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BASSETT FURNITURE INDUSTRIES INC (BSET)·Q3 2023 Earnings Summary

Executive Summary

  • Q3 revenue $87.2M, down 26.1% y/y, with operating loss $(3.8)M (−4.4% margin) and diluted EPS $(0.30); softness stemmed from weak day‑to‑day traffic between holiday events and retail underperformance .
  • Wholesale maintained double‑digit operating margin (11.2%) despite an 8.5% sequential revenue decline, aided by efficiency in domestic upholstery; another $0.8M Club Level write‑down was recorded as legacy high-freight inventory continues to burn off .
  • Balance sheet remains strong: cash $48.0M and short‑term investments $17.7M; Q3 operating cash flow was $3.8M; capex outlook for FY23 is $17–19M and the quarterly dividend was raised 12.5% in July .
  • Near‑term catalysts: website relaunch on Aug 10 with improved engagement, new product imagery/catalog drop, and store openings (Tampa mid‑Oct; Austin remodel re‑open late Sept; Houston early 2024) .

What Went Well and What Went Wrong

  • What Went Well

    • Wholesale margins held up at 11.2% in Q3; domestic upholstery improved margins despite a 31% shipment decline, reflecting cost/efficiency gains .
    • Digital/e‑commerce: new website launched Aug 10; early engagement metrics improved with consumers spending more time per visit, supporting omni‑channel conversion .
    • Noa Home: marketing efficiency improved with materially lower ad spend and largely intact traffic; targeted U.S. entry is imminent and assortment expansion is underway .

  • What Went Wrong

    • Consolidated revenue fell 26.1% y/y to $87.2M, with wholesale shipments down 28% and wholesale orders down 4.6% y/y; a further $0.8M write‑down on slow‑moving Club Level styles weighed on results .
    • Retail was primary driver of the operating loss; comparable gross margins held, but SG&A de‑leverage on lower sales and weak day‑to‑day store traffic prevented break‑even .
    • Club Level inventory still requires clearance: inventory reduced to slightly over $11M from $22M peak (49% lower), with ~$6M excess/discontinued remaining, pressuring margins until older high‑freight inventory burns off .

Financial Results

Quarterly trend (continuing operations unless noted)

MetricQ1 2023Q2 2023Q3 2023
Net sales ($M)$107.7 $100.5 $87.2
Gross profit margin (%)53.1% 52.6% 51.6%
Income (loss) from operations ($M)$2.7 (2.5%) $2.5 (2.5%) $(3.8) (−4.4%)
Diluted EPS ($)$0.16 $0.24 $(0.30)

Year-over-year comparison

MetricQ3 2022Q3 2023
Net sales ($M)$118.0 $87.2
Gross profit margin (%)51.5% 51.6%
Income (loss) from operations ($M)$10.7 (9.0%) $(3.8) (−4.4%)
Diluted EPS ($)$0.82 $(0.30)

Segment performance

SegmentQ3 2022Q2 2023Q3 2023
Wholesale sales ($M)$79.0 $61.8 $56.7
Retail sales ($M)$70.9 $60.8 $52.3
Corporate & Other sales ($M)$0.0 $2.3 $1.8
Consolidated net sales ($M)$118.0 $100.5 $87.2
Wholesale operating income ($M)$10.0 $7.0 $6.3
Retail operating income ($M)$3.9 $0.8 $(3.0)

KPIs and balance sheet highlights

KPIQ3 2023Prior/Context
Wholesale orders y/y−4.6% Preliminary y/y −5% (early Sept update)
Club Level inventorySlightly >$11M; peak $22M (Aug 2022); ~$6M excess/discontinued; $0.8M write‑down in Q3 Inventory 49% below last year
Operating cash flow$3.8M (Q3) 9M’23: $10.2M
Cash & short‑term investments$48.0M cash + $17.7M ST investments at 8/26/23 9M’23 change in cash: $(13.6)M
Store count (as of release)89 company‑ and licensee‑owned Plan to end year with 90 BH stores

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Capital ExpenditureFY 2023N/A$17–$19M New/Updated
Capital ExpenditureFY 2024N/A“Significantly less than” FY23 Qualitative lower
DividendOngoingPrior rateRegular quarterly dividend increased 12.5% (approved in July) Raised
Store openings2H 2023–Early 2024N/ATampa mid‑Oct 2023; Austin remodel re‑open late Sept 2023; Houston early 2024 New timing detail

Earnings Call Themes & Trends

Note: An earnings call transcript for Q3 2023 was not available in the document set; themes below derive from company releases across Q1–Q3 2023.

TopicPrevious Mentions (Q1 & Q2 2023)Current Period (Q3 2023)Trend
Supply chain/freight cost normalizationFreight and raw materials normalized vs peak; strategy to sharpen price points; Club Level margins hindered by high‑freight inventory; headcounts down ~11–20% to align with demand Pandemic‑era freight cost in oldest import wood inventory is burning off; sequential margin improvement in imported wood; domestic wood work schedules improved Gradual margin tailwind
Digital/e‑commerceNew website slated before August; product data stack rebuild for omni‑channel; JB Hunt nationwide delivery; Noa loss narrowed 83% with reduced ad spend; limited‑geo U.S. test planned Website launched Aug 10; engagement improved; leveraging fresh imagery/catalog; Noa optimizing ad efficiency; targeted U.S. entry imminent; assortment expansion Execution milestones achieved
Retail demand/trafficFoot traffic declined; higher average ticket; selective marketing to maintain engagement Day‑to‑day store traffic weak between events; retail revenue insufficient to break even; Labor Day and new intros boosted early Q4 Soft baseline demand
Product/assortmentNew Bench Made tables/chairs strong; outdoor showings and showroom expansion (Lane Venture, contract) New product styling and imagery launched with catalog; sell‑through off to good start Refresh supporting sell‑through
Store fleetDallas new store; remodels; Tampa build starting April Tampa opening mid‑Oct; Austin remodel re‑open late Sept; Houston early 2024; plan to end 2023 with ~90 stores Targeted expansion/remodels
Capital allocationMaintain/increase dividend; repurchases as appropriate; conserve capex amid uncertainty ~$8.5M returned YTD via dividends/repurchases; FY23 capex $17–19M; FY24 capex to be lower Balanced returns/liquidity

Management Commentary

  • “Writing new business, both at wholesale and retail, proved very difficult… day‑to‑day store traffic and wholesale order writing between the big events remain very challenging.”
  • “It is hard to see the positive in a quarter where wholesale shipments declined by 28%, but we do have several trends that point to better results moving ahead.”
  • “The pandemic‑related freight costs imbedded in our oldest import wood inventory is beginning to burn off… a trend which should accelerate and result in margin expansion in the coming months.”
  • “Balancing investment in the business, returns to shareholders, and cash flow planning is particularly important in a tough sales climate… Capital expenditures will likely come in between $17 and $19 million this year.”
  • “August 10th marked the debut of our new bassettfurniture.com website… engagement has improved as consumers are spending more time on the new site with each visit.”

Q&A Highlights

  • An earnings call transcript for Q3 2023 was not available in our document set; therefore, Q&A themes and any in‑call guidance clarifications could not be assessed from primary sources. We will update this section if a transcript becomes available.

Estimates Context

  • Wall Street consensus (S&P Global) EPS and revenue estimates for Q3 2023 were not retrievable at this time due to data access limits; as such, we cannot quantify beats/misses versus consensus for this quarter. We will refresh comparisons once S&P Global data access resumes.

Key Takeaways for Investors

  • Demand environment remains soft ex‑holiday, driving retail underperformance; watch for stabilization in baseline traffic to re‑establish retail break‑even .
  • Margin setup improving: freight cost roll‑off in import wood and efficiency in domestic upholstery provide incremental gross margin tailwinds into coming quarters .
  • Club Level inventory overhang is being worked down; while a drag persists (another $0.8M write‑down in Q3), inventory is ~49% below last year and should normalize to $5–6M, easing margin pressure over time .
  • Liquidity and cash generation offer resilience and capital return flexibility: $65.8M in cash/ST investments and $3.8M Q3 operating cash flow; FY23 capex $17–19M, FY24 lower, alongside a 12.5% dividend increase .
  • Digital relaunch and refreshed imagery/catalog enhance the demand engine and omni‑channel funnel—early engagement metrics are positive, with Noa’s marketing efficiency gains supporting e‑commerce profitability workstreams .
  • Near‑term operational catalysts include Tampa opening, Austin re‑opening, and Houston early 2024; monitor new product sell‑through momentum post‑Labor Day .
  • Given the absence of consensus comparisons, framing results vs. internal trajectory (sequential sales decline, stable gross margin, and retail de‑leverage) is key; incremental improvements in mix, inventory quality, and traffic should be the stock’s reaction drivers near term .

References:

  • Q3 2023 8‑K and press release, including detailed financial statements and segment data
  • Preliminary Q3 2023 update (Sept 6, 2023)
  • Q2 2023 8‑K and press release
  • Q1 2023 8‑K and press release