BASSETT, Va. – Bassett Furniture reported a second consecutive loss for the fourth quarter, with sales falling 21.7% from last year to $94.7 million. Wholesale sales fell 18.8% to $60.6 million, while retail sales fell 22.3% to $57.9 million.
CEO Robert Spilman highlighted some important points in the earnings report last week. Here are some of those takeaways:
E-commerce Noa Home hasn’t yet seen a return
For Noa Home, the Canadian e-commerce retailer Bassett acquired late 2022, a successful return hasn’t yet materialized. Bassett recorded a $5.4 million noncash goodwill impairment charge for the brand for the quarter, which reflects a reduction in Noa’s expected future cash flow or fair value. If it wasn’t for this charge, Spilman said, the company would have produced a profit for the quarter.
“In the five quarters of ownership of Noa Home, we have collaborated with the Noa team to open Western Canadian distribution, increase gross margins, better align advertising expenditures with sales and establish a more disciplined financial reporting environment,” he said. “In the next few months, we plan to exit the Australian e-commerce market, where we primarily sell mattresses, to concentrate on North America where we primarily sell furniture.
“However, the overall environment for e-commerce furniture sales has significantly softened since our purchase of Noa, resulting in financial performance well below the original projections.”
Inventory reduction is helping margins amid lower sales
In wholesale, Spilman said all categories experienced order declines, with Club Level, Bench Made domestic wood and domestic upholstery performing slightly better than the others. He said the company has made headcount adjustments in domestic manufacturing, while keeping a vigilant eye on backlogs.
“Incoming wholesale orders were very similar for the final nine months of the year and appear to have stabilized, albeit at a relatively low level,” Spilman said. “We do sense that the massive inventory buildup at our open market accounts has finally begun to subside, which should provide new opportunities.
“We ended the quarter and the year with $36 million of wholesale inventory, a 38.7% reduction compared with year-end 2022. As expected, we did see a nice improvement in the overall margins compared with the third quarter of 2023 as we continue to cycle through excess Club Level inventory and imported wood product that both had the inflated container freight from 2022.
“We essentially cut the excess Club Level inventory in half over the course of the fourth quarter to approximately $3.5 million and expect to sell the remainder over the first two quarters of 2024. In spite of a 16.7% decrease in domestic upholstery sales from our Newton facility, we slightly increased our operating profit. We expect to continue to see margin improvement in our wholesale operations over the course of 2024.”
The balance sheet is a strength
“We improved our quarterly gross margin to 54.3% and produced an operating profit for the period, if you exclude the goodwill impairment charge,” Spilman said. “We strengthened our balance sheet by virtue of generating $8.4 million of operating cash flow, ending the quarter with $70.2 million in cash and cash equivalents and no debt.
“We paid our regular quarterly dividend of 18 cents per share on Nov. 24 (2023), and on Jan. 11 our board of directors approved the next installment payable on March 1.”
Retail stores are performing, Spilman says
Despite retail sales falling 22.2% from last year, Spilman praised the performance of the company’s stores.
“Close ratios were at all-time highs, our average order value improved, and design projects accounted for over 45% of sales,” he said. “Our design staffs are doing a tremendous job of maximizing their opportunities and building bigger tickets.
“In short, the stores operated quite well under challenging circumstances. We believe that there is room to further improve our gross margins through new pricing and promotional strategies and by employing increased discipline in the disposition of our clearance merchandise.”
Despite pain now, long-term outlook remains positive
“Year-over-year comparisons will be more favorable as 2024 unfolds, but the difficult sales environment for home furnishings persists for the moment,” Spilman said.
“Favorable demographics provide optimism for the future of home furnishings as Millennial household formation unfolds,” he continued. “The post pandemic boom has led to a period of difficulty and disruption as witnessed by the bankruptcies of several prominent players in 2023.
“Although last year and early 2024 have been challenging, we have seen downturns before, and we have a positive outlook on the future, perhaps with anticipated interest rate reductions later this year. In the meantime, we will focus our attention on product innovation, improving sales technology, updating our stores, enhancing margins, bringing in new talent and prudently managing our balance sheet as we anticipate the inevitable upswing in the home furnishings space.”
Its like you read my mind You appear to know so much about this like you wrote the book in it or something I think that you can do with a few pics to drive the message home a little bit but other than that this is fantastic blog A great read Ill certainly be back
Wonderful beat I wish to apprentice while you amend your web site how could i subscribe for a blog web site The account aided me a acceptable deal I had been a little bit acquainted of this your broadcast provided bright clear idea