencies related to representations and warranties (1)

    1,000  

Seller expenses paid at closing

    418  

Working capital adjustment paid to buyer

    987  
         

Net proceeds from the sale

  $ 84,534  

 

 

(1)

This was held in escrow until the first anniversary of the sale, at which time the full amount was released to the Company on March 2, 2023. As of November 26, 2022, this amount is included in other current assets in the accompanying condensed consolidated balance sheets.

 

The sales price was subject to customary post-closing working capital adjustments. For the three and nine months ended August 27, 2022 we recognized a pre-tax gain (less post-closing adjustments) on the sale of $(193) and $53,061, respectively. Upon final settlement of the post-closing adjustments, which were paid in the second half of fiscal 2022, the final pre-tax gain was $52,534.

 

The operations of our logistical services segment, which consisted entirely of the operations of Zenith, are presented in the accompanying condensed consolidated statements of operations as discontinued operations.

 

The following table summarizes the major classes of line items constituting income of the discontinued operations, as reported in the condensed consolidated statements of operations for the three and nine months ended August 27, 2022:

 

   

Quarter Ended

   

Nine Months Ended

 
   

August 27, 2022

   

August 27, 2022

 

Major line items constituting pretax income of discontinued operations:

               

Logistical services revenue

  $ -     $ 16,776  

Cost of logistical services

    -       15,001  

Other loss, net

    -       (63 )

Income from operations of logistical services

    -       1,712  

Gain on disposal (less adjustments)

    (193 )     53,061  

Pretax income (loss) of discontinued operations

    (193 )     54,773  

Income tax expense (benefit)

    (48 )     14,261  

Income (loss) from discontinued operations, net of tax

  $ (145 )   $ 40,512  

 

17 of 38

PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
AUGUST 26, 2023
(Dollars in thousands except share and per share data)

 

The amounts for revenue and costs of logistical services shown above represent the results of Zenith’s business transactions with third parties. Zenith also charged Bassett for logistical services provided to our wholesale segment in the amount of $9,121 during the nine months ended August 27, 2022. Upon the sale of Zenith we entered into a service agreement with J.B. Hunt for the continuation of these services for a period of seven years. We incurred expense for logistical services performed by J.B. Hunt of $6,278 and $21,429 during the three and nine months ended August 26, 2023, respectively, and $10,307 and $19,852 for the three and nine months ended August 27, 2022, respectively.

 

Included in other loss, net, is interest arising from finance leases assumed by J.B. Hunt as part of the transaction. Such interest amounted to $78 for the nine months ended August 27, 2022.

 

The following table summarizes the cash flows generated by discontinued operations during the nine months ended August 27, 2022:

 

    Nine Months Ended  
   

August 27, 2022

 

Cash provided by operating activities

  $ 1,681  

Cash used in investing activities

    (81 )

Cash used in financing activities

    (371 )

Net cash provided by discontinued operations

  $ 1,229  

 

 

13. Segment Information

 

As of the beginning of fiscal 2023 we have strategically aligned our business into three 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.

 

 

Corporate and other – Corporate and other 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 our other insignificant operating segment, the recently acquired Noa Home (see Note 3).

 

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.

 

Prior to the beginning of fiscal 2023, the functions included in Corporate and other were included in our wholesale reportable segment, and Noa Home was included in our retail reportable segment for the fourth quarter of fiscal 2022 following its acquisition on September 2, 2022. We believe that the new alignment of our reporting segments provides our chief operating decision maker with clearer information with which to assess the operating results of our wholesale segment. Noa Home does not meet the requirements to be a separate reportable segment as it is below the thresholds of the revenue, income and asset tests. The segment information presented below for the three and nine months ended August 27, 2022 and as of November 26, 2022 has been restated to reflect the new alignment of our reportable segments.

 

18 of 38

PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
AUGUST 26, 2023
(Dollars in thousands except share and per share data)

 

Our former logistical services segment which represented the operations of Zenith is now presented as a discontinued operation in the accompanying condensed consolidated balances sheets and statements of operations (see Note 12).

 

The following table presents our segment information:

 

   

Quarter Ended

   

Nine Months Ended

 
   

August 26, 2023

   

August 27, 2022

   

August 26, 2023

   

August 27, 2022

 

Sales Revenue

                               

Wholesale sales of furniture and accessories

  $ 56,660     $ 78,959     $ 188,318     $ 249,945  

Less: Sales to retail segment

    (23,503 )     (31,833 )     (77,932 )     (95,976 )

Wholesale sales to external customers

    33,157       47,126       110,386       153,969  

Retail sales of furniture and accessories

    52,264       70,886       178,004       210,613  

Corporate and other

    1,796       -       7,044       -  

Consolidated net sales of furniture and accessories

  $ 87,217     $ 118,012     $ 295,434     $ 364,582  
                                 

Income (Loss) from Operations

                               

Wholesale

  $ 6,340     $ 9,989     $ 22,339     $ 31,656  

Retail - Company-owned stores

    (3,036 )     3,889       (751 )     13,804  

Net expenses - Corporate and other

    (7,420 )     (7,839 )     (22,140 )     (21,633 )

Inter-company elimination

    312       38       917       (260 )

Gain on revaluation of contingent consideration

    -       -       1,013       -  

Gain on sale of real estate

    -       4,595       -       4,595  

Consolidated

  $ (3,804 )   $ 10,672     $ 1,378     $ 28,162  
                                 

Depreciation and Amortization

                               

Wholesale

  $ 618     $ 601     $ 1,838     $ 1,774  

Retail - Company-owned stores

    1,335       1,454       4,167       4,429  

Corporate and other

    640       613       1,497       1,264  

Consolidated

  $ 2,593     $ 2,668     $ 7,502     $ 7,467  
                                 

Capital Expenditures

                               

Wholesale

  $ 715     $ 2,108     $ 2,064     $ 4,539  

Retail - Company-owned stores

    4,776       1,468       7,798       9,869  

Corporate and other

    1,761       1,052       4,795       2,858  

Consolidated

  $ 7,252     $ 4,628     $ 14,657     $ 17,266  

 

   

As of

   

As of

 
   

August 26, 2023

   

November 26, 2022

 
Identifiable Assets                

Wholesale

  $ 102,022     $ 125,433  

Retail - Company-owned stores

    157,415       162,222  

Corporate and other

    109,594       118,618  

Consolidated

  $ 369,031     $ 406,273  

 

See Note 14, Revenue Recognition, for disaggregated revenue information regarding sales of furniture and accessories by product type for the wholesale and retail segments.

 

19 of 38

PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
AUGUST 26, 2023
(Dollars in thousands except share and per share data)

 

 

14. Revenue Recognition

 

We recognize revenue when we transfer promised goods or services to our customers in an amount that reflects the consideration we expect to receive in exchange for those goods or services. For our wholesale and retail segments, revenue is recognized when the risks and rewards of ownership and title to the product have transferred to the buyer. At wholesale, transfer occurs and revenue is recognized upon the shipment of goods to independent dealers and licensee-owned BHF stores. At retail, transfer occurs and revenue is recognized upon delivery of goods to the customer. All wholesale and retail revenues are recorded net of estimated returns and allowances based on historical patterns. We typically collect a significant portion of the purchase price from our retail customers as a deposit upon order, with the balance typically collected at the time delivery is scheduled. These customer deposits are carried on our balance sheet as a current liability until delivery is fulfilled and amounted to $23,626 and $35,963 as of August 26, 2023 and November 26, 2022, respectively. Substantially all of the customer deposits held at November 26, 2022 were satisfied during the current year-to-date period and have therefore been recognized in revenue for the nine months ended August 26, 2023.

 

Sales commissions are expensed as part of selling, general and administrative expenses at the time revenue is recognized because the amortization period would have been one year or less. Sales commissions at wholesale are accrued upon the shipment of goods. Sales commissions at retail are accrued at the time a sale is written (i.e. – when the customer’s order is placed) and are carried as prepaid commissions in other current assets until the goods are delivered and revenue is recognized. At August 26, 2023 and November 26, 2022, our balance of prepaid commissions included in other current assets was $2,374 and $3,768, respectively.

 

We exclude from revenue all amounts collected from customers for sales tax. We do not disclose amounts allocated to remaining unsatisfied performance obligations as they are expected to be satisfied within one year or less.

 

Disaggregated revenue information for sales of furniture and accessories by product category for the three and nine months ended August 26, 2023 and August 27, 2022, excluding intercompany transactions between our segments, is a follows:

 

   

Quarter Ended

 
   

August 26, 2023

   

August 27, 2022

 
   

Wholesale

   

Retail

   

Corporate

& Other (2)

   

Total

   

Wholesale

   

Retail

   

Corporate

& Other

   

Total

 

Bassett Custom Upholstery

  $ 19,985     $ 30,177     $ -     $ 50,162     $ 30,885     $ 39,054     $ -     $ 69,939  

Bassett Leather

    6,743       337       -       7,080       6,290       867       -       7,157  

Bassett Custom Wood

    3,564       7,697       -       11,261       5,564       11,357       -       16,921  

Bassett Casegoods

    2,865       7,027       -       9,892       4,387       10,404       -       14,791  

Accessories, mattresses and other (1)

    -       7,026       1,796       8,822       -       9,204       -       9,204  

Consolidated net sales of furniture and accessories

  $ 33,157     $ 52,264     $ 1,796     $ 87,217     $ 47,126     $ 70,886     $ -     $ 118,012  

 

   

Nine Months Ended

 
   

August 26, 2023

   

August 27, 2022

 
   

Wholesale

   

Retail

   

Corporate & Other (2)

   

Total

   

Wholesale

   

Retail

   

Corporate & Other

   

Total

 

Bassett Custom Upholstery

  $ 68,641     $ 101,047     $ -     $ 169,688     $ 96,636     $ 122,248     $ -     $ 218,884  

Bassett Leather

    19,630       1,408       -       21,038       29,111       1,399       -       30,510  

Bassett Custom Wood

    12,642       27,164       -       39,806       17,207       32,001       -       49,208  

Bassett Casegoods

    9,473       24,848       -       34,321       11,015       27,884       -       38,899  

Accessories, mattresses and other (1)

    -       23,537       7,044       30,581       -       27,081       -       27,081  

Consolidated net sales of furniture and accessories

  $ 110,386     $ 178,004     $ 7,044     $ 295,434     $ 153,969     $ 210,613     $ -     $ 364,582  

 

(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.

(2) Our Corporate and other segment for the three and nine months ended August 26, 2023 includes the sales of Noa Home, which was acquired on September 2, 2022 (see Note 3).

 

20 of 38

PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
AUGUST 26, 2023
(Dollars in thousands except share and per share data)

 

 

15. Changes to Stockholders Equity

 

The following changes in our stockholders’ equity occurred during the three and nine months ended August 26, 2023 and August 27, 2022:

 

   

Quarter Ended

   

Nine Months Ended

 
                                 
   

August 26, 2023

   

August 27, 2022

   

August 26, 2023

   

August 27, 2022

 

Common Stock:

                               

Beginning of period

  $ 43,900     $ 46,396     $ 44,759     $ 48,811  

Issuance of common stock

    101       98       288       222  

Purchase and retirement of common stock

    (201 )     (430 )     (1,247 )     (2,969 )

End of period

  $ 43,800     $ 46,064     $ 43,800     $ 46,064  

Common Shares Issued and Outstanding:

                               

Beginning of period

    8,779,912       9,279,268       8,951,839       9,762,125  

Issuance of common stock

    19,996       19,568       57,406       44,544  

Purchase and retirement of common stock

    (40,143 )     (86,096 )     (249,480 )     (593,929 )

End of period

    8,759,765       9,212,740       8,759,765       9,212,740  

Additional Paid-in Capital:

                               

Beginning of period

  $ -     $ -     $ -     $ 113  

Issuance of common stock

    (2 )     65       (12 )     117  

Purchase and retirement of common stock

    (210 )     (207 )     (624 )     (629 )

Stock based compensation

    212       142       636       399  

End of period

  $ -     $ -     $ -     $ -  

Retained Earnings:

                               

Beginning of period

  $ 149,393     $ 145,471     $ 150,800     $ 115,631  

Net income (loss) for the period

    (2,591 )     7,628       930       60,319  

Purchase and retirement of common stock

    (196 )     (982 )     (2,293 )     (6,663 )

Cash dividends declared

    (1,575 )     (1,564 )     (4,406 )     (18,734 )

End of period

  $ 145,031     $ 150,553     $ 145,031     $ 150,553  

Accumulated Other Comprehensive Loss:

                               

Beginning of period

  $ (108 )   $ (1,726 )   $ 50     $ (1,823 )

Cumulative translation adjustments, net of tax

    31       -       (174 )     -  

Amortization of pension costs, net of tax

    23       48       70       145  

End of period

  $ (54 )   $ (1,678 )   $ (54 )   $ (1,678 )

 

The balance of cumulative translation adjustments, net of tax, was a net loss of $378 and $204 at August 26, 2023 and November 26, 2022, respectively.

 

21 of 38

PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
AUGUST 26, 2023
(Dollars in thousands except share and per share data)

 

 

16. Recent Accounting Pronouncements

 

In October 2021, the FASB issued Accounting Standards Update No. 2021-08 – Business Combinations (Topic 805) Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to the recognition of an acquired contract liability and to payment terms and their effect on subsequent revenue recognized by the acquirer. The amendments in ASU 2021-08 require that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. The amendments in ASU 2021-08 will become effective for us as of the beginning of our 2024 fiscal year. Early adoption is permitted, including adoption in any interim period. We do not expect that this guidance will have a material impact upon our financial position and results of operations.

 

In March 2022, the FASB issued Accounting Standards Update No. 2022-02 – Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, to address certain concerns identified in the Post-Implementation Review process for ASU Topic 326. The amendments in ASU 2022-02 eliminate the accounting guidance for troubled debt restructurings by creditors in ASC Subtopic 310-40, Receivables – Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. In addition, for public business entities, the amendments in ASU 2022-02 require that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of ASC Subtopic 326-20, Financial Instruments – Credit Losses – Measured at Amortized Cost. The amendments in ASU 2022-02 will become effective for us as of the beginning of our 2024 fiscal year. Early adoption is permitted. We expect that the adoption of this standard will primarily impact our disclosures but do not expect that this guidance will have a material impact upon our financial position and results of operations.

 

In June 2022, the FASB issued Accounting Standards Update No. 2022-03 – Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, to clarify the guidance in Topic 820 when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security. The amendments in ASU 2022-03 clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The amendments also clarify that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. In addition, the amendments in ASU 2022-03 require certain additional disclosures related to investments in equity securities subject to contractual sale restrictions. The amendments in ASU 2022-03 will become effective for us as of the beginning of our 2025 fiscal year. Early adoption is permitted. As of August 26, 2023 we do not hold any investments in equity securities, therefore we do not currently expect that this guidance will have a material impact upon our financial position and results of operations.

 

 

 
22 of 38

PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
AUGUST 26, 2023
(Dollars in thousands except share and per share data)

 

 

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 duties, tariffs, retaliatory tariffs 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 rising interest rates

 

inflation and rising interest rates and resulting impacts on financial market prices of equity securities

 

the profitability of the stores (independent licensees and Company-owned retail stores) which may result in future store closings

 

ability to implement our Company-owned retail strategies and realize the benefits from such strategies, including our initiatives to expand and improve our digital marketing and advertising capabilities, as they are implemented

 

the risk that we may not achieve the strategic benefits of our acquisition of Noa Home Inc.

 

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 26, 2022.

 

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.

 

23 of 38

PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
AUGUST 26, 2023
(Dollars in thousands except share and per share data)

 

Overview

 

Bassett is a leading retailer, manufacturer and marketer of branded home furnishings. Our products are sold primarily through a network of Company-owned and licensee-owned branded stores under the Bassett Home Furnishings (“BHF”) name, with additional distribution through other wholesale channels including multi-line furniture stores, many of which feature Bassett galleries or design centers. We also sell our products through our newly-redesigned website at www.bassettfurniture.com. We were founded in 1902 and incorporated under the laws of Virginia in 1930. Our rich 121-year history has instilled the principles of quality, value, and integrity in everything we do, while simultaneously providing us with the expertise to respond to ever-changing consumer tastes and meet the demands of a global economy.

 

With 89 BHF stores at August 26, 2023, we have leveraged our strong brand name in furniture into a network of Company-owned and licensed stores that focus on providing consumers with a friendly and casual environment for buying furniture and accessories.  Our store program is designed to provide a single source home furnishings retail store that provides a unique combination of stylish, quality furniture and accessories with a high level of customer service.  In order for the Bassett brand to reach markets that cannot be effectively served by our retail store network, we also distribute our products through other wholesale channels including multi-line furniture stores, many of which feature Bassett galleries or design centers. We use 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 believe this blended strategy provides us the greatest ability to effectively distribute our products throughout the United States and ultimately gain market share.  

 

The BHF stores feature custom order furniture, 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.  Sales people 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.

 

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. Digital outreach strategies have become the primary vehicle for brand advertising and customer acquisition. As a result, we have been engaged in a multi-year cross-functional digital transformation initiative with the first phase consisting of the examination and improvement of our underlying data management processes. During fiscal 2022, we implemented a comprehensive Product Information Management system which allows us to enhance and standardize our product development and data management and governance processes. This results in more consistent data that our merchandizing and sales teams can use in analyzing various product and sales trends in order to make better informed decisions. We also introduced a new web platform in August of 2023 that leverages world class features including enhanced customer research capabilities and streamlined navigation. We believe the new website will result in increased web and store traffic and e-commerce sales. Early feedback from customers and in-store designers has been positive and the Company looks forward to utilizing the new navigation features, coupled with fresh brand imagery, to drive an enhanced user experience. While we have made it easier to purchase on-line, we will not compromise our in-store experience or the quality of our in-home makeover capabilities. Through August 26, 2023, we have spent approximately $4,200 in capital and consulting on the implementation of the new website.

 

During the fourth quarter of fiscal 2022 we acquired Noa Home (see Note 3 to the Consolidated Financial Statements for additional information regarding the acquisition). A mid-priced e-commerce furniture retailer headquartered in Montreal, Canada, Noa Home has operations in Canada, Australia, Singapore and the United Kingdom. With a lean staffing model, the Noa Home team has built an operational blueprint that has the potential for significant growth. We believe the acquisition will provide Bassett with a greater online presence and will allow us to attract more digitally native consumers. We are currently in the process of expanding Noa Home’s product assortment and categories offered on the Canadian website. In August, we introduced the Noa Home brand in the United States and will begin advertising in select markets during the fourth quarter of 2023.

 

In 2018, we added outdoor furniture to our offerings with the acquisition of the Lane Venture brand. Our strategy is to distribute these products outside of our BHF store network through independent sales representatives each of which have a stated geographic territory. Using Lane Venture as a platform, we developed the Bassett Outdoor brand that is only marketed through the BHF store network. This allows Bassett branded products to move from inside the home to outside the home to capitalize on the growing trend of outdoor living. In the second quarter of 2023, we debuted the Bassett Outdoor contract line at the HD Expo Show in Las Vegas targeting the hospitality segment.

 

24 of 38

PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
AUGUST 26, 2023
(Dollars in thousands except share and per share data)

 

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 factories in Martinsville and Bassett, Virginia that assemble and finish our custom bedroom and dining offerings. Late in the third quarter of fiscal 2022, we purchased a facility which we had formerly leased in Haleyville, Alabama where we manufacture aluminum frames for our outdoor furniture. With the purchase, we also obtained two additional buildings which have allowed us to expand our footprint at that facility.

 

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 and China. 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.

 

Company-owned Retail Stores

 

As we continually monitor the performance of our Company-owned retail store locations, we may occasionally determine that it is necessary to close underperforming stores in certain markets. During 2022, we closed three stores with the operations of one those stores being consolidated into another store in the same market. During the third quarter of 2023 we closed our northeast clearance center and our store located in Birmingham, Alabama. All of the above-mentioned closures occurred at or near the lease expirations.

 

We also may occasionally identify opportunities to enhance our presence in existing markets by relocating stores to better locations within the same market. During 2022, we sold the store property of one of our Houston, Texas locations and leased a new 9,600 square foot store property in a more upscale shopping area in the vicinity of the former location. We are in the process of upfitting the store and expect to open in early 2024. During late 2022 at the end of the lease term, we closed our Dallas, Texas store located at the intersection of McKinney and Knox streets. We opened a new 11,600 square foot store in the nearby iconic Inwood Village shopping center during the first quarter of 2023.

 

In 2022, we acquired a 25,000 square foot property in Tampa, Florida. We are in the process of upfitting the space with a planned opening date in the fourth quarter of 2023.

 

As of August 26, 2023, we had 57 Corporate-owned stores operating.

 

Sale of the Assets of Zenith Freight Lines, LLC

 

During the first quarter of 2022, we entered into a definitive agreement to sell substantially all of the assets of our wholly-owned subsidiary, Zenith, to J.B. Hunt and the transaction was completed at the beginning of the second quarter of fiscal 2022. As a result of the sale, the operations of our former logistical services segment, which consisted entirely of the operations of Zenith, are presented in the accompanying condensed consolidated statements of operations and in the following discussion as discontinued operations (see Note 12 to the Condensed Consolidated Statements of Income).

 

25 of 38

PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
AUGUST 26, 2023
(Dollars in thousands except share and per share data)

 

Results of Continuing Operations Periods ended August 26, 2023 compared with the periods ended August 27, 2022:

 

Consolidated results of continuing operations for the three and nine months ended August 26, 2023 and August 27, 2022 are as follows:

 

   

Quarter Ended

   

Change

   

Nine Months Ended

   

Change

 
   

August 26, 2023

   

August 27, 2022

   

Dollars

   

Percent

   

August 26, 2023

   

August 27, 2022

   

Dollars

   

Percent

 
                                                                                                 

Net sales of furniture and accessories

  $ 87,217       100.0 %   $ 118,012       100.0 %   $ (30,795 )     -26.1 %   $ 295,434       100.0 %   $ 364,582       100.0 %   $ (69,148 )     -19.0 %

Cost of furniture and accessories sold

    42,173       48.4 %     57,240       48.5 %     (15,067 )     -26.3 %     140,360       47.5 %     180,479       49.5 %     (40,119 )     -22.2 %

Gross profit

    45,044       51.6 %     60,772       51.5 %     (15,728 )     -25.9 %     155,074       52.5 %     184,103       50.5 %     (29,029 )     -15.8 %

SG&A expenses

    48,848       56.0 %     54,695       46.3 %     (5,847 )     -10.7 %     154,709       52.4 %     160,536       44.0 %     (5,827 )     -3.6 %

Gain on sale of real estate

    -       0.0 %     4,595       3.9 %     (4,595 )     -100.0 %     -       0.0 %     4,595       1.3 %     (4,595 )     -100.0 %

Gain on revaluation of contingent consideration

    -       0.0 %     -       0.0 %     -       100.0 %     1,013       0.3 %     -       0.0 %     1,013       100.0 %

Income (loss) from operations

  $ (3,804 )     -4.4 %   $ 10,672       9.0 %   $ (14,476 )     -135.6 %   $ 1,378       0.5 %   $ 28,162       7.8 %   $ (26,784 )     -95.1 %

 

Analysis of Quarterly Results:

 

Total sales revenue for the three months ended August 26, 2023 decreased $30,795 or 26% from the prior year period due to a 28% decline in wholesale sales along with a 23% decrease in retail sales through the Company-owned stores, partially offset by the addition of Noa Home in 2023.

 

Gross margins for the three months ended August 26, 2023 are materially unchanged from the prior year period.

 

Selling, general and administrative (“SG&A”) expenses as a percentage of sales for the three months ended August 26, 2023 increased 970 basis points from 2022 primarily due to the deleverage of fixed costs caused by lower sales volumes.

 

During the three months ended August 27, 2022 we recognized a gain of $4,595 from the sale of the real estate at a former retail location in Houston, Texas.

 

Analysis of Year-to-Date Results:

 

Total sales revenue for the nine months ended August 26, 2023 decreased $69,148 or 19% from the prior year period primarily due to a 25% decline in wholesale sales along with a 16% decrease in retail sales through the Company-owned stores partially offset by the addition of Noa Home in 2023.

 

Gross margins for the nine months ended August 26, 2023 increased 200 basis points from 2022 primarily due to higher-margin retail sales constituting a larger share of total sales in 2023 as compared to the prior year period coupled with margin improvement in the wholesale segment.

 

SG&A expenses as a percentage of sales for the nine months ended August 26, 2023 increased 830 basis points from 2022 primarily due to the deleverage of fixed costs caused by lower sales volumes.

 

During the nine months ended August 26, 2023 we recognized a gain of $1,013 resulting from the write-down of our contingent consideration obligation associated with the acquisition of Noa Home. See Note 3 to the condensed consolidated financial statements. During the nine months ended August 27, 2022 we recognized a gain of $4,595 from the sale of the real estate at a former retail location in Houston, Texas.

 

26 of 38

PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
AUGUST 26, 2023
(Dollars in thousands except share and per share data)

 

Segment Information

 

Beginning in fiscal 2023, we strategically aligned our business into three 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.

 

 

Corporate and other – Corporate and other 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. We consider our corporate functions to be other business activities and have aggregated them with our other insignificant operating segment, the recently acquired Noa Home.

 

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.

 

Prior to the beginning of fiscal 2023, the functions included in Corporate and other were included in our wholesale reportable segment, and Noa Home was included in our retail reportable segment for the fourth quarter of fiscal 2022 following its acquisition on September 2, 2022. We believe that the new alignment of our reporting segments provides our chief operating decision maker with clearer information with which to assess the operating results of our wholesale segment. Noa Home does not meet the requirements to be a separate reportable segment. The segment information presented below for the three and nine months ended August 27, 2022 has been restated to reflect the new alignment of our reportable segments.

 

Our former logistical services segment which represented the operations of Zenith is now presented as a discontinued operation.

 

Reconciliation of Segment Results to Consolidated Results of Operations

 

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 are included in consolidated income from operations 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.

 

27 of 38

PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
AUGUST 26, 2023
(Dollars in thousands except share and per share data)

 

   

Quarter Ended August 26, 2023

 
   

Non-GAAP Presentation

                   

GAAP Presentation

 
   

Wholesale

   

Retail

   

Corporate

& Other

   

Eliminations

   

Special

Items

   

Consolidated

 
                                                 

Net sales of furniture and accessories

  $ 56,660     $ 52,264     $ 1,796     $ (23,503 )  ( 1)  $ -     $ 87,217  

Cost of furniture and accessories sold

    39,536       25,318       881       (23,562 )  ( 2)    -       42,173  

Gross profit

    17,124       26,946       915       59       -       45,044  

SG&A expense

    10,784       29,982       8,335       (253 )  ( 3)    -       48,848  

Income (loss) from operations

  $ 6,340     $ (3,036 )   $ (7,420 )   $ 312     $ -     $ (3,804 )

 

   

Quarter Ended August 27, 2022

 
   

Non-GAAP Presentation

                   

GAAP Presentation

 
   

Wholesale

   

Retail

   

Corporate

& Other

   

Eliminations

   

Special

Items

   

Consolidated

 
                                                 

Net sales of furniture and accessories

  $ 78,959     $ 70,886     $ -     $ (31,833 )  ( 1)  $ -     $ 118,012  

Cost of furniture and accessories sold

    54,446       34,324       -       (31,530 )  ( 2)    -       57,240  

Gross profit

    24,513       36,562       -       (303 )     -       60,772  

SG&A expense

    14,524       32,673       7,839       (341 )  ( 3)    -       54,695  

Gain on sale of real estate

    -       -       -       -       4,595    ( 4)    4,595  

Income from operations

  $ 9,989     $ 3,889     $ (7,839 )   $ 38     $ 4,595     $ 10,672  

 

   

Nine Months Ended August 26, 2023

 
   

Non-GAAP Presentation

                   

GAAP Presentation

 
   

Wholesale

   

Retail

   

Corporate

& Other

   

Eliminations

   

Special

Items

   

Consolidated

 
                                                 

Net sales of furniture and accessories

  $ 188,318     $ 178,004     $ 7,044     $ (77,932 )  ( 1)  $ -     $ 295,434  

Cost of furniture and accessories sold

    130,693       84,550       3,212       (78,095 )  ( 2)    -       140,360  

Gross profit

    57,625       93,454       3,832       163         -       155,074  

SG&A expense

    35,286       94,205       25,972       (754 )  ( 3)    -       154,709  

Gain revaluation of contingent consideration

    -       -       -       -       1,013    ( 5)    1,013  

Income from operations

  $ 22,339     $ (751 )   $ (22,140 )   $ 917     $ 1,013     $ 1,378  

 

   

Nine Months Ended August 27, 2022

 
   

Non-GAAP Presentation

                   

GAAP Presentation

 
   

Wholesale

   

Retail

   

Corporate

& Other

   

Eliminations

   

Special

Items

   

Consolidated

 
                                                 

Net sales of furniture and accessories

  $ 249,945     $ 210,613     $ -     $ (95,976 )  ( 1)  $ -     $ 364,582  

Cost of furniture and accessories sold

    175,197       100,016       -       (94,734 )  ( 2)    -       180,479  

Gross profit

    74,748       110,597       -       (1,242 )     -       184,103  

SG&A expense

    43,092       96,793       21,633       (982 )  ( 3)    -       160,536  

Gain on sale of real estate

    -       -       -       -       4,595    ( 4)    4,595  

Income from operations

  $ 31,656     $ 13,804     $ (21,633 )   $ (260 )   $ -     $ 28,162  

 

28 of 38

PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
AUGUST 26, 2023
(Dollars in thousands except share and per share data)

 

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 the gain on the sale of the real estate at a former retail location.

  (5)

Represents the gain resulting from the write-down of the contingent consideration payable on the acquisition of Noa Home.

 

Wholesale Segment

 

Results for the wholesale segment for the three and nine months ended August 26, 2023 and August 27, 2022 are as follows:

 

   

Quarter Ended

   

Change

   

Nine Months Ended

   

Change

 
   

August 26, 2023

   

August 27, 2022

   

Dollars

   

Percent

   

August 26, 2023

   

August 27, 2022

   

Dollars

   

Percent

 
                                                                                                 

Net sales

  $ 56,660       100.0 %   $ 78,959       100.0 %   $ (22,299 )     -28.2 %   $ 188,318       100.0 %   $ 249,945       100.0 %   $ (61,627 )     -24.7 %

Gross profit (1)

    17,124       30.2 %     24,513       31.0 %     (7,389 )     -30.1 %     57,625       30.6 %     74,748       29.9 %     (17,123 )     -22.9 %

SG&A expenses

    10,784       19.0 %     14,524       18.4 %     (3,740 )     -25.8 %     35,286       18.7 %     43,092       17.2 %     (7,806 )     -18.1 %

Income from operations

  $ 6,340       11.2 %   $ 9,989       12.7 %   $ (3,649 )     -36.5 %   $ 22,339       11.9 %   $ 31,656       12.7 %   $ (9,317 )     -29.4 %

 

 

(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.

 

Wholesale sales by major product category are as follows:

 

   

Quarter Ended

 
   

August 26, 2023

   

August 27, 2022

   

Total Change

 
   

External

   

Intercompany

   

Total

   

External

   

Intercompany

   

Total

   

Dollars

   

Percent

 

Bassett Custom Upholstery

  $ 19,985     $ 15,170     $ 35,155       62.0 %   $ 30,885     $ 20,641     $ 51,526       65.3 %   $ (16,371 )     -31.8 %

Bassett Leather

    6,743       278       7,021       12.4 %     6,290       24       6,314       8.0 %     707       11.2 %

Bassett Custom Wood

    3,564       4,564       8,128       14.3 %     5,564       5,995       11,559       14.6 %     (3,431 )     -29.7 %

Bassett Casegoods

    2,865       3,491       6,356       11.2 %     4,387       5,173       9,560       12.1 %     (3,204 )     -33.5 %

Total

  $ 33,157     $ 23,503     $ 56,660       100.0 %   $ 47,126     $ 31,833     $ 78,959       100.0 %   $ (22,299 )     -28.2 %

 

   

Nine Months Ended

 
   

August 26, 2023

   

August 27, 2022

   

Total Change

 
   

External

   

Intercompany

   

Total

   

External

   

Intercompany

   

Total

   

Dollars

   

Percent

 

Bassett Custom Upholstery

  $ 68,641     $ 50,427     $ 119,068       63.2 %   $ 96,636     $ 64,075     $ 160,711       64.3 %   $ (41,643 )     -25.9 %

Bassett Leather

    19,630       550       20,180       10.7 %     29,111       48       29,159       11.7 %     (8,979 )     -30.8 %

Bassett Custom Wood

    12,642       15,031       27,673       14.7 %     17,207       18,927       36,134       14.5 %     (8,461 )     -23.4 %

Bassett Casegoods

    9,473       11,924       21,397       11.4 %     11,015       12,926       23,941       9.6 %     (2,544 )     -10.6 %

Total

  $ 110,386     $ 77,932     $ 188,318       100.0 %   $ 153,969     $ 95,976     $ 249,945       100.0 %   $ (61,627 )     -24.7 %

 

29 of 38

PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
AUGUST 26, 2023
(Dollars in thousands except share and per share data)

 

Analysis of Quarterly Results Wholesale

 

Net sales for the three months ended August 26, 2023 decreased $22,299 or 28% from the prior year period due primarily to a 25% decrease in shipments to the open market, a 28% decrease in shipments to our retail store network and a 32% decrease in Lane Venture shipments. Gross margins for the three months ended August 26, 2023 declined 80 basis points from the prior year primarily due to lower margins in the Bassett Leather business due to increased product discounting and excess and obsolete reserve charges, partially offset by increased margins in our Custom Upholstery business as we were able to recognize a greater portion of previously implemented price increases in current period sales coupled with overall lower unit costs as measured on a last-in, first-out (LIFO) basis. As the Bassett Leather product line is internationally sourced with extended lead times, we received significant amounts of inventory during the second and third quarters of 2022 just as product demand was weakening due to the market downturn in home furnishings. Also, the ocean freight costs associated with the majority of the product received was at significantly higher costs than are currently being realized on current product receipts. We expect improved margins in fiscal 2024. Lastly, margins for Bassett Custom Wood products were lower due to lower sales volume. SG&A expenses as a percentage of sales increased 60 basis points primarily due to reduced leverage of fixed costs from decreased sales.

 

Analysis of Year-to-Date Results Wholesale

 

Net sales for the nine months ended August 26, 2023 decreased $61,627 or 25% from the prior year period due primarily to a 28% decrease in shipments to the open market, a 21% decrease in shipments to our retail store network and a 23% decrease in Lane Venture shipments. Gross margins for the nine months ended August 26, 2023 improved 70 basis points over the prior year primarily due to increased margins in our Custom Upholstery business as we were able to recognize a greater portion of previously implemented price increases in current period sales coupled with improved overall product warranty and returns experience and overall lower unit costs as measured on a last-in, first-out (LIFO) basis. These margin improvements were partially offset by lower margins in the Bassett Leather business due to increased product discounting and excess and obsolete reserve charges. As the Bassett Leather product line is internationally sourced with extended lead times, we received significant amounts of inventory during the second and third quarters of 2022 just as product demand was weakening due to the market downturn in home furnishings. Also, the ocean freight costs associated with the majority of the product received was at significantly higher costs than are currently being realized on current product receipts. We expect improved margins in fiscal 2024. Margins in the Bassett Casegoods business were lower due primarily to realizing the high freight costs incurred during mid-2022 in the results of operations for the current period. Margins improved in the third quarter of 2023 and we expect more improvement in the fiscal fourth quarter of 2023. Lastly, margins for Bassett Custom Wood products were lower due to lower sales volume. SG&A expenses as a percentage of sales increased 150 basis points primarily due to reduced leverage of fixed costs from decreased sales.

 

Wholesale Backlog

 

Wholesale backlog at August 26, 2023 was $19,895 as compared to $35,336 at November 26, 2022 and $41,693 at August 27, 2022.

 

30 of 38

PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
AUGUST 26, 2023
(Dollars in thousands except share and per share data)

 

Retail Company-owned Stores Segment

 

Results for the retail segment for the periods ended August 26, 2023 and August 27, 2022 are as follows:

 

   

Quarter Ended

   

Change

   

Nine Months Ended

   

Change

 
   

August 26, 2023

   

August 27, 2022

   

Dollars

   

Percent

   

August 26, 2023

   

August 27, 2022

   

Dollars

   

Percent

 
                                                                                         

Net sales

  $ 52,264     100.0 %   $ 70,886     100.0 %   $ (18,622 )     -26.3 %   $ 178,004     100.0 %   $ 210,613     100.0 %   $ (32,609 )     -15.5 %

Gross profit (1)

    26,946     51.6 %     36,562     51.6 %     (9,616 )     -26.3 %     93,454     52.5 %     110,597     52.5 %     (17,143 )     -15.5 %

SG&A expenses

    29,982     57.4 %     32,673     46.1 %     (2,691 )     -8.2 %     94,205     52.9 %     96,793     46.0 %     (2,588 )     -2.7 %

Income (loss) from operations

  $ (3,036 )   -5.8 %   $ 3,889     5.5 %   $ (6,925 )     -178.1 %   $ (751 )   -0.4 %   $ 13,804     6.6 %   $ (14,555 )     -105.4 %

 

 

(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.

 

Retail sales by major product category are as follows:

 

   

Quarter Ended

   

Change

   

Nine Months Ended

   

Change

 
   

August 26, 2023

   

August 27, 2022

   

Dollars

   

Percent

   

August 26, 2023

   

August 27, 2022

   

Dollars

   

Percent

 
                                                                                                 

Bassett Custom Upholstery

  $ 30,177       57.7 %   $ 39,054       55.1 %   $ (8,877 )     -22.7 %   $ 101,047       56.8 %   $ 122,248       58.0 %   $ (21,201 )     -17.3 %

Bassett Leather

    337       0.6 %     867       1.2 %     (530 )     -61.1 %     1,408       0.8 %     1,399       0.7 %     9       0.6 %

Bassett Custom Wood

    7,697       14.7 %     11,357       16.0 %     (3,660 )     -32.2 %     27,164       15.3 %     32,001       15.2 %     (4,837 )     -15.1 %

Bassett Casegoods

    7,027       13.4 %     10,404       14.7 %     (3,377 )     -32.5 %     24,848       14.0 %     27,884       13.2 %     (3,036 )     -10.9 %

Accessories, mattresses and other (1)

    7,026       13.4 %     9,204       13.0 %     (2,178 )     -23.7 %     23,537       13.2 %     27,081       12.9 %     (3,544 )     -13.1 %

Total

  $ 52,264       100.0 %   $ 70,886       100.0 %   $ (18,622 )     -26.3 %   $ 178,004       100.0 %   $ 210,613       100.0 %   $ (32,609 )     -15.5 %

 

 

(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.

 

Analysis of Quarterly Results - Retail

 

Net sales for the three months ended August 26, 2023 decreased $18,622 or 26% from the prior year period. Written sales (the value of sales orders taken but not delivered) declined 13% from the third quarter of 2022. Gross margin for the three months ended August 26, 2023 was essentially flat compared to the prior period as lower margins from store closure sales in the current quarter were offset by improved margins on in-line goods. SG&A expenses as a percentage of sales for the three months ended August 26, 2023 increased 1,130 basis points primarily due to decreased leverage of fixed costs from lower sales volumes coupled with increased advertising, warehousing and delivery costs.

 

Analysis of Year-to-Date Results - Retail

 

Net sales for the nine months ended August 26, 2023 decreased $32,609 or 16% from the prior year period. Written sales (the value of sales orders taken but not delivered) declined 15% from the first nine months of 2022. Gross margin for the nine months ended August 26, 2023 was essentially flat compared to the prior period as lower margins from store closure sales in the current year were offset by improved margins on in-line goods and lower unit costs as measured on a LIFO basis. SG&A expenses as a percentage of sales for the nine months ended August 26, 2023 increased 690 primarily due to decreased leverage of fixed costs from lower sales volumes coupled with increased advertising and warehousing and delivery costs.

 

Retail Backlog

 

Retail backlog at August 26, 2023 was $32,702 compared to $51,041 at November 26, 2022 and $59,981 at August 27, 2022.

 

31 of 38

PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
AUGUST 26, 2023
(Dollars in thousands except share and per share data)

 

Corporate and Other

 

Revenues, costs and expenses of corporate and other for the three and nine months ended August 26, 2023 and August 27, 2022 are as follows:

 

   

Quarter Ended

   

Change

   

Nine Months Ended

   

Change

 
   

August 26, 2023

   

August 27, 2022

   

Dollars

   

Percent

   

August 26, 2023

   

August 27, 2022

   

Dollars

   

Percent

 
                                                                 

Net sales

  $ 1,796     $ -     $ 1,796       100.0 %   $ 7,044     $ -     $ 7,044       100.0 %

Gross profit

    915       -       915       100.0 %     3,832       -       3,832       100.0 %

SG&A expenses

    8,335       7,839       496       6.3 %     25,972       21,633       4,339       20.1 %

Net expenses

  $ (7,420 )   $ (7,839 )   $ 419       -5.3 %   $ (22,140 )   $ (21,633 )   $ (507 )     2.3 %

 

Analysis of Quarterly Results Corporate and Other

 

The increases in sales and gross profit over the prior year period were due to the acquisition of Noa Home on September 2, 2022. The $496 increase in SG&A expenses was primarily due to the addition of Noa Home partially offset by decreased corporate spending associated with incentive compensation and national advertising.

 

Analysis of Year-to-Date Results Corporate and Other

 

The increases in sales and gross profit over the prior year period were due to the acquisition of Noa Home on September 2, 2022. The $4,339 increase in SG&A expenses was primarily due to the addition of Noa Home and increased corporate consulting expenses associated with our digital transformation efforts and the development of a new store prototype design partially offset by lower corporate incentive compensation expenses.

 

Discontinued Operations Logistical Services

 

   

Quarter Ended

   

Nine Months Ended

 
   

August 27, 2022

   

August 27, 2022

 
                                 

Logistical services revenue

  $ -       0.0 %   $ 16,776       100.0 %

Cost of logistical services

    -       0.0 %     15,001       89.4 %

Other loss, net

    -       0.0 %     (63 )     -0.4 %

Income from discontinued operations before tax

  $ -       0.0 %   $ 1,712       10.2 %

 

The amounts shown above represent the results of Zenith’s business transactions with third parties. Because the sale of Zenith was closed on the first business day of the second fiscal quarter of 2022, operating results for that period are insignificant.

 

Zenith also charged Bassett for logistical services provided to our wholesale segment in the amount of $9,121 during the nine months ended August 27, 2022. These shipping and handling costs are included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations. Upon the sale of Zenith we entered into a service agreement with J.B. Hunt for the continuation of these services for a period of seven years. We incurred expense for logistical services performed by J.B. Hunt of $6,278 and $21,429 during the three and nine months ended August 26, 2023, respectively, and $10,307 and $19,852 for the three and nine months ended August 27, 2022, respectively.

 

32 of 38

PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
AUGUST 26, 2023
(Dollars in thousands except share and per share data)

 

Other Items Affecting Net Income (Loss)

 

Interest Income

 

Interest income for the three and nine months ended August 26, 2023 was $923 and $1,644, respectively, compared to $120 and $132 for the three and nine months ended August 27, 2022. The net change from the prior year periods was primarily due to higher interest income on our cash equivalents and investments in certificates of deposit, along with the increase in invested cash following the sale of Zenith at the beginning of the second quarter of fiscal 2022.

 

Other Income (Loss), Net

 

Other loss, net, for the three and nine months ended August 26, 2023 was $309 and $1,381, respectively, compared to $714 and $1,982 for the three and nine months ended August 27, 2022. The net change from the prior year periods was primarily due to lower 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 and use that effective tax rate to record our year-to-date income tax provision.  Any change in annual projections of pretax income could have a significant impact on our effective tax rate for the respective quarter.

 

Our effective tax rate was 18.8% and 43.3% for the three and nine months ended August 26, 2023, respectively, and 22.8% and 25.6% for the three and nine months ended August 27, 2022, respectively. The effective rate for the three months ended August 26, 2023 differs from the federal statutory rate of 21% primarily due to the effect of a change in our estimate of annual pretax income on our anticipated effective rate for the full year, offset by increases in the valuation allowance placed on deferred tax assets associated with Noa Home and the effects of state income taxes and various permanent differences. For the nine months ended August 26, 2023, the effective rate differs from the federal statutory rate primarily due to the non-taxable gain on revaluation of contingent consideration associated with the acquisition of Noa Home, increases in the valuation allowance placed on deferred tax assets associated with Noa Home and the effects of state income taxes and various permanent differences. For the three and nine months ended August 27, 2022, the effective rates differ from the federal statutory rate of 21% primarily due to the effects of state income taxes and various permanent differences, including tax of $522 associated with the non-deductible goodwill written off in connection with the sale of Zenith and included in income tax on discontinued operations.

 

Liquidity and Capital Resources

 

Cash Flows

 

Cash provided by operations for the first nine months of fiscal 2023 was $10,250 compared to cash used in operations of $12,295 for the first nine months of fiscal 2022, representing an increase of $22,545 in cash flows from operations. Cash provided by the operating activities of our discontinued operations was $1,681 for the first nine months of fiscal 2022. Excluding the decline in operating cash flow from discontinued operations, cash flows from continuing operations increased $24,226 for the first nine months of fiscal 2023 from the prior year period. This increase was primarily the result of significantly lower investment in inventory partially offset by lower income from continuing operations and other changes in working capital.

 

Our overall cash position declined $13,613 during the first nine months of 2023 compared to an increase of $32,496 for the first nine months of 2022, which had included the proceeds from the sale of Zenith. During the first nine months of fiscal 2023, we spent $14,657 on purchases of property and equipment primarily consisting of expenditures related to our digital transformation project, upfit of the new Tampa, Florida store that is expected to open in the fourth quarter of 2023, the opening of the Inwood Village store in Dallas, Texas, the remodel of the Austin, Texas store and the remodeling of two other stores in the Dallas, Texas market. We also paid $4,407 in dividends during the nine months ended August 26, 2023, a $14,327 decrease from the corresponding period in 2022 as the prior year included a $1.50 per share special dividend. Finally, we repurchased 249,480 shares spending $4,056 during the current year, a $6,207 decrease compared to the prior period. We expect capital expenditures for the full year to range from $17 million to $19 million. As of August 26, 2023, $21,943 remains available for future purchases under our stock repurchase plan. With cash and cash equivalents and short-term investments totaling $65,755 on hand at August 26, 2023, 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.

 

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PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
AUGUST 26, 2023
(Dollars in thousands except share and per share data)

 

Debt and Other Obligations

 

Our bank credit facility provides for a line of credit of up to $25,000. At August 26, 2023, we had $3,731 outstanding under standby letters of credit against our line, leaving availability under our credit line of $21,269. The line bears interest at the One-Month Term SOFR plus 1.5% and is unsecured. Our bank charges a fee of 0.25% on the daily unused balance of the line, payable quarterly. Under the terms of the bank credit facility, we must maintain the following financial covenants, measured quarterly on a rolling twelve-month basis:

 

 

Consolidated fixed charge coverage ratio of not less than 1.4 times,

 

 

Consolidated lease-adjusted leverage ratio not to exceed 3.0 times, and

 

 

Minimum tangible net worth of $140,000.

 

We were in compliance with these covenants at August 26, 2023. The credit facility will mature on January 27, 2025, at which time any amounts outstanding under the facility will be due.

 

We lease land and buildings that are used in the operation of our Company-owned retail stores as well as in the operation of certain of our licensee-owned stores, and we lease land and buildings used in our wholesale manufacturing operations. We also lease local delivery trucks used in our retail segment. The present value of our obligations for leases with terms in excess of one year at August 26, 2023 is $105,900 and is included in our accompanying condensed consolidated balance sheet at August 26, 2023. We were contingently liable under a licensee lease obligation guarantee in the amount of $1,906 at August 26, 2023. The remaining term under this lease guarantee extends for five 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, including a site in Tampa, Florida acquired in 2022 with a planned opening late in fiscal 2023. 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 $20,905 at August 26, 2023.

 

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 26, 2022.

 

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 August 26, 2023.

 

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PART I-FINANCIAL INFORMATION-CONTINUED
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
AUGUST 26, 2023
(Dollars in thousands except share and per share data)

 

Item 3. Quantitative and Qualitative Disclosure about Market Risk:

 

We are exposed to market risk from changes in the value of foreign currencies. Substantially all of our imports purchased outside of North America are denominated in U.S. dollars. Therefore, we believe that gains or losses resulting from changes in the value of foreign currencies relating to foreign purchases not denominated in U.S. dollars would not be material to our results from operations in fiscal 2023. We are also exposed to foreign currency market risk through our investment in Noa Home. Our investment in Noa Home is subject to changes in the value of the Canadian dollar versus the U.S. dollar. Additionally, Noa Home is exposed to other local currency fluctuation risk through its operations in Australia, Singapore and the United Kingdom. The impact of currency fluctuations on our financial position and results of operations since the acquisition of Noa Home on September 2, 2022 has not been significant.

 

We are exposed to market risk from changes in the cost and availability of raw materials used in our manufacturing processes, principally wood, woven fabric, and foam products.  The cost of foam products, which are petroleum-based, is sensitive to changes in the price of oil.

 

We are also exposed to commodity price risk related to diesel fuel prices for fuel used in our retail segment for home delivery as well as through amounts we are charged for logistical services by our service providers. We manage our exposure to that risk primarily through the application of fuel surcharges to our customers.

 

We have potential exposure to market risk related to conditions in the commercial real estate market. Our retail real estate holdings of $20,905 at August 26, 2023 for Company-owned stores could suffer significant impairment in value if we are forced to close additional stores and sell or lease the related properties during periods of weakness in certain markets. Additionally, if we are required to assume responsibility for payment under the lease obligations of $1,906 which we have guaranteed on behalf of licensees as of August 26, 2023 we may not be able to secure sufficient sub-lease income in the current market to offset the payments required under the guarantees. We are also exposed to risk related to conditions in the commercial real estate rental market with respect to the right-of-use assets we carry on our balance sheet for leased retail store locations, manufacturing and warehouse facilities. At August 26, 2023, the unamortized balance of such right-of-use assets used in continuing operations totaled $89,617. Should we have to close or otherwise abandon one of these leased locations, we could incur additional impairment charges if rental market conditions do not support a fair value for the right of use asset in excess of its carrying value.

 

Item 4. Controls and Procedures:

 

The Company’s principal executive officer and principal financial officer have evaluated the Company’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon their evaluation, the principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are effective. There has been no change in the Company’s internal control over financial reporting during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

 

 
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PART II - OTHER INFORMATION
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
AUGUST 26, 2023
(Dollars in thousands except share and per share data)

 

Item 1. Legal Proceedings

 

None

 

Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities

 

The following table summarizes the stock repurchase activity by or on behalf of the Company or any “affiliated purchaser,” as defined by Rule 10b-18(a)(3) of the Exchange Act, for the three months ended August 26, 2023 and the approximate dollar value of shares that may yet be purchased pursuant to our stock repurchase program:

 

   

Total

Shares

Purchased

   

Average

Price Paid

   

Total Number of Shares

Purchased as Part of

Publicly Announced Plans

or Programs (1)

   

Approximate Dollar Value of

Shares that May Yet Be

Purchased Under the Plans

or Programs (1)

 
                                 

May 28, 2023 - July 1, 2023

    24,100     $ 14.29       24,100     $ 22,205  

July 2, 2023 - July 29, 2023

    16,043     $ 16.37       16,043     $ 21,943  

July 30, 2023 - August 26, 2023

    -     $ -       -     $ 21,943  

 

(1) The Company is authorized to repurchase Company stock under a plan which was originally announced in 1998. On March 9, 2022, the Board of Directors increased the remaining limit of the repurchase plan to $40,000. At August 26, 2023, $21,943 remained available for share repurchases under the plan.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 6. Exhibits

 

a. Exhibits:

 

Exhibit 3a – Articles of Incorporation as amended to date are incorporated herein by reference to the Exhibit to Form 10-Q for the fiscal quarter ended February 28, 1994.

 

Exhibit 3b – By-laws as amended to date are incorporated herein by reference to Exhibit 3.1 to Form 8-K filed with the SEC on November 23, 2022.

 

Exhibit 4 – Registrant hereby agrees to furnish the SEC, upon request, other instruments defining the rights of holders of long-term debt of the Registrant.

 

Exhibit 31a – Chief Executive Officer’s certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

Exhibit 31b – Chief Financial Officer’s certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

Exhibit 32a – Chief Executive Officer’s certification pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

Exhibit 32b – Chief Financial Officer’s certification pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

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PART II - OTHER INFORMATION
BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES
AUGUST 26, 2023
(Dollars in thousands except share and per share data)

 

Exhibit 101.INS Inline XBRL Instance

 

Exhibit 101.SCH Inline XBRL Taxonomy Extension Schema

 

Exhibit 101.CAL Inline XBRL Taxonomy Extension Calculation

 

Exhibit 101.DEF Inline XBRL Taxonomy Extension Definition

 

Exhibit 101.LAB Inline XBRL Taxonomy Extension Labels

 

Exhibit 101.PRE Inline XBRL Taxonomy Extension Presentation

 

Exhibit 104. Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

 

 

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SIGNATURES

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

BASSETT FURNITURE INDUSTRIES, INCORPORATED

 

 

 

/s/

Robert H. Spilman, Jr.

 

Robert H. Spilman, Jr., Chairman and Chief Executive Officer

September 28, 2023

 

 

 

 

/s/

J. Michael Daniel

 

J. Michael Daniel, Senior Vice President and Chief Financial Officer

September 28, 2023

 

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