Sign in

You're signed outSign in or to get full access.

BF

BASSETT FURNITURE INDUSTRIES INC (BSET)·Q2 2023 Earnings Summary

Executive Summary

  • Q2 2023 delivered net sales of $100.5M and operating income of $2.5M amid industry-wide soft demand; gross margin expanded to 52.6% despite a 21.9% YoY revenue decline, aided by cost actions and mix .
  • Profitability was pressured by a $1.1M write-down of slow-moving Club Level motion inventory and deleverage on lower volumes; operating income included a $1.0M gain on revaluation of contingent consideration from the Noa Home acquisition .
  • Management reiterated investment in growth initiatives (new website launch before the end of the August quarter; store development and remodels) while conservatively managing working capital, and indicated intent to maintain or increase the dividend and continue buybacks as appropriate .
  • No Q2 2023 earnings call transcript or Wall Street consensus (S&P Global) was available; stock reaction likely hinged on margin resilience versus revenue pressure and inventory reduction progress rather than estimate beats/misses .

What Went Well and What Went Wrong

What Went Well

  • Gross margin expanded to 52.6% vs. 51.2% last year, reflecting lower cost inputs and price realization in domestic upholstery; management emphasized returning wholesale margins to pre-pandemic levels as a core priority .
  • Operating cash flow of $5.8M driven by an 11% reduction in total inventory; manufacturing headcount reduced ~20% vs last year to align capacity with demand .
  • Noa Home loss reduced by 83% QoQ via more disciplined digital advertising; broader North America assortment and a limited U.S. test planned for fall .

What Went Wrong

  • Consolidated revenue fell 21.9% YoY to $100.5M; wholesale orders declined 18% YoY, reflecting soft demand across the category .
  • A $1.1M write-down in Club Level motion inventory (high 2022 freight cost goods, slow-moving) compressed wholesale margins; import wood margins and outdoor were also hampered by prior freight cost inflation .
  • Retail operating margin fell sharply vs. last year’s record quarter; store foot traffic declined, and the northeast clearance center closing sale impacted retail results despite slightly higher average ticket .

Financial Results

Consolidated Results vs Prior Periods and Estimates

MetricQ2 2022Q1 2023Q2 2023
Net Sales ($USD Millions)$128.706 $107.698 $100.519
Gross Margin (%)51.2% 53.1% 52.6%
Operating Margin (%)8.6% 2.5% 2.5%
Diluted EPS - Continuing Ops ($)$0.81 $0.16 $0.24
YoY Net Sales Change——-21.9%
QoQ Net Sales Change——-6.6% (derived from $107.698→$100.519)
EPS Consensus (S&P Global)N/A*N/A*N/A*
Revenue Consensus (S&P Global)N/A*N/A*N/A*

Values marked with * were unavailable; values would be retrieved from S&P Global if accessible.

Segment Sales and Operating Income

Segment MetricQ2 2022Q1 2023Q2 2023
Wholesale Sales to External Customers ($USD Millions)$53.086 $39.785 $37.444
Retail Sales ($USD Millions)$75.620 $64.962 $60.778
Corporate & Other Sales ($USD Millions)$0.000 $2.951 $2.297
Consolidated Net Sales ($USD Millions)$128.706 $107.698 $100.519
Wholesale Operating Income ($USD Millions)$11.465 $8.994 $7.005
Retail Operating Income ($USD Millions)$7.293 $1.530 $0.755
Corporate & Other Net Expenses ($USD Millions)$(7.549) $(7.771) $(6.949)
Consolidated Operating Income ($USD Millions)$11.012 $2.702 $2.480

KPIs and Operational Metrics

KPIQ2 2022Q1 2023Q2 2023
Wholesale Orders YoY——-18%
Operating Cash Flow ($USD Millions)—$0.563 $5.8 (press release narrative)
Inventory Reduction—Wholesale inventories down 15% in period Total inventory down 11%
Manufacturing Headcount vs PY—-11% YTD (primarily attrition) -20% vs PY
Retail Makeover Sales (% of written volume)——47%
Outdoor Sales vs 2019——+68% vs 2019

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueFY2023None provided None provided; demand remains uncertain Maintained (no formal guidance)
Operating MarginFY2023None provided Aim to return wholesale margins to pre-pandemic levels over time Qualitative target (no numeric range)
Dividend PolicyFY2023Regular quarterly dividend (post 2022 increase) Maintain or increase dividend Maintained/raised (directional)
Share RepurchasesFY2023Active repurchases when undervalued Continue repurchases when appropriate Maintained
Capex/Store ProjectsFY2023Postponed some elements amid uncertainty Proceeding with flagship Tampa opening by Labor Day; Austin remodel; e-commerce launch before end of August quarter Resumed targeted investments
E-commerce PlatformQ3 FY2023 (Aug qtr)“Next 90 days” from Q1 release Launch before end of August quarter; expanded payment options and conversion focus Timeline affirmed

Earnings Call Themes & Trends

Note: No Q2 2023 earnings call transcript was found; themes below reflect press release commentary and prior releases .

TopicPrevious Mentions (Q4 2022 and Q1 2023)Current Period (Q2 2023)Trend
Demand/MacroQ4: Entering FY23 with wholesale orders -20% QTD vs prior year ; Q1: Macro inconsistencies; managing expense structure while investing Industry-wide soft demand; uncertainty on timing of improvement Deteriorating/uncertain
Supply Chain/Freight CostsQ4: Supply chain normalized; prior ocean freight inflated Club Level margins ; Q1: Right-sizing Club Level with freight-inflated inventory Club Level write-down ($1.1M) and import wood margins hampered by prior freight inflation; benefit expected as inventory turns Improving over time as old freight-cost inventory turns
Inventory/Working CapitalQ4: Wholesale inventory down $4M; focus on discipline 11% total inventory reduction; operating cash flow $5.8M Improving
E-commerce/DigitalQ1: New web platform in next 90 days New site launching before end of August quarter; conversion-focused features; JB Hunt delivery nationwide Accelerating execution
Noa Home (E-commerce)Q4: Operating at a loss; scaling for growth; broaden assortment Loss reduced 83%; less aggressive ad spend; U.S. limited geography test in fall Improving profitability
Retail Format/StoresQ1: New Dallas store; Tampa build starting; remodels to test accessory fixturing Tampa flagship opening by Labor Day; Austin remodel; expanded design centers and assortments Expanding/modernizing
Outdoor BusinessQ4: Outdoor growth; Alabama upgrades underway +68% vs 2019; Bassett Outdoor contract line launched; new Lane Venture showroom; product collaboration Growing (vs 2019 baseline)

Management Commentary

  • “While our operating results were challenged by industry-wide soft demand, we successfully managed our balance sheet and maintained profitability during the second quarter.”
  • “Operating income of $2.5 million included a $1.0 million valuation adjustment… Operating income was negatively impacted by a $1.1 million write-down of our Club Level motion product.”
  • “Our ability to return our wholesale margins to pre-pandemic levels is essential to our future success.”
  • “Our organization is excited about… the launch of our new website… before the end of our August quarter… [as] a cornerstone of our growth strategy.”
  • “We will conservatively manage our working capital, maintain or increase our dividend, and continue to repurchase our common stock when deemed appropriate.”

Q&A Highlights

No Q2 2023 earnings call transcript was found, so no Q&A details are available; analysis is based on the earnings release narrative .

Estimates Context

  • Wall Street consensus (S&P Global) for Q2 2023 EPS and revenue was unavailable due to data access limits; therefore, we cannot objectively classify beats/misses for the quarter.*
  • Given the 21.9% YoY revenue decline and operating margin compression from inventory write-downs, models may need to reflect lower volumes, gradual margin normalization as higher-freight-cost inventory turns, and reduced Noa losses; retail profitability sensitivity to traffic and promotion intensity remains a key variable .

*Estimates would typically be retrieved from S&P Global.

Key Takeaways for Investors

  • Margin resiliency: Despite revenue pressure, gross margin held at 52.6% as upholstery margins improved and cost inputs eased; watch for margin lift as legacy high-freight inventory clears and new wood introductions enhance absorption .
  • Inventory/cash flow discipline: 11% inventory reduction drove $5.8M operating cash flow; continued working capital vigilance should cushion volatility .
  • Club Level and import wood drag is transitory: $1.1M write-down and freight-inflated inventory should abate as mix refreshes; expect incremental margin improvement over H2 ’23 as turns progress .
  • Digital acceleration as near-term catalyst: New website launch (by end of August quarter) with improved conversion and nationwide delivery through JB Hunt may incrementally support traffic and omni-channel revenue .
  • Noa Home profitability path: 83% sequential loss reduction demonstrates improved unit economics; U.S. test suggests optionality beyond Canada/APAC markets .
  • Retail modernization: Tampa flagship and Austin remodel (by Labor Day) underscore commitment to higher-touch design centers; makeovers at 47% of written volume highlight design-led differentiation .
  • Capital returns intact: Management intends to maintain or increase the dividend and repurchase stock opportunistically while investing in targeted growth initiatives .