Bassett Furniture Reports Double Digit Sales Increases

Furniture World News Desk on 7/6/2015

Bassett Furniture Industries, Inc. (BSET) announced its results of operations for its fiscal quarter ended May 30, 2015.

Fiscal 2015 Second Quarter Highlights

• Consolidated sales were $111.6 million for the second quarter of 2015 compared to $85.2 million for the second quarter of 2014, an increase of 31%. Excluding the sales from the acquisition of Zenith Freight Lines, LLC ("Zenith"), consolidated sales increased 17%.

• Operating income for the quarter, excluding the effects of $0.4 million in charges associated with management restructuring costs, was $7.2 million or 6.4% of sales as compared to $3.9 million or 4.6% of sales for the prior year quarter. Excluding the effects of Zenith, operating income would have been $6.2 million or 6.2% of sales.

• Wholesale sales were $66.7 million for the second quarter of 2015 compared to $56.2 million for the second quarter of 2014, an increase of 19%. Wholesale operating profit was $4.8 million or 7.2% of sales as compared to $4.3 million or 7.6% of sales for the prior year quarter.

• Company-owned store delivered sales increased 20%, including a comparable store sales increase of 17%, compared to the prior year quarter. Comparable store operating income was $2.1 million or 3.4% of sales for the current year quarter as compared to $0.1 million for the prior year quarter, a $2.0 million improvement. Total retail operating income was $2.0 million or 3.1% of sales for the quarter as compared to a loss of $0.7 million for the prior year quarter.

• Zenith, acquired in the first quarter of 2015, generated operating income of $1.0 million on sales of $22.0 million or 4.7% of sales.

• Received a $1.1 million distribution from U.S. Customs and Border Protection as part of the Continued Dumping and Subsidy Offset Act of 2000 ("CDSOA").

• Net income for the quarter increased to $4.5 million or $0.42 per diluted share as compared to $2.6 million or $0.24 per diluted share for the prior year. Excluding the CDSOA funds mentioned above, net income would have been $3.9 million or $0.36 per diluted share.

"We continued to improve the execution of our strategy in the second quarter as consolidated revenue increased by 31%", commented Robert H. Spilman, Jr. President and CEO. "Across the board, our business segments grew sales and increased profits. Propelled by our store network and independent dealers, wholesale sales grew by 19%. The 17% comparable store sales growth turned in by our corporate retail division marked the fourth consecutive quarter of double digit gains and the successful integration of our recently acquired Zenith Freight Lines, LLC significantly contributed to our operating results. In short, we managed our integrated business model at higher levels of efficiency producing operating income growth of 84% to $7.2 million (excluding $0.4 million of management restructuring charges) or 6.4% of sales. We will continue to seek to wring out further improvement in our operations as we enter the slower summer months prior to the historically strong fall selling season."

Wholesale Segment

Net sales for the wholesale segment were $66.7 million for the second quarter of 2015 as compared to $56.2 million for the second quarter of 2014, an increase of $10.5 million or 19%. This sales increase was driven by a 27% increase in shipments to the Bassett Home Furnishings store network and a 6.8% increase in open market shipments (outside the Bassett Home Furnishings store network). Gross margins for the wholesale segment decreased to 32.8% for the second quarter of 2015 as compared to 33.9% for the second quarter of 2014 caused largely by increased discounting of wood products as the Company is implementing a significant makeover of its imported wood furniture line. Wholesale SG&A increased $2.3 million to $17.1 million for the second quarter of 2015 as compared to $14.8 million for the second quarter of 2014. SG&A as a percentage of sales decreased to 25.6% as compared to 26.3% for the second quarter of 2014 primarily due to greater leverage of fixed costs from higher sales volumes. Operating income was $4.8 million or 7.2% of sales as compared to $4.3 million or 7.6% of sales in the prior year quarter.

"Our merchandising programs continue to resonate with consumers inside our stores and with our open market dealers", continued Spilman. "Our upholstery division performed at record levels of revenue and profitability during the quarter. The HGTV Design Studio at Bassett custom upholstery products remain the anchor of our assortment in Bassett Home Furnishings stores. We are currently negotiating an extension of our licensing agreement with HGTV and have plans to extend the reach of this successful effort to our best independent dealers this fall. We are excited about our HGTV Design Studio at Bassett Custom Sale that will be promoted this fall and will allow all of our participating dealers to advertise on national cable and the web simultaneously for the first time. On the wood side, retail sales of our recently introduced Bench Made collection have exceeded our internal plan and we intend to broaden the assortment this fall. Wood margins, however, were down from last year due to heavier discounting of discontinued products and higher container freight costs."

Retail Segment

Net sales for the 59 Company-owned Bassett Home Furnishings stores were $63.9 million for the second quarter of 2015 as compared to $53.3 million for the second quarter of 2014, an increase of $10.6 million or 20%. The increase was primarily due to a $9.0 million or 17% increase in comparable store sales coupled with a $1.6 million increase in non-comparable store sales primarily from 2 new stores opened in the last 15 months.

While the Company does not recognize sales until goods are delivered to the consumer, management tracks written sales (the retail dollar value of sales orders taken, rather than delivered) as a key store performance indicator. Written sales for comparable stores increased by 15% for the second quarter of 2015 as compared to the second quarter of 2014.

The consolidated retail operating profit for the second quarter of 2015 was $2.0 million as compared to a loss of $0.7 million for the second quarter of 2014, an increase of $2.7 million. The 57 comparable stores generated operating income of $2.0 million for the quarter, or 3.4% of sales, as compared to $0.1 million, or 0.1% of sales, for the prior year quarter. Gross margins for comparable stores were 49.8% for the second quarter of both 2015 and 2014. SG&A expenses for comparable stores increased $2.5 million to $28.1 million or 46.4% of sales as compared to 49.7% of sales for the second quarter of 2014. The decrease in SG&A as a percentage of sales is primarily due to greater leverage of fixed costs due to higher sales volumes for the comparable stores.

Losses associated with non-comparable stores were $0.1 million for the quarter as compared to $0.7 million for the prior year quarter. This decrease is primarily from $0.5 million of pre-opening costs recognized in the second quarter of 2014 as compared to less than $0.1 million for the current year quarter.

The Company plans to continue opening new stores, primarily in underpenetrated markets where it currently has stores. The Company and certain licensees are actively engaged in site selection and lease negotiations for several new stores. One new corporate store in Woodland Hills, California is expected to open during 2015 with another new store in Dulles, Virginia scheduled to open during the first half of fiscal 2016. The Company also expects two new licensee stores to open over the remainder of fiscal 2015. The Company completed store relocations in San Antonio and Southlake, Texas during the first quarter of 2015 and expects to relocate the Newport News, Virginia store during the first quarter of 2016. During the second quarter of 2015, the Company closed an underperforming store in Memphis, Tennessee which was announced in the first quarter of 2015.

"The strong sales produced by our corporate retail team resulted in a $2.0 million operating profit for the division, an increase of $2.7 million from a year earlier", said Spilman. "The majority of the improvement came from the leverage of SGA expenses from increased sales, although we did incur $0.7 million less in store opening costs due to fewer stores opening in the period. During the quarter we remodeled one of our Atlanta stores and another in Palm Beach, FL. We also began construction on a new location in an exciting new lifestyle center in Woodland Hills, CA that will open this September. Also, an existing Bassett licensee will open a new store in Livingston, NJ in August. Another significant development in the quarter was the extensive new product rollout that hit our floors prior to Memorial Day. Utilizing our sourcing, manufacturing, and logistics capabilities, we were able to deliver complete room settings to cohesively reset as much as 20% of our retail space. Although our sales have been robust as of late, we strive thttp://www.bassettfurniture.com./o keep our presentation crisp and to offer our spin on the relevant home furnishings trends of today. A product launch of this magnitude usually takes place prior to Labor Day, but we planned this accelerated launch over a year ago. Our next major effort will take place in December in preparation for our annual New Year's event."

About Bassett Furniture Industries, Inc.: Bassett Furniture Industries, Inc. (BSET), is a leading manufacturer and marketer of high quality, mid-priced home furnishings. With 92 company- and licensee-owned stores at the time of this release, 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 1,000 upholstery fabrics, free in-home design visits, and coordinated decorating accessories. Bassett is also growing its traditional wholesale business with more than 600 accounts on the open market, across the United States and internationally. For more information, visit the Company's website at bassettfurniture.com. (BSET-E)