BASSETT, Va. – Bassett Furniture released its second quarter earnings earlier this week, which indicated a 17% decline in sales from last year and a fourth quarterly loss in a row. Several significant changes were revealed, including a restructuring plan and the closure of the Noa Home e-commerce furniture business Bassett acquired two years ago.
An earnings call yesterday shed more light on the company’s current financial situation. Here are five takeaways from that call.
1. Restructuring is effective immediately
The company announced a restructuring plan, with the goal of right-sizing its cost structure and preparing for topline growth. The plan involves reducing its wood manufacturing footprint, optimizing inventory and dropping unproductive lines, investing in the refurbishment of current retail stores, and closing the Noa Home business, among other things.
The restructuring is expected to save the company between $5.5 million and $6.5 million in annual costs starting in fiscal 2025.
“We are reconfiguring our domestic manufacturing footprint, and that resulted in a charge of $1.4 million for the quarter,” said CEO Robert Spilman on the call. “Our goal is to lower our cost structure. We have completed the initial phase of our retail warehouse consolidation that resulted in the closing of three warehouses in the quarter. We also plan to move out of a major wholesale distribution center at the end of the third quarter that’ll result in significant savings but could result in another charge.”
“The back half of 2024 will be a reset for the business,” he said. “We are optimistic that consumer demand will improve and that our unique competitive advantages will allow us to increase market share and deliver long-term shareholder returns.”
2. True custom upholstery is a highlight
On the earnings call, company executives several times brought up Bassett’s true custom upholstery program – and its recent addition of leather – as a bright spot. Spilman said the industry “overworks” the custom upholstery term. What Bassett offers, he says, is true custom.
“We are excited about showcasing our long-proven true custom upholstery offering in the new Bassett design studio format introduced earlier this year. Many in the industry now refer to offering more than one fabric on a frame as custom upholstery. Our program truly represents what custom upholstery is: a choice of frame length, arm, back and base styles, cushion options, multiple fabric and leather options, etc.
“Designed for better independent furniture retailers, the 1,000-square-foot concept is off to a great start. We said in our first quarter report in April that we had signed 17 new locations. Through May, that’s up to 30.
“We’re getting very positive feedback. They’re happy with the margins and that they can carry lower inventory. We’re targeting to have 50 dealers by year-end, toward our ultimate goal of at least 100 locations.”
3. The significant Noa Home closure
Bassett made the decision to close Noa Home, the mid-priced Canadian e-commerce furniture retailer it acquired in 2022. Noa will wind down completely by the end of the fiscal year; it’s unclear how many employees will be impacted.
“Despite providing Noa with the necessary working capital that was needed, it was not able to generate sales growth,” the company said. “As a result, we made the decision to wind down the operation by the end of the fiscal year.”
Spilman was asked in the earnings call what the company learned from running Noa Home.
“One thing we learned is that pure-play e-comm in furniture is a tough business, that’s for damn sure,” he said. “We put in a new website at Bassett last year. We are seeing some green shoots in that effort. We think we have a much better platform, navigation and all that.
“We aren’t anywhere near where we want to be on the e-comm side. A couple Noa folks have helped us with that. One of them, at least for a period of time, is likely to remain in the mix.
“Also, potentially, Noa did have a brand up there that sold furniture. More than we sell there. Could we go forward with the Noa site with Bassett product as an entry level offering? Maybe. But we’re really more focused on the balance sheet.”
4. Retail backlog indicates the bottom may have been hit
Retail sales were $50.5 million for the quarter, a decline of 16.9%. Written orders, however, were only down 2.5%.
“We were selling through backlog last year,” said J. Michael Daniel, chief financial offer and senior vice president. “You can see that, if you go back to Q1 of 2023, our retail backlog was $42 million. The next quarter, that was down to $33 million. It’s been pretty consistent since then. I think that’s a way of saying ‘it feels like we’ve hit the bottom.’ We’re down 2.5% written but really 17% because we’re selling through the backlog.”
As mentioned above, a key part of the restructuring plan includes investing capital to refurbish existing retail stores. No new stores are planned for the year.
5. Macro economy is still the main culprit
“The environment for housing remains challenging, and consumers are choosing to invest in experiences over their homes, a change from the COVID period,” said Spilman. “We continue to be disciplined on expenses to improve operating efficiency.”
“Bassett has a long history of weathering economic cycles, such as the inflationary environment and slow housing market we’re experiencing in 2024 – factors that led to soft demand in our second quarter,” he continued. “The business climate has remained difficult through the first six months of this year and may not improve in the near future.”
