Release Date: July 11, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Bassett Furniture Industries Inc (BSET, Financial) reported a strong consolidated gross margin of 55.7% for Q2 2024, up from 53.6% in the previous year.
- The company successfully executed a three-week Memorial Day promotion, slightly exceeding last year's written business.
- The introduction of leather to the True Custom Upholstery program and the Origin Dining program drove new sales.
- Bassett Furniture Industries Inc (BSET) is implementing a restructuring plan aimed at driving organic growth, optimizing inventory, and improving cost structure.
- The company announced an 11% increase in its quarterly dividend, reflecting confidence in its growth potential and cash flow.
Negative Points
- Total revenues decreased by $17.1 million or 17% compared to the prior year.
- The company reported a consolidated operating loss of $8.5 million for Q2 2024, compared to an operating profit of $2.5 million in the same period last year.
- Several significant and unusual expenses were incurred due to the restructuring plan, including $2.9 million in asset impairment charges and $1.8 million in charges related to the wind-down of Noa Home Inc.
- Net sales in the wholesale segment decreased by $9.2 million or 15% from the prior-year period.
- SG&A expenses as a percentage of sales increased due to reduced leverage of fixed costs from decreased sales.
Q & A Highlights
Q: Can you provide details on the timing and impact of the restructuring plan?
A: (Robert Spilman, CEO) The restructuring plan includes winding down Noa Home, optimizing inventory, consolidating wood manufacturing, and refurbishing retail locations. Most actions are expected to be completed by year-end, with significant savings realized in fiscal 2025. (John Daniel, CFO) We anticipate annual cost savings of $5.5 million to $6.5 million starting in fiscal 2025.
Q: What contributed to the strong gross margin of 55.7% in Q2, and is it sustainable?
A: (Robert Spilman, CEO) Improved pricing discipline, reduced warranty claims, and the resolution of Club Level inventory issues contributed to the strong margin. We believe these improvements are sustainable, though margins may slightly decrease in the back half of the year due to the mix of clearance goods.
Q: How are higher ocean freight costs affecting your business?
A: (Robert Spilman, CEO) We have contracted container rates, but spot rates have increased. We are considering a surcharge to offset these costs, though we have not enacted one yet.
Q: Do you plan to change your advertising to better highlight True Custom Upholstery?
A: (Robert Spilman, CEO) Yes, we will leverage more overt messaging to emphasize the unique features of our True Custom Upholstery program, which offers extensive customization options.
Q: Can you discuss the early results and future plans for the True Custom Upholstery program?
A: (Robert Spilman, CEO) We have added 30 new dealers and aim for 50 by year-end. Early results are positive, and the program is well-received by retailers. We are excited about its potential to drive sales.
Q: Are you seeing any signs of improvement in retail orders?
A: (Robert Spilman, CEO) Retail sales were down 2.5% for the quarter, but key holiday events like Memorial Day and July 4th showed positive results. We believe we have hit the bottom and expect improvement moving forward.
Q: What are the tax implications of the restructuring charges?
A: (John Daniel, CFO) We took no tax benefit on the $1.8 million and $500,000 charges related to Noa Home. Other restructuring charges and inventory valuation charges are treated normally for tax purposes.
Q: What are the learnings from the Noa Home experience, and are there any residual benefits?
A: (Robert Spilman, CEO) We learned that pure-play e-commerce in furniture is challenging. Some team members with e-commerce expertise will remain, and we are considering leveraging the Noa brand for entry-level offerings in Canada.
Q: When will you decide on new retail locations?
A: (Robert Spilman, CEO) We are evaluating sites and expect to make decisions within the next 90 days, with potential openings in 2025.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
