Doug Lane

Doug Lane from Water Tower Research asked about a segment reporting adjustment, the key drivers behind the impressive wholesale gross margin gains, and why management remains cautious about future gross margin outlook. He also sought quantification of the net tariff impact on financials, inquired about potential market share gains due to Bassett's 80% U.S. manufacturing base, and questioned when free cash flow is expected to consistently cover the dividend.

Answer

CFO Mike Daniel clarified the segment reporting change was to correct an immaterial error. Chairman and CEO Rob Spilman attributed wholesale gross margin improvement to a narrowed product focus, operational efficiencies in upholstery, and refined pricing strategies. Both Spilman and Daniel expressed caution on future margins due to ongoing tariff uncertainties, their impact on costs, and unpredictable consumer reactions, also highlighting the disruption from fabric sourcing changes. They stated that quantifying the net tariff impact is complex and currently not possible due to varying tariffs across raw materials, components, and finished goods from different countries. Spilman noted some instances of market share gains from domestic manufacturing but emphasized it's not a widespread trend, with a clearer picture expected after the High Point Market. Regarding the dividend, Spilman expects free cash flow to cover it again soon, explaining that the third quarter's cash flow deficit was atypical due to inventory build-up and seasonal slowness, with CFO Mike Daniel adding that the fourth quarter is typically strong for cash generation.

Doug Lane inquired about a segment reporting adjustment, the drivers behind the impressive wholesale gross margin gains, and the cautious future outlook. He also asked if the net tariff impact on financials could be quantified, about opportunities for market share gains due to domestic manufacturing, and when free cash flow is expected to cover the dividend.

Answer

Mike Daniel (CFO, Bassett Furniture Industries) clarified that the segment reporting change was to correct an immaterial error. Rob Spilman (Chairman and CEO, Bassett Furniture Industries) attributed wholesale gross margin improvements to a narrowed product focus, operational efficiencies in upholstery, and refined pricing strategies, while expressing caution due to tariff uncertainties and consumer price reactions. Mike Daniel and Rob Spilman stated that quantifying the net tariff impact is challenging due to varying pricing philosophies and complex raw material/finished goods nuances. Rob Spilman noted some instances of market share gains from domestic manufacturing but expects a clearer picture after the High Point Furniture Market. Rob Spilman and Mike Daniel expressed confidence that free cash flow would cover the dividend again soon, highlighting Q3 as typically the slowest quarter and Q4 as the strongest for cash generation.

Doug Lane sought clarification on the net tariff-related impact in Q1, the effectiveness of mitigation efforts, and whether order patterns are returning to normal after the pull-forward activity, also asking about the full fiscal year adjusted operating profit margin outlook.

Answer

Kevin Veltman (Interim CFO) explained the $8 million net tariff impact in Q1 reflects ongoing mitigation efforts through pricing and surcharges, expected to fully offset costs by the second half of the fiscal year. He confirmed order patterns are normalizing, citing positive early Q2 order rates and a consolidated sales growth of 3.8% for the first half. Kevin Veltman declined to provide a full-year operating profit margin outlook due to macro uncertainty.

Doug Lane sought clarification on the $8 million net tariff-related impact in Q1, including the effectiveness of mitigation efforts and the expected timeline for full offset. He also asked about the normalization of order patterns after the pull-forward and the outlook for Q2, and whether to model improvements in adjusted operating profit margin for the full year.

Answer

Interim CFO Kevin Veltman explained that the $8 million net impact reflects ongoing pricing actions and surcharges, with full cost offset anticipated by the second half of the fiscal year. He confirmed more normalized order rates in early Q2 and provided consolidated sales growth for H1 FY26. Kevin Veltman declined to provide full-year operating profit margin guidance due to macro uncertainty, sticking to quarter-to-quarter guidance.

Doug Lane sought clarification on the $8 million net tariff-related impact in Q1, specifically if it included mitigation efforts. He also asked if the disruption to order patterns from tariff buy-ahead was now behind the company and if improvements in adjusted operating profit margin should be modeled for the current fiscal year.

Answer

Kevin Veltman, Interim Chief Financial Officer, confirmed that the $8 million was a net impact, indicating that pricing actions were underway but take time to flow through, with full offset expected by the second half of fiscal 2026. He added that order pattern disruption is largely behind, with Q2 ordering feeling more normalized, and consolidated sales year-to-date through Q2 are up 3.8%. Kevin Veltman declined to comment on full-year adjusted operating profit margin due to macro uncertainty and limited visibility.

Doug Lane sought clarification on the $8 million "net tariff-related impact" in Q1, asking if it already included mitigation efforts. He also inquired whether the order pattern disruptions caused by tariff-related buy-aheads are now largely resolved, leading to more normalized ordering in Q2. Finally, he asked about the outlook for adjusted operating profit margin improvements for the full fiscal year.

Answer

Interim CFO Kevin Veltman clarified that the "net" impact reflects ongoing mitigation efforts (pricing, surcharges) that are still flowing through, with full offset expected by the second half of the fiscal year. He confirmed that order pattern disruptions are mostly behind, with Q2 showing more normalized ordering rates and consolidated sales up 3.8% year-to-date through Q2. Mr. Veltman declined to provide a full-year outlook for adjusted operating profit margin improvements due to macro uncertainty.

Doug Lane inquired about the status of excess retailer inventory, the company's strategy for managing tariff impacts including pricing adjustments, and the role of product innovation in the current uncertain consumer environment.

Answer

Andy Fulmer, CFO, clarified that current retailer inventory was not 'excess' but rather accelerated orders. Brian D. Murphy, President and CEO, explained a multi-faceted approach to tariffs involving supplier concessions, product redesigns, strategic pricing, and new product launches. Murphy emphasized the critical importance of innovation, detailing how new product introductions are strategically timed to maximize impact and margin in a dynamic market.

Doug Lane inquired about the fourth quarter demand trends, specifically the reasons for revenue coming in at the lower end of the guidance range. He also sought clarification on the fiscal 2026 revenue outlook, asking about the proportion of growth expected from the LoveBiome acquisition versus organic growth. Furthermore, Mr. Lane questioned the specifics of LoveBiome, including its sales figures, consultant count, age, and how its P84 product is marketed compared to LifeVantage's MindBody GLP-1 System and existing pre/probiotics.

Answer

President and CEO Steve Fife explained that the Q4 softness was primarily in the U.S. due to the seasonality impact of the MindBody GLP-1 System, while international sales remained strong. Regarding the fiscal 2026 outlook, Mr. Fife indicated that the guidance includes a modest amount of revenue from the LoveBiome transaction, expected to close in Q2 2026, combined with some organic growth. He stated that specific revenue and consultant numbers for LoveBiome could not be disclosed at this time but provided background on the company's three-year history, its primary markets (U.S., Taiwan), and its focus on the gut microbiome with the P84 product. Mr. Fife highlighted P84 as a comprehensive product for regulating, repairing, and restoring the gut microbiome, emphasizing its strategic alignment and synergistic potential with LifeVantage's activation products, particularly MindBody GLP-1.

Asked about the impact of the GLP-1 drug environment on the coaching community, whether it has been controversial, and the total monthly cost for a client using both GLP-1s and Medifast's supporting nutritional programs, including the specific cost from partner LifeMD.

Answer

Executives stated that the GLP-1 environment is viewed as a training opportunity rather than a controversy, as coaches adapt to support clients who are on, transitioning off, or not using the drugs. The core nutritional program costs about $400/month. They clarified that most clients using GLP-1s obtain them through their own physician and insurance, but the LifeMD partnership offers a telehealth subscription for under $20/month for those who need it.

Inquired about cash flow, specifically why inventory was a use of cash in the first half and if it would become a source. Also asked if marketing investments would be reduced given the environment and about the potential impact of the upcoming election.

Answer

Executives explained the first-half inventory build was a temporary timing issue related to Project Restoration and confirmed inventory will be a source of cash in the second half. They affirmed their commitment to planned marketing investments to build long-term brand awareness. They declined to comment on the election, stating their focus is on controllable business factors.