Q2 2024 Bassett Furniture Industries Inc Earnings Call
Hello and thank you for standing by and welcome to Bassett Furniture Industries Q2 2024 earnings call.
Speaker Change: At this time, all participants are in a listen-only mode.
Speaker Change: After the speaker's presentation, there will be a question and answer session.
Speaker Change: To ask a question during this session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again.
Speaker Change: I would now like to turn the call over to Mike Daniel, CFO of Bassett Furniture. Sir, you may begin.
Speaker Change: Thank you, Tawanda, and welcome to Bassett Furniture's earnings call for the second quarter ended June 1, 2024. Joining me today is our Chairman and Chief Executive Officer, Rob Spillman, Jr.
Speaker Change: We issued our news release yesterday after the market closed and it's available on our website We have updated our reporting format with a fresh look that we believe provides an efficient and easy comparison of important metrics compared to the prior year's second quarter
Speaker Change: We are offering today's conference call to provide additional information about our business, including the restructuring plan we announced in the release.
Speaker Change: We will open the call for a Q&A session after our remarks.
Speaker Change: In addition, we will post the transcript of the call on our investor site within 48 hours of this call.
Speaker Change: We believe this process will help enhance how we share our quarterly results with you.
Speaker Change: and we welcome your feedback.
Speaker Change: During today's call, certain statements may be considered forward-looking and inherently involve risk and uncertainties.
Speaker Change: that could cause actual results to differ materially from management's present view.
Speaker Change: These statements are made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995.
Speaker Change: The company cannot guarantee the accuracy of any forecast or estimate, nor does it undertake any obligation to update such forward-looking statements.
Speaker Change: For more information, including important cautionary notes, please see the company's annual report on Form 10-K for the fiscal year ended November 25, 2023.
Speaker Change: Other filings with the SEC describing risks related to our business are available on our corporate website.
Speaker Change: Now, I'll turn it over to Rob for comments about our second quarter. Rob?
Rob Spillman: Thank you, Mike. Good morning, everyone, and thank you for joining us today.
Rob Spillman: The macroeconomic pressure currently exerted on the furniture industry continued in the second quarter.
Rob Spillman: Elevated home prices, relatively high mortgage rates.
Rob Spillman: and General Inflationary Tension remain persistent.
Rob Spillman: We also know from our own customer data that many are spending more on experiences than they are on their homes.
Rob Spillman: a reversal from what we saw during COVID.
Rob Spillman: Revenue in both our wholesale and retail segments was down, with greater pressure on our retail business due to the higher level of associated fixed costs.
Rob Spillman: Geographically, sales were stronger in areas where housing is hotter. Specifically,
Rob Spillman: the South 8th and across to Texas.
Rob Spillman: Excluding the $2.7 million in additional inventory valuation charges that we levied,
Rob Spillman: We were pleased with the strong consolidated gross margin.
Rob Spillman: that we recorded in the second quarter coming in at 55.7 percent compared to last year's 53.6 percent.
Rob Spillman: Although inventories have dropped by 28.6 billion or 33% since the end of fiscal 2022, we believe that we can run an even leaner business in the future.
Rob Spillman: because certain elements of our assortment are not productively generating our expected sales velocity.
Rob Spillman: Accordingly, this quarter, we elected to record higher reserves on items in anticipation
Rob Spillman: of the sell-off of more discontinued products over the course of the next couple quarters.
Rob Spillman: Our average retail ticket was $3,960.
Rob Spillman: up 9% from last year.
Rob Spillman: Design makeover projects comprise 43% of total retail sales, down slightly from last year.
Rob Spillman: In the current economic environment that I discussed earlier, the big holiday sales events carry even more weight.
Rob Spillman: We are pleased that our three-week Memorial Day promotion slightly exceeded last year's written business total.
Rob Spillman: Additions to our online product catalog.
Rob Spillman: Ongoing website optimizations.
Rob Spillman: and stronger promotional messaging proved to successfully drive consumer engagement during the key holiday period.
Rob Spillman: Particularly notable over the Memorial Day selling event was the success of the addition of leather to our true custom upholstery program.
Rob Spillman: Also, the recently introduced Origins Dining Program.
Rob Spillman: drove new sales as we re-entered the everyday dining category with product designed for kitchen or breakfast areas of the home.
Rob Spillman: On the wholesale side, we were excited about our showing at the High Point Furniture Show in April for two reasons.
Rob Spillman: First, the showroom debut of our Bassett Design Studio concept.
Rob Spillman: spotlighting our True Custom Upholstery Program.
Rob Spillman: and second
Rob Spillman: The Strategic Outreach to the Interior Design Community
Rob Spillman: to our selling space located in the inner hall area of the International Market Center.
Rob Spillman: We were pleased that we made contact with over 400 interior designers and design firms.
Rob Spillman: and we expect this will yield results well into next year.
Rob Spillman: In our news release yesterday, we reported that we are executing a restructuring strategy, effective immediately.
Rob Spillman: while we are going through a down period for the industry.
Rob Spillman: We are setting the table for the inevitable rebound in consumer purchases for the home.
Rob Spillman: This plan is designed to grow our business.
Rob Spillman: and to get the most out of our revenue and our working capital to drive profitability.
Rob Spillman: There are five key points to the plan. Number one,
Rob Spillman: drive organic growth through Bassett branded retail locations, omni-channel capabilities, and enhanced customization positioning to expand our dedicated distribution footprint.
Rob Spillman: Number two, rationalize U.S. wood manufacturing from two locations.
Rob Spillman: and to one primary location supported by a small satellite operation.
Rob Spillman: 3. Optimize Inventory and Drop Unproductive Lines
Rob Spillman: 4. Improve our overall cost structure and invest capital in refurbishment of current corporate retail locations.
Rob Spillman: And number five, close the NOAA Home e-commerce business.
Rob Spillman: We believe that the depths of our custom furniture manufacturing capabilities
Rob Spillman: And our quick response, made in America model, makes us unique in the industry.
Rob Spillman: with our network of company owned and licensed stores and our organization of highly trained design consultants.
Rob Spillman: We are leveraging people and technology for customer acquisition.
Rob Spillman: Although we are exploring three new markets for store locations.
Rob Spillman: We do not plan any further openings this year.
Rob Spillman: Capital investments are targeted for refurbishment of existing corporate locations.
Rob Spillman: Our approach is well-suited to offer personalized solutions to the interior design community to better serve their clients, and we are excited about showcasing our long-proven,
Rob Spillman: True Custom Upholstery Offering and the new Bassett Design Studio format introduced earlier this year.
Rob Spillman: Many in the industry now refer to offering more than one fabric on a frame as custom upholstery.
Rob Spillman: Our true custom program truly represents what custom upholstery really is. A choice of frame length, arm, back and face styles, cushion options, multiple fabric and leather options, etc.
Rob Spillman: Designed for better independent furniture retailers, the 1,000 square foot concept is off to a great start. Recall in April , in our first quarter report, we had signed 17 new locations.
Rob Spillman: and through May we are up to 30.
Rob Spillman: for a modest investment in fixtures and displays.
Rob Spillman: Our customers received a quick response setup that Bassett is recognized for, and they are giving us very positive feedback.
Rob Spillman: They're happy with the margins and the fact that they can carry lower inventory.
Rob Spillman: We are targeting to have 50 dealers in the fold by year-end.
Rob Spillman: toward our ultimate goal of at least 100 locations.
Rob Spillman: Because we believe we can manufacture the same amount of U.S. made wood furniture that we are currently providing more efficiently and cost-effectively.
Rob Spillman: We are reconfiguring our domestic wood manufacturing footprint.
Rob Spillman: This action is underway and resulted in a charge of $1.4 million.
Rob Spillman: for the second quarter.
Rob Spillman: Our goal is to lower our cost structure.
Rob Spillman: We have completed the initial phase of our retail warehouse consolidation that resulted in the closing of three warehouses during the quarter.
Rob Spillman: We also plan to move out of a major wholesale distribution center at the end of the third quarter that will result in significant savings.
Rob Spillman: It could result in an additional charge of up to $1 billion to be taken into third quarter.
Rob Spillman: We made the decision to close Noah Home, the mid-priced e-commerce furniture retailer headquartered in Canada, with operations in Canada, Singapore, and New Zealand.
Rob Spillman: The US and the UK
Rob Spillman: Despite providing NOAA consistently with the working capital that was needed, starting in 2022, they were not able to generate sales growth.
Rob Spillman: As a result, we did not feel that additional funding of the operation was in Bassett's best interest.
Rob Spillman: and have made the decision to wind down their operation.
Rob Spillman: by the end of the fiscal year.
Rob Spillman: Our capital allocation strategy remains to focus on investments in our business, like those I've outlined, and to deliver returns to shareholders through dividends and share repurchase.
Rob Spillman: We also announced on Tuesday that the Bassett Board of Directors
Rob Spillman: approved an 11% increase in our quarterly dividends.
Rob Spillman: We're proud to increase our dividend and this is a sign of confidence in our growth potential and cash flow.
Rob Spillman: Our company has a long history, 122 years and counting.
Rob Spillman: of Weathering Economic Cycles.
Rob Spillman: from Housing to Inflation.
Rob Spillman: We believe that our restructuring plan, backed by our strong financial position and consistent cash dividend, will grow revenue, reduce costs, and strengthen operating margins.
Rob Spillman: As we implement this plan, we expect the back half of 2024 will be a reset for our business.
Rob Spillman: 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.
Speaker Change: Now, I'll turn things over to Mike for more details on our financials.
Mike Daniel: Thanks, Rob. In my commentary, the comparisons I will discuss will be the second quarter of fiscal 2024 compared to the second quarter of fiscal 2023 unless otherwise noted.
Mike Daniel: Total revenues decreased $17.1 million or 17%.
Mike Daniel: Consolidated gross margins were comparable to the prior year at 52.5 versus 52.6.
Mike Daniel: Adjusted for the additional and unusual inventory reserves that I'll discuss shortly, consolidated gross margins were 55.7 versus 53.6.
Mike Daniel: We have a consolidated operating loss of $8.5 million as compared to operating profit of $2.5 million for the second quarter of 2023.
Speaker Change: Included in the current quarter were several significant and unusual expenses due to the restructuring plan Rob previously enumerated, including
Speaker Change: $2.9 million of asset impairment charges associated with retail store tenant improvements and lease right-of-use assets for underperforming stores and warehouse consolidation.
Speaker Change: 1.8 million of asset impairment charges and 500,000 of inventory valuation charges.
Speaker Change: associated with the wind-down of Noah Home Inc.
Speaker Change: 700,000 of Asset Impairment Charges and 700,000 of Inventory Valuation Charges.
Speaker Change: Associated with the consolidation of our domestic wood manufacturing operations.
Speaker Change: And finally, $1.5 million of additional inventory valuation charges in both our wholesale and retail operations in anticipation of the sell-off of more discontinued product over the course of the next couple of quarters.
Speaker Change: As a result of the restructuring plan and the charges taken, we expect to realize annual cost savings of between $5.5 million and $6.5 million starting with fiscal 2025.
Speaker Change: Now I will provide information regarding our wholesale operations.
Speaker Change: Net sales decreased 9.2 million or 15% from the prior year period, due primarily to a 19% decrease in shipments to the open market.
Speaker Change: A 16% decrease in shipments to our retail store network.
Speaker Change: partially offset by a 2% increase in Lane Venture shipments.
Speaker Change: Gross margins increased 110 basis points over the prior year, primarily due to the expected improvement in the club level leather business.
Speaker Change: As this product line is internationally sourced with extended lead times, we received significant amounts of inventory during the second and third quarters of 2022.
Speaker Change: Just as product demand was weakening due to the market downturn in home furnishings.
Speaker Change: Also, the ocean freight costs associated with the majority of the product received were at significantly higher costs than we are currently being realized on current product receipts.
Speaker Change: In addition, we realize a favorable adjustment in our warranty and returns reserve due to improved diligence and efficiency in handling claims.
Speaker Change: These increases were partially offset by $1.7 million of additional inventory valuation charges.
Speaker Change: Previously discussed, decreases in the gross margins for domestic upholstery and wood operations due to deleverage of fixed costs and labor inefficiencies due to the lower sales volumes.
Speaker Change: SG&A as a percentage of sales increased 170 basis points primarily due to reduced leverage of fixed costs from decreased sales.
Speaker Change: Now moving on to our Retail Store Operations.
Speaker Change: Net sales decreased $10.3 million or 17% from the prior year period.
Speaker Change: Written sales, the value of sales orders taken but not delivered.
Speaker Change: declined 2.5% from the second quarter of 2023.
Speaker Change: Gross margin was flat with the prior period because higher margins on in-line goods.
Speaker Change: We're all set by lower margins on clearance goods.
Speaker Change: In addition, we had $500,000 of increased inventory valuation charges previously discussed.
Speaker Change: due to the strategy to be more aggressive in selling clearance goods to better control inventory levels.
Speaker Change: SG&A expenses as a percentage of sales increased 570 basis points, again primarily due to decreased leverage of fixed costs from lower sales volumes.
Speaker Change: As Rob discussed, we have announced that we will be winding down the operations of NOAA Home Inc. As part of that, we recorded a $1.8 million charge to write off the previously recorded intangible asset for the trade name.
Speaker Change: and $500,000 of Inventory Valuation Reserves to prepare for an orderly sell-through of the inventory.
Speaker Change: Finally, let's turn to the balance sheet and capital allocation.
Speaker Change: We ended the quarter with $60.5 million in cash and short-term investments.
Speaker Change: We generated $5.8 million of operating cash, funding all of our capital expenditures, dividends, and share repurchases for the quarter.
Speaker Change: Given the current state of business, we have cut back our prior plans for capital expenditures. Now we plan to spend an additional $4-5 million over the back half of the year.
Speaker Change: with the majority of that spending on limited retail store remodels.
Speaker Change: We will also continue to buy back shares opportunistically as the share price warrants.
Speaker Change: Our financial condition remains solid and provides us with the platform to weather the current economic storm while executing our plans for generating sales growth.
Speaker Change: Now we will open up the line for questions. Tawanda, please provide instructions to do so.
Speaker Change: Thank you. Ladies and gentlemen, as a reminder to ask the question, please press star 11 on your telephone and then wait to hear your name announced.
Speaker Change: To withdraw your question, please press star 1 1 again. Please stand by while we compile the Q&A roster.
Speaker Change: Our first question comes from the line of Anthony Lebozinski with Sidoti. Your line is open.
Anthony Lebozinski: Good morning, gentlemen, and thank you for taking the questions.
Speaker Change: Can you hear me guys? Yeah, we got you.
Speaker Change: Thanks for hosting the call, and thanks for taking the questions. First, just a quick comment. Nice job maintaining a strong balance sheet, certainly given...
Speaker Change: the state of business nowadays. So, I guess, you know, first, when we look at the
Speaker Change: Components of the restructuring plan. Yeah, how should we think about the timing and the impact? If we could just kind of parse out the different components of the restructuring plan, what's kind of the low hanging fruit first, and then kind of like, you know, maybe walk us through the timeline as to the expected benefits.
Speaker Change: Why not?
Mike Daniel: Take a crack at it, Mike, and you fill in the blanks. Got it. Well, as we said,
Speaker Change: We'll start from the bottom and go up. So number five was the NOAA Home Business. And as Mike just mentioned, we had the intangible
Mike Daniel: goodwill on the on the balance sheet. And and so we've taken that hit. And also, some reserve for the remaining inventory that will be winding down over the course of the year. So
Mike Daniel: We think that all of that's baked into the reported numbers. There will be some severance that takes place over
Mike Daniel: primarily the third quarter. And, but we don't really think that's a material number that we we had a small amount of employees there. So, and we checked with, you know, those folks live in
Mike Daniel: Canada so we've we've had to
Mike Daniel: adhere to the set of laws that govern Canada in regard to
Mike Daniel: closing the operation. So anyway, for the most part, most of that's done is the point.
Mike Daniel: Moving up to number four the overall cost structure and at best capital and refurbishment of course that
Speaker Change: Again, as Mike mentioned, we...
Speaker Change: Some of this refurbishment is underway. We're actually, our Greensboro, North Carolina store is undergoing a refurbishment as we speak, and we plan to
Speaker Change: Take our Concord, North Carolina and Wilmington, Delaware store into that program as soon as we get the architectural.
Speaker Change: In terms of our overall cost structure, it's just kind of a macro look at what we're doing. There could potentially be some severance costs involved with that, but I don't think it would be, again,
Speaker Change: material number. So that's kind of been ongoing.
Speaker Change: The inventory, again, will be
Speaker Change: Hopefully dispositioned over the back half of the year, but we've basically taken that up front as well.
Speaker Change: So, um...
Speaker Change: There you have it as far as that's concerned. And again, the...
Speaker Change: The consolidation of the wood operation is also baked into the
Speaker Change: program, as already announced. I will say,
Speaker Change: And this could be in number four, or I'm not sure if it's number four or number one, but we do have this warehousing operation out in California that we mentioned that we are...
Speaker Change: Attempting to sublease, and we think that we...
Speaker Change: If we are successful in that, we could have a charge of up to a million dollars in the third quarter.
Speaker Change: We plan to be out of there by the end of the third quarter, in any event, so that's probably the most significant.
Speaker Change: that remains on the restructuring for the rest of the year. So, you know, we plan to.
Speaker Change: consummate all this, all these items by year end and
Anthony Lebozinski: Mike, you can correct me, but there's a severance that I mentioned, which is not really material in this looming warehouse charge. Now, am I leaving anything out on that? No, and Anthony, I think that the goal here is for 2025.
Anthony Lebozinski: To have all the savings baked in and
Speaker Change: Certainly we'll have some like on the consolidation of the wood furniture plants.
Speaker Change: We'll still have some cost involved and some inefficiencies in getting that together during the third quarter, but theoretically and hopefully the fourth quarter will be clean with that. But again, 2025.
Speaker Change: We do expect to realize $5.5 to $6.5 million.
Speaker Change: in 2025
Speaker Change: Sounds good. Okay. And then if we could just go back to the second quarter. So, I guess if we were to exclude the inventory write-down charge,
Speaker Change: You know, gross margin came in at a very strong, I believe 55.7%. So what do you attribute that to and how sustainable do you think that type of gross margin is?
Speaker Change: You know, on the retail side, we're doing a very good job. I think part of it, in that regard, part of that is pricing.
Speaker Change: That we have worked on for some time So I would say a more disciplined approach there also
Speaker Change: Mike mentioned in his remarks about the warranty reserve.
Speaker Change: You know, we...
Speaker Change: Our domestic furniture, a lot of which is solid wood.
Speaker Change: I would say we had somewhat of a perception issue sometimes with consumers because they would see a beautiful table inside a store and then the table that came out didn't exactly match it. And we would say, well...
Speaker Change: We can't control how God made the tree, you know, and there's nothing wrong with the table. A lot of that was perception, and we've really worked hard on that. It sounds trivial, but it's been kind of a big, big thing for us. And so our
Speaker Change: Our returns and claims have really gone down in the last six months.
Speaker Change: inventory issues that we mentioned.
Speaker Change: Last year, in the back half of 2022, and that has righted itself as we've moved through that inventory, and that has been a driver on the gross margin.
Speaker Change: Yes, we think that's sustainable. We don't know how much higher we can go than where we are because we want to be competitive in the marketplace as well, but we do think it's sustainable.
Speaker Change: That's great to hear. Obviously, the vast majority of your products are made domestically, but you do import some products like the club level. You also import some components. Now,
Speaker Change: I've heard from some companies talking about higher ocean freight costs. Some have put in freight charges. Can you comment on that? How should we think about that?
Speaker Change: We have contracted container rates, of course, like most folks do, and so far with us, it's been...
Speaker Change: a week to week kind of thing. Some weeks we'll get our containers we need at the contracted rate. So there's no adverse
Speaker Change: Some weeks were not, and the rates have definitely, the spot rates have definitely gone up.
Speaker Change: Excuse me, there.
Speaker Change: Shipping companies are playing games on all this again. Of course, there are some macro some big factors with the Suez Canal, etc we
Speaker Change: We're looking very hard at a surcharge.
Speaker Change: We have not enacted one yet, and we're discussing that as we speak. But, yes, there...
Speaker Change: If you can't get at the contracted rate, which you can't always get, we've seen these rates.
Speaker Change: certain cases. So it's kind of day in day out. There are a lot of factors behind all that, and I think most of the people on the call probably know about all that, but it is an issue.
Speaker Change: Hey Anthony, let me jump in real quick on what Rob was talking about on the reserves, because I know you're asking about modeling questions.
Speaker Change: I would say for the back half of the year, we might have
Speaker Change: Slightly lower margins.
Speaker Change: Because the mix of what we're trying to sell through, the things we took the reserves on, remember that only brings it up to a zero gross margin, if you will.
Speaker Change: So, there could be the back half of the ear a little bit less or lower margins.
Speaker Change: And then on a go-forward basis in 2025, again, we should be back to the margins that Rob's referring to.
Speaker Change: Thank you for that. And my last question before I pass it on to others. So, given your focus on true custom upholstery, do you plan to change your advertising messaging to better highlight this?
Speaker Change: We feel like we we talk about it a lot, but but but actually the the term
Speaker Change: true custom and it is new for us. And and we did this because, frankly, we got tired of seeing all these people talk about custom upholstery when they really in our mind don't make custom upholstery, they'll put a blue fabric on a
Speaker Change: so when a red fabric on the sofa and they'll call that
Speaker Change: Custom Upholstery. Well, in our mind, that's not when you're doing things by the inch and
Speaker Change: different cushions and bases and backs and and people really respond to this. This is this is this uh the sales of this have been good so
Speaker Change: I think, yes, we will...
Speaker Change: We will leverage that thinking into more...
Speaker Change: over messaging on what really comprises
Speaker Change: through custom upholstery versus the overworked term custom upholstery that we see in the industry today.
Speaker Change: Well, thank you gentlemen and the best of luck going forward.
Speaker Change: Thanks, Anthony. Thank you, Anthony.
Speaker Change: Thank you.
Speaker Change: Please stand by for our next question.
Speaker Change: Our next question comes from Alana Bugatch with Water Tower Research. Your line is open.
Alana Bugatch: Good morning, Rob. Good morning, Mike. And let me add my thanks for the call and the information and also for the filing of the queue this morning, which answered a lot of my questions.
Alana Bugatch: in terms of some of the detail and I want to also
Speaker Change: Just a comment, I've been doing this for a long time and I don't remember seeing a time, and it's not a pleasant time in the industry, where...
Speaker Change: You've seen a company address forthrightly its charges that it needed to take and its business and come up with a stronger balance sheet and at the same time raise a dividend. That's really remarkable and shows your tremendous confidence and commitment to your shareholders.
Speaker Change: I thank you for that and let me go.
Speaker Change: Let me go into some of my questions, you know, and I'm going to also ask about true custom because I think you're right you have
Speaker Change: some different features in your customer poster program that make it unique and really significantly different than others. And you've got you said, I think you said you have 30 new dealers since market 17 at market and 13 additional and you want to get the 50. How's the pipeline look?
Speaker Change: Well, we got one last week out in California and, you know, our guys are
Speaker Change: When I say our guys, I mean our sales management and our field representatives.
Speaker Change: That number that we included in the release, it said 50 by year end. We feel good about that, but we don't want to get too far ahead of ourselves. But this really is an inexpensive way for the retailer to take advantage of.
Speaker Change: of the breadth of our options, the technology that we provide, the best-in-class speed of delivery, all of these things that characterize the program.
Speaker Change: We've gotten to where now we're getting this thing down to a science, which this sounds like a little thing but it's kind of a big thing because in the end it in the past when we've done these programs the
Speaker Change: The point of purchase material and some of the fixturing and all that thing trickle in and then the furniture trickles in and all of this and we actually make the furniture faster than the fixture guys can make the fixtures. And so now we're, we're inventory and all this stuff, we're palletizing all the all the support material.
Speaker Change: And the furniture and all of that arrives on the same truck. And then our representative goes in there sets it up trains the sales force. And so you really have a great kickoff with this thing. And it's
Speaker Change: In a tough time, it's been exciting internally for our whole team to use this as a rallying cry to take our best program.
Speaker Change: and spread the word.
Speaker Change: And of the 30, are all of them, are some of them installed already, and if not, when will they be done? Yes, yes, yes. I would say the majority...
Speaker Change: I should know this, but I would say the majority of those guys are up and running, yes. And any early results in terms of Delta sales? Well, we get a report on that every Monday, and we have a...
Speaker Change: Yes, good results. This thing works. That's a good thing about it because really in our design centers and our stores for years this has been going on. And then also in our bigger gallery program, it's kind of the epicenter of that as well.
Speaker Change: Yes, we're getting good results.
Speaker Change: That's great. I mean, when I was in the retail business, this would have been a program that would have been a no-brainer.
Speaker Change: for a retail and so
Speaker Change: Whenever I could use your capital to do my sales, it was always a good idea. For the last several quarters, I've noticed that the change in orders at retail are significantly less bad than the change in deliveries.
Speaker Change: And the backlog now is up sequentially in the last quarter.
Speaker Change: Are we starting to see a point where we start to see positive orders at retail and maybe how did it progress during the second quarter? I know you said the Memorial Day was an important period.
Speaker Change: that would have some impact, but what were you seeing? Let two of us try to take a stab at this. I would say one thing that...
Speaker Change: and Mike can kind of walk you through it. I think,
Speaker Change: Well, definitely the backlog took a while to, I mean, the backlog got up to $100 million. I mean, it was huge. And now it's 20. So, you know, the one thing that
Speaker Change: I don't think J.D. Bassett in 1902 was contemplating this, but the way he set up the fiscal year, it just happens, the quarters end on the big holiday weekends.
Speaker Change: and so
Speaker Change: The first quarter ends at President's Day. The second quarter...
Speaker Change: in Memorial Day in the third quarter and at Labor Day. And so we get a kind of a boost because those are the big selling periods. And Mike can walk you through that. I think...
Speaker Change: One thing I do want to say is that, you know, kind of in the big picture...
Speaker Change: Our retail sales were down 2%, 2.5% I think, for the quarter, and our top line was down 17%. So, we're starting to finally...
Speaker Change: hit bottom here. And now we want to obviously spring off this, this number, but Memorial Day, we were, as I mentioned, in my remarks, we were up
Speaker Change: versus last year for the three-week period. And I will say, if I can say this, July 4th.
Speaker Change: Can I say this, Jack? The July 4th was a...
Speaker Change: versus last year, and it was a good event. So these kind of tentpole events are,
Speaker Change: have
Speaker Change: outsize significance in this environment than they've had in the past, at least for us.
Speaker Change: To tag along here, since you're comparing, that's 17% down compared to Q2 of last year.
Speaker Change: We were still selling through backlog, and you can see that if you go back to Q1 of 2023.
Speaker Change: Our retail backlog was $42 million.
Speaker Change: at Q2 of 23.
Speaker Change: The next quarter, it was down to $33 million, and it's been pretty consistent since then.
Speaker Change: So, I think that's a way of saying...
Speaker Change: It feels like we've hit the bottom.
Speaker Change: As we said, we were down 2.5% written for the quarter, but down 17% because we were selling really through the backlog. Yeah, that's the way the math works from the stuff you disclosed in the queue.
Speaker Change: So that's what I think. I mean, it looks like you're bouncing along the bottom here at this point in time because you've shrunk that delta now for the last couple of quarters.
Speaker Change: My next question is the math on the income statement in terms of the tax the tax shield is a 11% that I know you report gap and respect that
Speaker Change: You don't adjust. But we've got two significant items in this particular period that I think may have different tax treatments. The inventory valuation,
Speaker Change: Additional Inventory Evaluation Charge and Asset Write-downs. Can you kind of parse out what the consequences of those items are? Yeah, I'll take this one, Rob.
Speaker Change: Good So
Speaker Change: Two things, let me first say, the two charges associated with NOAA
Speaker Change: The Million 8 and the 500
Speaker Change: I take no tax benefit on that.
Speaker Change: so
Speaker Change: That's the first thing to consider. Then in terms of the other...
Speaker Change: There's really no difference in the tax treatment on the other restructuring charges and the
Speaker Change: and the inventory charges, it's just baked into the year-end rate. Now, given where we are, you know, with,
Speaker Change: our permanent differences.
Speaker Change: being in a loss, things, you're normal.
Speaker Change: What you would expect 25, 26...
Speaker Change: percent
Speaker Change: blended ready.
Speaker Change: It just doesn't all work out in that fashion, so I don't know if that...
Speaker Change: answers your question, but it certainly brings the map into better alignment. And the 2526 is assuming a 21 federal and then the balance between state and other kinds of
Speaker Change: Discrete items and so what would be what with the losses is it still in that 20 low 20s or mid 20s? Kind of range is that about where it works out
Speaker Change: You have to back out the losses associated with NOAA, which we don't give you.
Speaker Change: We don't give you the actual loss generated by NOAA. It's buried in the corporate and other sections. So you really can't do the math because we don't give you the numbers of the actual loss that's generated by NOAA.
Speaker Change: But if we take the 2.3 and take that out of the tax equation, it gets kind of the percentages to come somewhat more into alignment.
Speaker Change: Right, but then you'd also have to back out the losses from NOAA outside of the charges taken.
Speaker Change: Gotcha. Okay, well, we'll take a stab at it and...
Speaker Change: We'll see what commentary we can get on that at that point in time.
Speaker Change: on the benefit that you see next year in fiscal 25 of five and a half to six and a half.
Speaker Change: Does that come in ratively over the year? Does that come in quarter by quarter at the same level? Or do you see it build during the year?
Speaker Change: Well, the idea is that it would be starting...
Speaker Change: The 1st of December , which is our first day of the 2025 calendar, or fiscal year.
Speaker Change: Really, starting with the first quarter.
Speaker Change: Okay. All right.
Speaker Change: And a couple of other just quickies. I know that Noah didn't live up to expectations, but
Speaker Change: Hopefully there were some learnings in there that, Rob, you might want to chat about. Is there any residual that you can glean from NOAA in terms of sales domestically or even in Canada somehow with e-comm?
Speaker Change: Good question, I, you know...
Rob Spillman: One thing we learned is that pure play e-commerce and furniture is a tough business, that's for damn sure.
Rob Spillman: you know
Speaker Change: We put in a new website at Bassett last year. We talked about that quite a bit.
Speaker Change: Seeing some green shoots on that effort. I mean, we think we have a much better platform.
Speaker Change: navigation and all that. And we're starting to see some
Speaker Change: Some nice results. We're not anywhere near where we want to be on the e-commerce side, but that's good. And a couple of the NOAA folks have helped us with that.
Speaker Change: One, it's likely for a period of time, for sure, to remain in the mix, and he has quite a bit of
Speaker Change: experience and
Speaker Change: and e-commerce dating back before NOAA. So, yes,
Speaker Change: From that perspective
Speaker Change: We see some ongoing benefits.
Speaker Change: Also, potentially, and I don't know, we've explored and we haven't decided, but
Speaker Change: They did have a brand up there and sold furniture in Canada more than we sell. So, you know, could we go forward with...
Speaker Change: I know a site with Bassett product is an entry level.
Speaker Change: offering up there, maybe, but we're really...
Speaker Change: more focused on the balance sheet now, and they were requiring cash contributions from the mothership, and we did not see
Speaker Change: the value and continuing at that level. So we're still talking about what could happen down the future in the future in that regard.
Speaker Change: Okay, as I said, just a few more, these are more detailed. There's a difference between the $2.7 million valuation charge to inventory that you showed, I think that affected the income statement.
Speaker Change: in the gross margin and the $3.8 million showing on the cash flow is additional inventory valuation. What accounts for that difference?
Speaker Change: Well...
Speaker Change: So we take a charge every month.
Speaker Change: a regular charge to put stuff into our reserve. And that delta that you're referring to, you know, 2.7 versus 3.8,
Speaker Change: That's kind of a $500,000 a quarter run rate.
Speaker Change: You can kind of compare that to last year where we saved $2.5 million or $2,475,000.
Speaker Change: But within that $2,475,000 was another $1,000,000 extra charge. We didn't talk about it, at least we did talk about it, but we didn't give you the number last year and we didn't provide an adjusted gross margin last year.
Speaker Change: But in the press release you saw that back table that shows how we reconcile a million-dollar charge
Speaker Change: Normally it's $500,000.
Speaker Change: roughly a quarter and that's what for both years that's what the normal charge was. Yeah I don't think we normally see that that reserve additional charge.
Speaker Change: At least I have to get back in a little bit. On no basis you wouldn't have seen it because of the magnitude of what we just did in the inventory. We called it out and in addition to that was our normal.
Speaker Change: quarterly charge that we do to a guest inventory.
Speaker Change: I think we broke it out in 10K last year at the end of the year, but yeah, you're right, we don't normally break that out.
Speaker Change: We're in the quarters, yeah. That's what I would call it. And last for me is you, Rob, you talked about you're looking at some other sites and that would be exciting to see other markets for the retail. When do you think you'll make a decision? I know nothing for this year, but
Speaker Change: Can you talk a little bit about what the process is and when the decision might be made on that?
Rob Spillman: We've got some travel set in July to look at these sites.
Rob Spillman: It takes a long time to
Speaker Change: Once you make the decision to make these things happen, in some cases, depending on what the actual situation is,
Speaker Change: But, you know, I think that these would be decisions that we would be making.
Speaker Change: In the next 90 days I would...
Speaker Change: Surmise and Ann.
Speaker Change: something that would happen in 2025.
Speaker Change: As far as the timetable goes.
Speaker Change: Okay. Well, again, thank you for taking my questions. Thank you for the call, and best of luck in the second half of 24 and beyond.
Bud: Thanks, Bud. Thank you.
Bud: Thank you.
Speaker Change: Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back to...
Speaker Change: Thank you for closing remarks.
Speaker Change: Alrighty.
Speaker Change: Well, I'd just like to wrap it up by saying we appreciate the interest in Bassett and your questions.
Speaker Change: Third quarter is underway and the environment for home furnishings remains challenging.
Speaker Change: But as we said earlier, we've got a long history of weathering economic cycles and making the right decisions to remain.
Speaker Change: and industry leader. We're confident that through our restructuring plan we can continue to provide exceptional customer service with a leaner more efficient operation and that's that was the basis for the restructuring charges.
Speaker Change: and the 11% increase in our quarterly dividend that our Board of Directors
Speaker Change: Approved on Tuesday is a further indication of our focus on delivering additional shareholder value.
Speaker Change: Thank you for your time, and thank you, operator.
Speaker Change: You're welcome. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Speaker Change: www.BassettFurnitureIndustries.com www.BassettFurnitureIndustries.com