Bassett Furniture Industries Inc (BSET) 2024 Q4 法說會逐字稿

In addition to all the cost cutting, we embarked on an extensive review of our product line last year and began significant makeovers of our assortment.

We planned three major whole home taste good collection to hit retail and the retail market.

In 2025.

The first, the Danish modern inspired Copenhagen collection has been in our retail stores for six weeks and it's performing very well already two additional collections, Andor and Newberry will debut this spring.

All three of these collections cover bedroom dining, occasional and entertainment options and will be transformational in terms of our retail, visual merchandizing the investments that we've made at Bassett Furniture dotcom to continue to change and benefit our business.

Still a small percentage of our overall sales.

But ecommerce revenue is growing and we've had seven consecutive months of sales increases through the end of 2024.

Our investments in the presentation and the user experience are driving traffic and higher e-commerce order values which are up 27% annually compared to last year.

And our instore designers are telling us that consumers are entering the store with specific items in mind based on their interaction with the brand on our website fourth quarter.

We've strengthened our marketing program and began communicating more about the price and value of our furniture.

Early response indicates this messaging is resonating with customers and price value will be a focus for 2025.

We reintroduced direct mail and our marketing mix in the fourth quarter and it delivered positive returns.

We planned to use direct mail more frequently in 2025 to drive retail traffic particularly for major events and new product launches like Copenhagen and do and Newbury, approximately 80% of our wholesale revenue on an annual basis comes from one of our dedicated distribution concepts.

The latest is the Bassett Custom studio which requires the independent furniture retailer to dedicate a prescribed 1,000 square foot footprint to our true custom upholstery program with no requirements of backup inventory.

Nine months into this program, we're excited about the progress with the Mira fabric and design options that true custom offers in a relatively small space.

The dealer can generate a high rate of sales per square foot with no inventory investment beyond the floor samples.

The program is working and several dealers have already expanded the square footage dedicated to it.

This inexpensive commitment to the Bassett brand has great potential and we plan to continue to increase the number of studios this year.

I also want to mention the pride that our team feels in being named Best Custom upholstery company in the industry as a result of furniture.

Today's annual reader survey, this recognition underscores the accomplishments of so many Bassett teammates to earn the respect of those who really know the furniture business.

And it reinforces the quality reputation that customers equate with our brand.

I will not deny that 2024 in general and the implementation of the restructuring was challenging.

We made difficult decisions but has it changed our mindset to run as a smaller company a year in?

We had 11% fewer associates than a year ago.

Our priority is to continually review our operations to ensure that we are driving efficiency as well as delivering innovation and newness for customers.

We are investing in remodeling some stores and we are negotiating leases for two others which are expected to open in late 2025 or early 2026.

We don't have a crystal ball on projections but where the housing market or mortgage rates this year will be, as I said earlier, industry data points to similar to last year, but with a leaner operating model and new features to our growth plan.

We believe Bassett is well positioned for the future.

On January 16th, we announced that our board approved our regularly regular quarterly dividend of $0.20 per share and we remain committed to shareholder returns through dividends and opportunistic share repurchases.

Now I'll turn things back over to Mike for more details on our financials, Mike.

Thanks Rob in my commentary.

The comparisons I will discuss will be the fourth quarter of fiscal 2024 compared to the fourth quarter of fiscal 2023.

Unless otherwise noted for the fourth quarter, total consolidated revenue declined $10.4 million or 11%.

Primarily due to a 14% decrease in wholesale sales and an 8.4% decrease in retail sales through our company owned stores solidated gross margins increased 230 basis points due primarily to better margins in the wholesale segment from improved margins in our club level product coupled with better margins in our domestic upholstery manufacturing operation.

Although we're pleased with our very strong consolidated gross margins during the quarter, we do expect a slight moderation during 2025 due to the expectation that we will be more aggressive with pricing on the retail side.

As Rob mentioned earlier, we reported consolidated operating income of $900,000 compared to a loss of $4.5 million for the fourth quarter of 2023.

However, if you normalize the operating income for both 2024 and 2023 for the special charges, operating income would have been $2.3 million or 2.7% of sales as compared to $900,000 or 0.9% of sales for 2023.

Now, I've provided information regarding our wholesale operations, net sales decreased $8.3 million or 14% from the prior year period due primarily to a 13% decrease in shipments in both the store network in the open market, partially offset by a 22% increase in shipments for Lane venture gross margin for the three months ended November 30th 2024 increased 290 basis points over the prior year.

Primarily due to the expected improvement in the club level business and the improved mix of customers for the lane venture operation.

Although SG and a expenses decreased year over year, SG and a expense as a percent of sales increased slightly due to deleverage of fixed costs from lower sales volumes partially offset by cost reductions from implementing our restructuring plan.

Wholesale backlog at the quarter end was $21.8 million as compared to $18.5 million at the end of both the third quarter of 2024 and the end of fiscal 2023.

Now moving on to our resale retail store operations, net sales decreased $4.8 million or 8% from the prior year period.

As Rob said written sales, the value of sales orders taken but not delivered declined 0.6% compared to the prior year period.

Gross margin for the quarter was essentially flat as improved inline margins were offset by lower margins on clearance goods.

As Rob mentioned, we've been aggressively working through unproductive inventory which was part of our restructuring plan.

Although SGNA expenses decreased year over year again, SGNA expense as a percentage of sales increased slightly due to deleverage of fixed costs from lower sales volumes partially offset by cost reductions from implementing our restructuring plan.

Retail backlog at the end of the fourth quarter was $37.1 million compared to $33.3 million at the end of the third quarter and $30.9 million at the end of fiscal 2023 as Rob mentioned, Noah Home has been closed and it was closed by the end of the fourth quarter, but we recorded a $2.6 million tax benefit for a capital loss associated with the cumulative investment in Noah Home.

As capital losses can only be deducted to the extent of capital gains.

We will be able to file an amended return for 2022 and use that loss against the large gain that we recorded in 2022 on the sale of zenith logistics and recapture.

Part of the cash paid for that year.

Let's cover the balance sheet and capital allocation.

We generated $6.4 million of operating cash flow in the fourth quarter.

We ended the quarter with $59.9 million in cash and short term investments with no outstanding debt.

As Rob discussed, we've made significant progress on the restructuring plan over the back half of the year.

Although savings to date have been slightly above $1 million expected savings in 2025 compared to 2024 should be between seven and $8 million.

As mentioned in last quarter's report, we reduced our capital outlay in the fourth quarter and closed the fiscal 2024 with capital spend to $5.2 million.

The majority of the spending was on retail store openings and remodels fiscal 2025 we have projected a range of capital investment between $8 million and $12 million.

This will be dedicated primarily to existing store remodels and the potential store openings that Rob previously mentioned, as well as investments in technology.

We continue to pay our quarterly dividend and repurchase shares.

Opportunistically, we spent $4.9 million dividends and $1.4 million share buybacks during 2024.

Our goal is to provide good returns to Bassett shareholders.

Our financial condition remains solid and provides us with a platform to service all of our obligations.

Now, we'll open up the line for questions.

Gigi, please provide instructions to do so.

(Operator Instructions)

Our first question comes from the line of Anthony Lebiedzinski from Sidoti & Company.

Good morning, everyone and thanks for taking the questions, you know.

So first, great to see Vassard returning to profitability and maintaining a strong balance sheet.

I know you touched on the written sales.

So good to see that also, relatively improving.

Just curious as to what you guys have seen, I guess since the election, I guess we've heard from some other companies seeing relatively trends.

Also wondering if you could comment on what you've seen thus far.

The first two months of the, your new fiscal year as far as just overall, whether it's written sales or just overall, trends in the business that you're seeing, that would be great to get an update on that.

Okay, Anthony, good morning.

This is Rob.

So as we pointed out, it seemed like we got a, a, a brief period of euphoria around Black Friday, as we mentioned.

And that was, of course, right after the election since that time, we would say we've kind of settled back down to where we were to a certain extent we owned, owned.

And now I qualify that by saying that last year in our fiscal calendar was six, it was a six week December and this year was a five week.

So we had one less we to deal with, but, we were up mid single digits in December and we, we're, that's kind of the trend that we're seeing.

I'm talking about at retail and So when I say where we were slightly better, but we're not seeing a sense of euphoria out there at the moment, but, but, but a little better.

Little better.

Sounds good.

Certainly.

So you highlighted Basset Design Studios.

Can you give us an update as to like how many of those you have in place now?

And what is your expectation if you have if you have one for as far as number of those design studios that you plan to have by the end of fiscal '25.

Well, we now we are around 43 or four of those things.

It changes from day to day, of course, as we get the report in from the field, H1, I don't want to say how many we're going to have a year end, but, you think about it nine months, we've been opening about five per month.

And I'm not sure we're going to be able to continue that pace, but we are getting a lot of interest in this program and we expect it to grow significantly in terms of the amount of dealers that we have in 2025.

Got you.

Okay.

And then, you, you've talked about, the true custom upholstery program you guys have had, it sounds like you guys have been certainly recognized for those efforts based on your comment about the furniture for today.

Now, is this something you plan to highlight more in terms of your marketing messaging, whether it's like you said, I think direct Mail you'll do more of or anything else that you think that you plan to do to, to highlight that.

I would say in conjunction with the custom studio, Anthony, we were definitely, we've done some trade advertising, which we haven't done in a long time.

And I think, there's a community of dealers out there and a lot of them think we are a store company and that we don't maybe not interested in their business, let's say, and you know, we're only in about half the States with stores.

And so we think there's a lot of opportunity to communicate just how strong this custom upholstery is, which has been a Hallmark of our retail concept for a number of years.

So yes, we will be continuing to highlight our competencies on true custom in the stores as always, but we're also going to be a little more aggressive out there in the field and our dedicated distribution opportunities.

Got you.

And then my last question before I pass it on to others.

So obviously, the gross margin was impressive in Q4.

I know you mentioned that you expect that to moderate a bit because of pricing.

That being said, when housing does recover at some point, how should we think about potential gross margins in the future?

Well, we're, we're answering the question from almost an all time high.

I think so.

I think I don't see them climbing significantly beyond where we are.

Even if housing comes back, we want, we still want to offer value and we think we can leverage that, that volume to lower the SG&A and have better operating margins.

That's, that's really the plan.

We are very focused now given the environment for two years on offering a good value to our customers.

We think we have, but we really want to start communicating that.

So I think the gross margin is, is kind of going to stay in this neighborhood if I had to guess.

That makes a lot of sense.

Well, thank you very much and best of luck.

Thanks for having me.

(Operator Instructions)

Brian Gordon from Water Tower research.

Hey guys, it's Mike Morin from Water Tower.

How are you?

Hey, Mike.

Hey, we're.

Doing great.

Thank you.

Hey, just a little more color on the margin commentary.

You talked about a step back, I guess as we go forward this year, can you just give us a hint on what that degree might look like?

Ask that one more time.

What Mike?

Yeah, margins obviously were very impressive, but you talked about maybe taking a step back.

Right.

Right.

I mean.

It kind of get a sense of what that might look like.

Yeah, I, I'd say again, as we alluded to, we think we're going to get a little bit more aggressive in, well, two things get, get more aggressive on, pricing related to retail or in our retail stores as well as making sure that we're moving through clearance goods as quickly as we need to be moving them through.

As Rob has said to us many times, inventory does not get, get more valuable as it sits in warehouses.

So we just want to make sure that we're moving that through.

Now, that's not going to be those together are not going to be that much pressure on the margins.

But we do, we are proud of the fact that we did have what we consider to be a record margin, but just not comfortable to say that that's going to be sustainable and particularly with those added pressures on the margin.

But again, it's not going to be a, we don't see it as a drastic shift of any kind.

I would add Mike that it's similar to Anthony's question.

We don't see this trend continuing to rise necessarily and that that's by design.

And although I think as Mike said, we're going to moderate it, I think slightly, it's not, we're not talking about a huge decline in margin, but we don't see it this trend, we've been on continuing this year, but we don't, we don't want it to drop much either.

So it's, we're just setting expectations really.

That's right.

No, understood.

Thank you.

And then I guess just on the natural disasters between the hurricanes and the wildfires, any impact in the business.

You know, the North Carolina Hurrian back in September was cause and effect.

I mean, we had, we had to close our operations down for a couple of days, a few days there in the hickory area.

Also, we have a very strong independent dealer base in that area in North Carolina.

That's a very strong and it affected other areas too.

South Carolina, et cetera.

So a lot of our dealers were, were affected by that and that and that hurt our incoming business as far as the California fire tragedy.

We did have one store out there that had to shut down for a few days, but I wouldn't say that it caused a whole lot of upheaval to our operations.

Thank you.

At this time, I would now like to turn the conference back over to Rob Spellman, Chairman and CEO for closing remarks.

Thank you, Gigi and thank everyone for your interest in ba and for your questions.

We know that our decisions to right size.

Our cost structure put us on the road to improve profitability.

We delivered that in the fourth quarter.

We're optimistic that our growth, driving initiatives will deliver for customers and shareholders this year, we're excited about our new collections, strengthening our dedicated distribution programs and reaching more consumers through our e-commerce site and price value messaging.

Thank you very much and have a great day.

This concludes today's conference call.

Thank you for participating.

You may now disconnect.