Bassett(US:BSET)2024-10-10 12:57PART I - FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements This section presents the unaudited condensed consolidated financial statements for Bassett Furniture Industries, Incorporated for the periods ended August 31, 2024, and August 26, 2023 Condensed Consolidated Statements of Operations The company reported a net loss of $4.5 million for the quarter and $12.9 million for the nine months ended August 31, 2024, a significant decline from the previous year Consolidated Statements of Operations Highlights (Unaudited, In thousands) | Metric | Quarter Ended Aug 31, 2024 | Quarter Ended Aug 26, 2023 | Nine Months Ended Aug 31, 2024 | Nine Months Ended Aug 26, 2023 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $75,619 | $87,217 | $245,583 | $295,434 | | Gross profit | $40,093 | $45,044 | $131,720 | $155,074 | | Income (loss) from operations | $(6,357) | $(3,804) | $(17,176) | $1,378 | | Net income (loss) | $(4,505) | $(2,591) | $(12,899) | $930 | | Diluted earnings (loss) per share | $(0.52) | $(0.30) | $(1.48) | $0.11 | Condensed Consolidated Balance Sheets As of August 31, 2024, the company's total assets were $335.9 million, down from $370.4 million at November 25, 2023 Condensed Consolidated Balance Sheet Highlights (Unaudited, In thousands) | Account | August 31, 2024 | November 25, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $38,329 | $52,407 | | Inventories | $56,138 | $62,982 | | Total current assets | $137,542 | $157,954 | | Total assets | $335,862 | $370,424 | | Total current liabilities | $73,117 | $77,890 | | Total liabilities | $170,826 | $186,983 | | Total stockholders' equity | $165,036 | $183,441 | Condensed Consolidated Statements of Cash Flows For the nine months ended August 31, 2024, net cash used in operating activities was $2.3 million, a significant shift from the $10.2 million provided by operations in the prior-year period Cash Flow Summary (Unaudited, In thousands) | Activity | Nine Months Ended Aug 31, 2024 | Nine Months Ended Aug 26, 2023 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $(2,323) | $10,249 | | Net cash used in investing activities | $(5,629) | $(15,321) | | Net cash used in financing activities | $(6,132) | $(8,504) | | Change in cash and cash equivalents | $(14,078) | $(13,613) | | Cash and cash equivalents - end of period | $38,329 | $48,012 | Notes to Condensed Consolidated Financial Statements The notes provide crucial context to the financial statements, detailing accounting policies and specific events - The company is ceasing operations of its e-commerce furniture retailer, Noa Home, after concluding it was unlikely to achieve profitability. This resulted in impairment charges for long-lived assets374769 - Total non-cash asset impairment charges of $5.5 million were recognized in the first nine months of 2024. These charges were related to retail store assets ($2.9M), wholesale plant and equipment ($0.7M), and Noa Home's long-lived assets ($1.9M)37 - A charge of $1.24 million was recognized for the remaining minimum payments under a logistical services contract that the wholesale segment ceased utilizing37 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses a challenging quarter marked by decreased sales across both wholesale and retail segments, leading to a consolidated operating loss Overview and Strategic Initiatives Bassett operates as a retailer, manufacturer, and marketer of branded home furnishings, primarily through a network of 87 BHF stores and other wholesale channels - The company operates a network of 87 BHF stores as of August 31, 2024, using a blended strategy of Company-owned stores, licensed stores, and other wholesale channels66 - A new web platform was introduced in August 2023, which has led to increased customer engagement and a higher average order value for e-commerce sales68 - The company decided to cease operations of its Noa Home e-commerce business, acquired in late 2022, due to its unlikelihood of achieving profitability. This resulted in non-cash impairment charges of $2.4 million in Q2 202469 Cybersecurity Incident On July 10, 2024, the company detected and contained a cybersecurity incident that caused temporary disruptions to operations, including manufacturing and order fulfillment - A cybersecurity incident on July 10, 2024, caused temporary disruptions to manufacturing and order fulfillment7273 - The incident resulted in an estimated $1.0 to $2.0 million in lost sales. Direct costs included $98k in legal/remediation fees and $609k in wages for unproductive labor during the shutdown74 Consolidated Results of Operations Consolidated net sales for Q3 2024 fell 13.3% YoY to $75.6 million, while nine-month sales dropped 16.9% to $245.6 million, driven by declines in both wholesale and retail Consolidated Results Summary (In thousands) | Metric | Q3 2024 | Q3 2023 | Change (%) | YTD 2024 | YTD 2023 | Change (%) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Net sales | $75,619 | $87,217 | -13.3% | $245,583 | $295,434 | -16.9% | | Gross profit | $40,093 | $45,044 | -11.0% | $131,720 | $155,074 | -15.1% | | Gross Margin | 53.0% | 51.6% | +140 bps | 53.6% | 52.5% | +110 bps | | SG&A expenses | $45,210 | $48,848 | -7.4% | $142,141 | $154,709 | -8.1% | | Income (loss) from operations | $(6,357) | $(3,804) | -67.1% | $(17,176) | $1,378 | N/M | - The quarterly gross margin improvement was partially offset by $609k in unproductive labor costs from the cybersecurity incident; excluding this, the margin would have been 53.8%77 Segment Performance Both primary segments experienced sales declines Wholesale Segment Results (Q3 2024 vs Q3 2023, In thousands) | Metric | Q3 2024 | Q3 2023 | Change (%) | | :--- | :--- | :--- | :--- | | Net sales | $47,828 | $56,660 | -15.6% | | Gross profit | $14,681 | $17,124 | -14.3% | | Income from operations | $4,440 | $6,340 | -30.0% | - Wholesale sales decline was driven by a 22% decrease in shipments to the open market and a 13% decrease to the retail store network93 Retail Segment Results (Q3 2024 vs Q3 2023, In thousands) | Metric | Q3 2024 | Q3 2023 | Change (%) | | :--- | :--- | :--- | :--- | | Net sales | $47,256 | $52,264 | -9.6% | | Gross profit | $24,971 | $26,946 | -7.3% | | Income (loss) from operations | $(2,840) | $(3,036) | -6.5% | - Retail written sales (orders taken but not delivered) declined 4.8% in Q3 2024 compared to Q3 2023101 Liquidity and Capital Resources The company's cash position decreased by $14.1 million in the first nine months of 2024, ending the period with $56.2 million in cash, cash equivalents, and short-term investments - Cash and short-term investments totaled $56.2 million at August 31, 2024114 - For the first nine months of 2024, the company used cash for capital expenditures ($4.7M), dividends ($4.9M), and stock repurchases ($1.1M)113 - The company's availability under its $25 million credit facility is limited to an additional $2.2 million because it would not have met certain financial covenants had they been required to be tested31117 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company identifies several market risks, including foreign currency fluctuations related to its Noa Home investment, changes in the cost and availability of raw materials, and commodity price risk - The company is exposed to market risk from foreign currency changes (primarily Canadian dollar), raw material costs (wood, foam), diesel fuel prices, and the commercial real estate market124125 - Significant real estate exposure includes $24.3 million in owned retail properties and $90.1 million in right-of-use assets for leased locations, which are subject to impairment risk126 Item 4. Controls and Procedures Based on an evaluation by the principal executive and financial officers as of the end of the reporting period, the company concluded that its disclosure controls and procedures are effective - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the quarter127 PART II - OTHER INFORMATION Item 1. Legal Proceedings The company reported no material legal proceedings during the period - There are no material legal proceedings to report127 Item 1A. Risk Factors The company updated its risk factors to reflect material developments, specifically highlighting the risks associated with its extensive reliance on computer systems - Risk factors were updated to emphasize the company's reliance on computer systems and the potential for adverse effects from disruptions, such as the cybersecurity incident that occurred in July 2024128129 Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities During the three months ended August 31, 2024, the company repurchased a total of 46,843 shares of its common stock for approximately $633,000 at an average price of $13.51 per share Stock Repurchase Activity (Q3 2024) | Period | Total Shares Purchased | Average Price Paid | | :--- | :--- | :--- | | June 2 - July 6, 2024 | 21,472 | $13.97 | | July 7 - Aug 3, 2024 | 4,528 | $13.59 | | Aug 4 - Aug 31, 2024 | 20,843 | $13.24 | | Total | 46,843 | $13.51 | - As of August 31, 2024, $20.7 million remained available for share repurchases under the company's plan130 Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate governance documents, credit agreements, officer certifications, and interactive data files