Q4 2024 Bassett Furniture Industries Inc Earnings Call
Speaker Change: Good day and thank you for standing by. Welcome to Bassett Furniture Quarter 4 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session.
Speaker Change: Please see the company's annual report on Form 10-K for the fiscal year ending November 32024 to be filed next week.
Speaker Change: Other filings with the SEC, describing risks relating to our business are available on our corporate website.
Speaker Change: Now I'll turn it turn it over to Rob for comments about the fourth quarter Rob.
Rob: Thank you Mike.
Speaker Change: Everyone and thank you for joining us today.
Speaker Change: Our industry has long been tied to housing.
Speaker Change: Persistently sluggish sales.
Speaker Change: <unk> levels of housing inventory.
Speaker Change: And higher mortgage interest rates.
Speaker Change: Furniture sales lagged again in the fourth quarter.
Speaker Change: We took appropriate steps in 2024 to rightsize our business through a comprehensive restructuring plan that we announced in July.
Speaker Change: And we've been executing since then.
Speaker Change: We are pleased to have returned to profitability for this quarter.
Speaker Change: While the major components of our restructuring plan were complete at the end of November.
Speaker Change: We continue to evaluate opportunities for increasing efficiency, leveraging our cost structure and influencing our mindset to run a leaner business on an ongoing basis.
Speaker Change: With focus a significant amount of time on.
Speaker Change: Analyzing how we can run our business smarter, while we navigate the ongoing challenging housing environment.
Speaker Change: 1024 existing home sales were at the level they were at $19 95.
Speaker Change: 30 years ago.
Speaker Change: Our entire industry is in search of the elusive bottoming out of demand to enable better planning of our business.
Speaker Change: And if free forecast point to only a slight uptick in existing home sales for 2025.
Speaker Change: So we prepared our strategic plan to weather another year of tepid demand.
Speaker Change: Let me now turn to more detail on the results of the fourth quarter.
Speaker Change: While consolidated sales were down by 11% for the quarter.
Speaker Change: Britain retail sales decreased by only six tenths of 1%.
Speaker Change: We were pleased with our performance over the two week Black Friday promotion, where retail written sales were up 25, 1%.
Speaker Change: Over last year's promotion generating strong customer deposits.
Speaker Change: A better backlog to begin 2025.
Speaker Change: Wholesale orders were down by three 1% for the quarter.
Speaker Change: While wholesale orders received from corporate stores increased by one 8% for the period.
Speaker Change: The majority of this quarter's wholesale decline was attributed to the comparison to last year's aggressive inventory reduction program of club level.
Speaker Change: Total outdoor orders for this year's fourth quarter.
Speaker Change: Although representing only seven 6% of the wholesale segment. Nevertheless grew by an exciting 33%.
Speaker Change: As mentioned.
Speaker Change: The primary components of our restructuring plan have been implemented.
Speaker Change: We've proven we can run a leaner inventory.
Speaker Change: Was down more than $8 million on a consolidated basis at quarter end compared to last year.
Speaker Change: <unk> inventory was down $6 $5 million.
Speaker Change: Majority.
Speaker Change: Due to domestic wood plant consolidation.
Speaker Change: And club level.
Speaker Change: Sure.
Speaker Change: The benefits of right sizing, our operating cross cost began to surface in the fourth quarter.
Speaker Change: The remaining domestic wood manufacturing facility operated at a higher level of profitability in the period and we believe that further efficiency improvements we are putting in place.
Speaker Change: Yield better results in the future.
Speaker Change: The other losses from Noah home, our ecommerce business headquartered in Canada.
Speaker Change: Were reduced in the quarter and are a thing of the past because the business is now close as planned.
Speaker Change: Other gains and increase efficiency and improvements in our P&L have come from our warehouse consolidation.
Speaker Change: We've moved from 27 retail home delivery facilities to 'twenty two at year's end and have begun to see the associated financial benefits.
Speaker Change: Plan for further warehouse consolidation in 2025.
Speaker Change: No disruption to our customer benefits, while maintaining our 4% to six week delivery cycles.
Speaker Change: Yes.
Speaker Change: We've taken bold steps to drive newness and innovation into our business and our organization is energized energized about 2025.
Speaker Change: In addition to all of the cost cutting we embarked on an extensive review of our product line last year.
Speaker Change: And began significant makeover.
Speaker Change: Of our assortment.
Speaker Change: We plan three major whole home case, good collection to hit retail and.
Speaker Change: 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.
Speaker Change: Two additional collections and door in Newbury load debut this spring.
Speaker Change: All three of these collections cover bedroom dining occasion or entertainment options.
Speaker Change: Will be transformational in terms of our retail visual merchandising.
Speaker Change: The investments that we've made in Bassett furniture dot com to continue to change and benefit our business.
Speaker Change: Still a small percentage of our overall sales, but e-commerce revenue is growing.
Speaker Change: We've had seven consecutive months of sales increases.
Speaker Change: At the end of 2024.
Speaker Change: 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.
Speaker Change: And our in store designers are telling us that consumers are entering the store with specific items in mind based on their interaction.
Speaker Change: With the brand on our website.
Speaker Change: Fourth quarter, we have strengthened our marketing program and began communicating more about the price and value of our furniture.
Speaker Change: Early response indicates this messaging is resonating with customers and price value will be a focus for 2025.
Speaker Change: We reintroduced direct mail and our marketing mix in the fourth quarter and it delivered positive returns.
Speaker Change: We plan to use direct mail more frequently in 2025 to drive retail traffic, particularly for major events and new product launches like Copenhagen Andorra in Newbury.
Speaker Change: Yes.
Speaker Change: Approximately 80% of our wholesale revenue on an annual basis comes from one of our dedicated distribution concepts.
Speaker Change: <unk> is the basket custom studio, which requires the independent furniture retailers to dedicate a prescribed 1000 square foot footprint.
Speaker Change: Our through custom upholstery forever with no requirements of backup of inventory.
Speaker Change: Nine months into this program we are excited about the progress.
Speaker Change: With the many frame fabric and design options that true custom offers in a relatively small space.
Speaker Change: Taylor can generate a high rate of sales per square foot.
Speaker Change: With no inventory investment beyond the floor samples.
Speaker Change: Program is working and several dealers have already expanded the square footage dedicated to it.
Speaker Change: This is an expensive commitment to the <unk> brand has great potential and we plan to continue to increase the number of studios this year.
Speaker Change: I will say I want to mention.
Speaker Change: We're proud that our team feels and being named best custom upholstery company and the industry as a result of furniture today's annual reader survey.
Speaker Change: This recognition underscores the accomplishments of many <unk> teammates to earned the respect of those are really now the furniture business and it reinforces the quality reputation that customer's equate with our brand.
Speaker Change: I will not deny that 2024 in general.
Speaker Change: And the amp with the implementation.
Speaker Change: The restructuring was challenging.
Speaker Change: We made difficult decisions, but has it changed their mindset to run as a smaller company.
Speaker Change: At year end, we had 11% fewer associates than a year ago.
Speaker Change: Our priority is to continually review our operations to ensure that we are driving efficiency.
Speaker Change: As well as delivering innovation and newness for customers.
Speaker Change: Our advancing and remodeling some stores and we are negotiating leases for two others, which are expected to open in late 2025 or early 2026.
Speaker Change: We don't have a crystal ball and projections, but where the housing market or mortgage rates. This year will be.
Speaker Change: As I said earlier industry data points.
Speaker Change: Dissimilar transfer last year.
Speaker Change: A leaner operating model and new features to our growth plan, we believe <unk> is well positioned for the future.
Speaker Change: On January 16th we announced that our board approved a regularly regular quarterly dividend of <unk> 20 per share and we remain committed to shareholder returns through dividends and opportunistic share repurchases.
Speaker Change: Now I'll turn things back over to Mike for more details on our financials Mike.
Mike: Thanks, Rob.
Mike: 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.
Mike: For the fourth quarter total consolidated revenue declined $10 4 million or 11%, primarily due to a 14% decrease in wholesale sales.
Mike: And an eight 4% decrease in retail sales through our company owned stores.
Mike: <unk> gross margins increased 230 basis points due primarily to better margins in the wholesale segment from improved margins in our club level product.
Mike: Coupled with better margins in our domestic upholstery manufacturing operation.
Mike: 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.
Mike: We reported consolidated operating income of $900000 compared to a loss of $4 $5 million for the fourth quarter of 2023.
Mike: However, if you normalize the operating income for both 2024 and 2023 for the special charges.
Mike: Operating income would have been $2 $3 million or two 7% of sales.
Mike: As compared to $900000 or 9% of sales for 2023.
Mike: Now I'll provide information regarding our wholesale operations.
Mike: Net sales decreased $8 $3 million or 14% from the prior year period.
Mike: 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 <unk> venture.
Mike: Gross margin for the three months ended November 32024 increased 290 basis points over the prior year.
Mike: Primarily due to the expected improvement in the club level business and the improved mix of customers for the lane venture operation.
Mike: Although SG&A expenses decreased year over year.
Mike: SG&A expense as a percent of sales increased slightly.
Mike: Due to deleverage of fixed costs from lower sales volumes, partially offset by cost reductions from implementing our restructuring plan.
Mike: Sure.
Mike: Wholesale backlog at quarter end was $21 $8 million.
Mike: As compared to $18 $5 million at the end of both the third quarter of 2024 and the end of fiscal 2023.
Mike: Now moving on to our refill retail store operations net sales decreased $4 8 million or 8% from the prior year period.
Mike: As Rob said written sales the value of sales orders taken but not delivered.
Mike: Declined.
Mike: 6% compared to the prior year period.
Mike: Gross margin for the quarter was essentially flat as improved in line margins were offset by lower margins on clearance goods.
Mike: As Rob mentioned, we've been aggressively working through unproductive inventory, which was part of our restructuring plan.
Mike: Although SG&A expenses decreased year over year again, SG&A expense as a percentage of sales increased slightly.
Mike: Due to deleverage of fixed cost from lower sales volumes.
Mike: Partially offset by cost reductions from implementing our restructuring plan.
Mike: Retail backlog at the end of the fourth quarter was $37 $1 million.
Mike: Compared to $33 3 million at the end of the third quarter.
Mike: And $39 million at the end of fiscal 2023.
Mike: As Rob mentioned no home has been closed and it was closed by the end of the fourth quarter.
Mike: But we recorded a $2 $6 million tax benefit for a capital loss associated with the cumulative investment in no home.
Mike: 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 <unk> logistics.
Mike: And recapture part of the cash paid for that year.
Mike: Let's cover the balance sheet and capital allocation.
Mike: We generated $6 $4 million of operating cash flow in the fourth quarter.
Mike: We ended the quarter with $59 $9 million in cash and short term investments with no outstanding debt.
Mike: As Rob discussed we have made significant progress on the restructuring plan over the back half of the year.
Mike: All of those savings to date have been slightly above $1 million.
Mike: Expected savings in 2025, compared to 2024 should be between seven and $8 million.
Mike: As mentioned in last quarter's report, we reduced our capital outlay in the fourth quarter.
Mike: And close to fiscal 2024 with capital spend of $5 $2 million.
Mike: The majority of the spending was on retail store openings and Remodels.
Mike: Fiscal 2025, we have projected a range of capital investment between $8 million and $12 million.
Mike: This will be dedicated primarily to existing store remodels.
Mike: The potential store openings that Rob previously mentioned as well as investments in technology.
Mike: We continue to pay our quarterly quarterly dividend and repurchase shares opportunistically.
Mike: We spent $4 9 million on dividends and $1 4 million on share buybacks during 2024.
Mike: Our goal is to provide good returns to <unk> shareholders, our financial condition remains solid and provides us with a platform to serve service all of our obligations.
Gigi: Now we will open up the line for questions Gigi Please provide instructions to do so.
Gigi: Thank you as a reminder to ask a question. Please press star one one on your telephone.
Gigi: And wait for your name to be announced to withdraw your question. Please press star one one again, please standby, while we compile the Q&A roster.
Our first question comes from the line of Anthony <unk> from Sidoti <unk> Co LLC.
Gigi: Good morning, everyone.
Speaker Change: Thanks for taking the questions. So first great to see faster returning to profitability and maintaining a strong balance sheet.
Speaker Change: I know you touched on the written sales so good to see that also relatively improving.
Speaker Change: 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 better trends also wondering if you could.
Speaker Change: Comment on what you've seen thus for first two months of the new fiscal year, just overall, whether it's written sales or just overall.
Speaker Change: And the business that youre seeing that would be great to get an update on that.
Anthony: Okay, Anthony good morning.
Speaker Change: Rob.
So as we pointed out.
Speaker Change: It seemed like we got a.
Speaker Change: Hello.
Speaker Change: <unk> around Black Friday, as we mentioned and that was of course right after the election.
Speaker Change: Since that time, we would say we've kind of settled back down to where we were to a certain extent.
Speaker Change: We own it.
Speaker Change: And now I'll qualify that by saying that.
Speaker Change: Last year.
Speaker Change: Fiscal calendar.
Speaker Change: It was a six week December.
Speaker Change: And.
Speaker Change: This year was a five week.
Speaker Change: Had one less.
Speaker Change: Week to deal with.
Speaker Change: Yes.
Speaker Change: We were up mid single digits.
Speaker Change: In December and.
Speaker Change: That's kind of the trend that we're seeing I am talking about.
Speaker Change: At retail.
Speaker Change: And so.
Speaker Change: When I say, where we were slightly better but.
Speaker Change: We're not saying.
Speaker Change: <unk> sense of euphoria out there at the moment, but but but a little better.
Little better sounds good.
Speaker Change: Certainly.
Speaker Change: So you highlighted basket design studios can you give us an update as to how many of those you have in place now and what is your expectation.
Speaker Change: If you have one for as far as a number of those.
Speaker Change: Design Studios.
Speaker Change: Glad to have.
Speaker Change: By the end of fiscal 'twenty five.
Speaker Change: Well, we know we are.
Speaker Change: Around 43 or four of those things.
Speaker Change: It's changes from day to day of course, we get the report in from the field.
Speaker Change: And honestly.
Speaker Change: I don't want to say, how many we're going to have at year end, but.
Speaker Change: You think about it that much.
Speaker Change: Since we have been ever.
Speaker Change: Opening about five per month.
Speaker Change: 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.
Speaker Change: In terms of the.
Speaker Change: The amount of data that we have in 2025.
Speaker Change: Gotcha.
Speaker Change: Then.
Speaker Change: You've talked about.
Speaker Change: <unk> customer.
Speaker Change: Customer upholstery program you guys have had it sounds like you guys have been certainly recognize for those efforts.
Speaker Change: Based on your comment about the furniture today now is this something that you plan to highlight more in terms of your marketing messaging, whether it's like you said.
Speaker Change: Male youll do more of or anything else. So that you think.
Speaker Change: That you plan to do to to highlight that.
Speaker Change: I would say in conjunction with the.
Anthony: Cut some studio Anthony we will definitely.
Anthony: We've done some trade advertising, which we haven't done in a long time and I think.
Anthony: There is a community of dealers out there and a lot of them.
Anthony: We are a store company that way.
Anthony: Maybe not interested in their business, let's say.
Anthony: We're only in.
Anthony: About half the states with stores and said there we think there's a lot of opportunity to communicate just how strong. This custom upholstery is which has been a hallmark of of our retail concept or a number of years. So yes, we will be.
Anthony: Continuing to highlight.
Anthony: Our competencies zone through custom into stores as always but we also are going to be a little more aggressive out there in the field.
Anthony: And our dedicated distribution opportunities.
Anthony: Gotcha.
Anthony: And then.
Anthony: My last question before I pass it onto others. So obviously the gross margin was impressive in Q4 I know you mentioned that you expect that to moderate a bit.
Anthony: Because of pricing.
Anthony: That being said when housing does recover.
Anthony: Some point, how should we think about potential gross margins in the future.
Anthony: Okay.
Anthony: Well.
Anthony: Where.
Anthony: The answering the question from.
Anthony: Almost an all time high.
Anthony: Yes so.
Anthony: I think.
Anthony: I don't see them.
Anthony: Climbing significantly beyond where we are even if housing comes back we want to we still want to offer value and we think we can leverage.
Anthony: That volume to lower the SG&A in.
Anthony: They have better operating margins.
Anthony: The plan.
Anthony: Where.
Anthony: Barry.
Anthony: Our focus now.
Anthony: Given the environment for two years on <unk>.
Anthony: <unk> offering.
Anthony: Good value to our customers. We think we have but we really wanted to start communicating that so I'll take the gross margin is kind of going to stay in this neighborhood, if I had to guess.
Speaker Change: That makes a lot of sense well. Thank you very much and best of luck.
Anthony: Thanks Anthony.
Speaker Change: Thank you one moment for our next question.
Brian Gordon: Our next question comes from the line of Brian Gordon from Water Tower research.
Brian Gordon: Hey, guys, it's Mike Mccormack from water tower, how are you.
Speaker Change: Hey, Mike we're doing great. Thank you.
Speaker Change: Just little more color on the margin commentary you talked about the step back.
Speaker Change: I guess as we go forward. This year can you just give us.
Speaker Change: In terms of what that degree might look like.
Speaker Change: Ask that one more time.
Speaker Change: Mike.
Speaker Change: Gross margins, obviously were very impressive what you've talked about maybe taking a step back.
Right right.
Speaker Change: Just trying to get a sense of what that might look like.
Speaker Change: Yes, I would say again.
Speaker Change: As we alluded to we think we're going to get a little bit more aggressive well two things.
Speaker Change: Aggressive on.
Speaker Change: Pricing related to retail or in our retail stores as well as making sure that.
Speaker Change: We are moving through clearance goods.
Speaker Change: Quickly as we need to be.
Speaker Change: Moving them through us.
Speaker Change: As Rob has said to us many times.
Speaker Change: Inventory does not get.
Speaker Change: Get more valuable as it sits in 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.
Speaker Change: On the margins.
Speaker Change: But we do.
Speaker Change: We are proud of the fact that we did have what we consider to be a record margin.
Speaker Change: But.
Speaker Change: Just not comfortable to say that that's going to be sustainable and particularly with those.
Speaker Change: Added pressures on the margin.
Speaker Change: But again, it's not going to be.
Speaker Change: Yes.
Speaker Change: We don't see it as a drastic shift of any kind.
Speaker Change: Add Mike.
Speaker Change: Similar to Anthonys question, we don't see this trend continuing to rise necessarily and Thats by design and although I think.
Speaker Change: As Mike said, we're going to moderate it slightly.
Speaker Change: Slightly.
Speaker Change: We're not talking about a huge decline.
Speaker Change: And then in margin, but we.
Speaker Change: We don't see it.
Speaker Change: This trend we've been on.
Speaker Change: Continuing.
Speaker Change: This year, but we don't we don't want it to drop much either.
Speaker Change: We're just setting expectations really that's right.
Speaker Change: Understood. Thank you.
Speaker Change: And then I guess just on the natural disasters Hurricanes wildfires.
Speaker Change: Business.
Speaker Change: <unk>.
Speaker Change: The North Carolina.
Speaker Change: Yes.
Speaker Change: Hurricane.
Back in September.
Speaker Change: Was.
Speaker Change: Okay.
Speaker Change: Cause and effect.
Speaker Change: We had to close our operations down for.
Speaker Change: A couple of days a few days.
Speaker Change: They're in the Hickory area I'll say, we have a very strong independent dealer base.
Speaker Change: And.
Speaker Change: That area in North Carolina that is a very strong.
Speaker Change: It affected other areas, South Carolina et cetera, So a lot of our dealers, where we're affected by that and that.
Speaker Change: Hurt our incoming business as far as the California.
Speaker Change: Fire tragedy, we did have one ship to store out there.
Speaker Change: Had to shut down for a few days.
Speaker Change: But.
Speaker Change: I wouldn't say that it causes a whole lot of.
Speaker Change: Upheaval too.
Speaker Change: Our operations.
Speaker Change: Thank you yes.
Speaker Change: Thank you.
Speaker Change: At this time I would now like to turn the conference back over to Rob Spillman, Chairman and CEO for closing remarks.
Speaker Change: Thank you J J and thanks, everyone for your interest in <unk> and for your questions. We know that our decisions to rightsize our cost structure put us on the road to improve profitability, we delivered that in the fourth quarter, we are optimistic that our growth driving initiatives.
Speaker Change: We'll deliver for customers and shareholders this year.
Speaker Change: We're excited about our new collections strengthening our dedicated distribution programs.
Speaker Change: And reaching more consumers through our ecommerce site and price value messaging.
Speaker Change: Thank you very much and have a great day.
Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.
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