Bassett Furniture Industries, Inc. announced its results of operations for its fiscal quarter ended August 25, 2012.
Fiscal 2012 Third Quarter Highlights
- Consolidated sales for the third quarter 2012 increased 8.5% as compared to the third quarter 2011
- Operating profit for the third quarter was $0.8 million versus a $0.2 million loss for the third quarter last year
- Company-owned store delivered sales increased 22.5% with a 9.9% increase from the 43 comparable stores
- Repurchased 369,500 shares using $4.3 million of cash and paid $0.6 million in dividends during the quarter
- Declared a special dividend on August 29, 2012 of $1.25 per share of common stock outstanding payable on October 26, 2012 to holders of record on October 12, 2012
On a consolidated basis, the Company reported net sales for the third quarter of 2012 of $64.4 million, an increase of $5.0 million, or 8.5%, from sales levels attained in the third quarter of 2011. Operating income improved to $0.8 million from a loss of $0.2 million driven primarily by higher sales in both the wholesale and retail segments. This was offset by higher selling, general and administrative expenses due primarily to the increased number of Company-owned stores. The Company also recorded a tax benefit of $1.9 million primarily as a result of favorable provision to return adjustments related to our 2011 Federal income tax return and the release of a portion of the valuation allowance against certain deferred tax assets. As a result, the Company recorded net income of $2.4 million or $0.21 per diluted share compared to $0.4 million or $0.04 per diluted share in the third quarter of 2011.
"The achievement of solid growth in both our wholesale and retail segments in our fiscal third quarter was encouraging," commented Robert H. Spilman, Jr. President and Chief Executive Officer. "New product introductions, comparable corporate retail sales gains, and greater penetration with open market independent retailers contributed to the 8.5% consolidated revenue growth that the Company generated during the period. Returning from the traditional July 4th shut down of our manufacturing facilities, production schedules compared favorably to those of the past few years. And, of course, we were very pleased to post a 9.9% increase in our comparable corporate store sales. Despite continuing up front expense associated with the pending launch of our partnership with the HGTV television network, we returned to operating profitability for the quarter after posting a small operating loss for the same quarter last year."
"After 18 months of planning and preparation, we look forward to finally realizing the benefits we expect from our partnership with HGTV," continued Spilman. "The in-store design centers in our Bassett Home Furnishings network have been co-branded with HGTV to more forcefully market the concept of a 'home makeover', an important point of differentiation for our stores that also mirrors much of the programming content on the HGTV network. In addition, new HGTV Home branded furniture will hit independent retailers' floors during the fourth quarter. As we move into what has generally been a stronger selling season for our industry, we believe this partnership will drive additional sales."
Net sales for the wholesale segment were $44.8 million for the third quarter of 2012 as compared to $41.9 million for the third quarter of 2011, an increase of 6.9%. Wholesale shipments increased due to a 9.1% increase in wholesale sales outside the BHF store network and a 4.6% increase in shipments to the network. Gross margins for the wholesale segment were essentially flat at 31.7% for the third quarter of 2012 as compared to 31.9% for the third quarter of 2011. Wholesale SG&A increased $0.7 million to $12.5 million for the third quarter of 2012 as compared to $11.8 million for the third quarter of 2011. As a percentage of net sales, SG&A decreased 0.4 percentage points to 27.9% for the third quarter of 2012 as compared to 28.3% for the third quarter of 2011 due to greater leverage of fixed costs partially offset by investments in our new Home and Garden Television (HGTV) initiatives and new showrooms in Las Vegas and High Point.
"Both our upholstery and wood operating divisions posted sales gains for the quarter with increases of 8% and 3%, respectively," added Spilman. "Wholesale operating income increased 11% to $1.7 million. Although operating with three fewer stores than one year ago, we increased wholesale shipments to our BHF store network this quarter. Also contributing to our growth was the favorable reception of our new product introductions from the High Point Market that turned into shipments in July and August. We have also added several new wholesale sales representatives to continue to present our programs to independent furniture retailers and designers in areas that do not conflict with our dedicated store network."
Company-owned stores had sales of $41.2 million in the third quarter of 2012 as compared to $33.6 million in the third quarter of 2011, an increase of 22.5%. The increase was comprised of a $3.2 million or 9.9% increase in comparable store sales along with a $4.4 million increase in non-comparable store sales. While the Company does not recognize sales until goods are delivered to the customer, management tracks written sales (the dollar value of sales orders taken, rather than delivered) as a key store performance indicator. Written sales for comparable stores increased by 13% for the third quarter of 2012 as compared to the third quarter of 2011.
Operating loss for the Company-owned stores improved to a loss of $1.5 million in the third quarter of 2012 as compared to a loss of $1.8 million for the third quarter of 2011 which was primarily driven by the sales increases noted above. Gross margins decreased to 47.3% for the third quarter of 2012 from 47.6% for the third quarter of 2011 as there was a greater percentage of clearance sales due to significant floor sample resets for new product offerings.
Margins for the fiscal third quarter have historically been lower due to the Company's planned timing of new product offerings. SG&A expense increased $3.2 million, primarily due to increased store count. As a percentage of sales, SG&A decreased to 50.9% for the third quarter of 2012 as compared to 52.9% for the same quarter last year primarily due to greater leverage of fixed costs from higher sales. Refer to the accompanying schedule of Supplemental Retail Information for results of operations for the Company's retail segment by comparable and all other stores.
"Corporate retail losses decreased by 15% for the quarter and by 38% for the fiscal year to date," said Spilman. "The quarter was characterized by an abnormal amount of product clearance sales, which carry a lower margin, due to the large amount of new products that hit our showroom floors in July and August. Our Corporate Retail associates and our licensee partners spent a tremendous amount of effort over the summer to convert our in-store design centers to the HGTV Design Studio at Bassett that officially debuted over Labor Day weekend. Our marketing efforts and our design associates are the impetus that has allowed us to continue to increase our sales and to improve our year over year corporate retail results for six consecutive quarters. We believe that our new national television campaign on the HGTV network and the momentum that our retail division currently enjoys gives us the ability to continue to increase our market share and to further improve our results as the overall economy strengthens."
Balance Sheet and Cash Flow
The Company used $1.3 million in cash from operating activities for the three months ended August 25, 2012 as compared with cash used in operations of $7.7 million for the three months ended August 27, 2011. The use of cash during the third quarter of 2012 is due primarily to an investment in inventory for the HGTV initiative, timing of receipt of certain inventory from Asia and planned increases to support other upholstery growth initiatives.
Capital expenditures for the third quarter of 2012 were $2.5 million primarily related to the expansion of the Company-owned store network. The Company also repurchased 369,500 shares using $4.3 million in cash and paid $0.6 million in dividends during the quarter. In addition, the Company declared a special dividend on August 29, 2012 of $1.25 per share of common stock outstanding payable on October 26, 2012 to holders of record on October 12, 2012. This will result in an approximate $13.6 million cash dividend payment based on the number of shares currently outstanding.
About Bassett Furniture Industries, Inc.:
Bassett Furniture Industries, Inc. (BSET), is a leading manufacturer and marketer of high quality, mid-priced home furnishings. With 86 company- and licensee-owned stores, Bassett has leveraged its strong brand name in furniture into a network of corporate and licensed stores that focus on providing consumers with a friendly environment for buying furniture and accessories. The most significant growth opportunity for Bassett continues to be the Company's dedicated retail store program. Bassett's retail strategy includes affordable custom-built furniture that is ready for delivery in the home within 30 days. The stores also feature the latest on-trend furniture styles, more than 750 upholstery fabrics, free in-home design visits, and coordinated decorating accessories. Bassett is also growing its traditional wholesale business with more than 500 accounts on the open market, across the United States and internationally. For more information, visit the Company's website at bassettfurniture.com
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