Bassett Furniture Industries, Incorporated (BSET) Q2 2026 Earnings Report, Transcript and Summary

Good day, and thank you for standing by. Welcome to the Bassett Furniture Industries Q2 26 Earnings Conference Call. At this time, all participants are in a-- After the speakers' presentation, there will be a question and answer session. You will need to press *1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press *1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, J. Michael Daniel, CFO. Sir? Please go ahead.

Thank you, Michelle, for the introduction. Welcome to Bassett Furniture Industries earnings call for the second quarter of fiscal 26. Which ended May 30. Joining me today is our chairman and CEO, Robert Spilman. We issued our news release and Form 10-Q yesterday after the market closed. And it is available on our website. After today's remarks, Robert and I will open for questions. We will also post the transcript of this call on Bassett Investor Relations website following the call. During this call, certain statements we make may be considered forward looking statements and inherently involve risks and uncertainties that could cause actual results to differ materially from management's present view. These statements are made pursuant to the safe harbor provision of the private Securities Litigation Reform Act of 2000. The company cannot guarantee the accuracy of any forecast or estimate. Nor does it undertake any obligation to update such forward-looking statements. Other filings with the SEC describing risks related to our business are available on our corporate website under the investors tab. Now I will turn things over to Rob. Robert?

All right. Thank you, Mike, and good morning, everyone. I will start with some insights on the second quarter. And Mike will get into more of the financial details. I will also discuss our strategic initiatives to drive further growth at Bassett. Operating profit on an adjusted basis improved in the second quarter on slightly lower consolidated revenue. As we move through the quarter, positive traffic during April and May contributed to retail written sales being up 9.5%. Our Memorial Day promotion was especially strong written sales up 14%,, and 4% more traffic than last year. We saw these trends continue into June, which is a good start for the third quarter. Wholesale orders were up 5.2% for the second quarter, but shipments were down 2% as the increase in written sales were back-end loaded. We also generated $7.4 million of cash from operations during the period. Our consolidated gross margins grew by 90 basis points for the quarter, primarily due to improvements in wholesale margins on slightly lower revenue. Despite significant cost cutting in recent quarters, our SG&A has remained stubbornly high. Part of this is the higher percentage of overall sales at corporate retail represents, with a structurally higher amount of SG&A compared to the traditional wholesale model. And we did have some unforeseen expenses run through such as fuel surcharges, that stem from the Iranian conflict. In any event, we are committed to improving our operating margin and our SG&A percentage is a major part of the picture. In keeping with last quarter's announced target, we remain focused on our business expenses by an additional $1.5 million to $2 million on an annual basis. Although we have seen recent forecast foretelling modestly better housing numbers in the second half of 26. We must generate higher sales in our existing store network and the environment in which we operate today. We are not simply waiting on things to get better. Obviously, higher average sales per store means greater leverage of our fixed costs. That is why the quarterly 9.5% written sales increase was particularly encouraging. That said, our retail gross margins fell by 120 basis points in the quarter, partially due to more aggressive pricing of our clearance inventory. Accordingly, we plan to raise retail gross margin in mid July. By 200 to 250 basis points. Our marketing organization has begun to consistently deliver greater efficiency on investment as our adjusted media mix drove more foot traffic to our stores for the first time since the COVID boom. We engaged a new agency last year, and their analytics platform is giving us better understanding of our customer. We have also begun to use artificial intelligence to further reach our customers on a more personalized basis. Augmenting the more precise digital strategy is our growing utilization of direct mail. Which we successfully reincorporated into the mix 18 months ago. We are excited about these results and believe that more fertile ground lies ahead due to our marketing efforts. We continue to benefit from the successful product introductions of 2025,. Both in upholstery and case goods. Several of these offerings have become top 5 items in their respective categories and offer a nice complement to our legacy custom programs that remain the hallmark of our assortment. At the April market in High Point, we had very positive response to our introduction of opening price point lines. Both in living room and bedroom. These collections will bolster our good, better, best strategy and will be available in best in stores and at independent dealers in advance of the important Labor Day selling events. Our second initiative is to generate growth from opening new corporate and licensed retail locations. On May 8, we opened a new 14 thousand square foot store in Cincinnati, which marks a return for Bassett to this important market. We spent almost 2 years researching the location negotiating terms with the landlord, and converting the space in a highly trafficked retail center to our specifications. Early indications of traffic and written sales are encouraging. In fact, on the wholesale side, we sell more products than 8 weeks in Cincinnati than we did all of last year. We will open a location of similar size and economics in Orlando in early October. In addition, just after the quarter ended, an existing open market dealer in Nashville, Tennessee converted an existing location into a new 12 thousand-square-foot Bassett home furnishing store. Currently, we have 59 corporate stores and 28 licensed stores in operation. We will also continue to evaluate opportunities to convert current licensed location to corporate stores as owners retire and exit the business. Third, we continue to invest in ecommerce for a fully integrated omnichannel experience. We are seeing a return on this investment as web traffic was up more than 3% in the quarter. Perhaps more importantly, written web sales were up by 40%, marking 7 of the last 8 quarters with increases exceeding 20%. Contributing to that performance was a 24% increase in average order value. Upholstery sales saw the greatest jump, aided by an updated fabric module that improves the customization process. This is part of an overall improvement to the user experience including a new navigation menu that makes it easier for customers to shop and find products. Finally, the national home delivery program that we launched last fall is contributing as we reach customers where we do not have stores and all the contiguous 48 states. Fourth, we plan to expand our overall wholesale business through several efforts. Outside the Bassett store network, we rely on 2 dedicated distribution concepts, Bassett Design Centers (the BDC) and Bassett Custom Studio (the BCS). Which represent well over half of our open market business. Combined orders for the quarter rose by 1.3%. Shipments fell by 4.5%. Behind these numbers, the BDC's contracted by 6.3% while the smaller footprint of the studio grew by 7.2%. Currently, we have 94 accounts on the books classified as BDCs generally consisting of 3 thousand to 5 thousand square feet of floor space to our products. The newer studio concept is a 1 thousand-foot little sister presentation of our true custom upholstery program. We opened 4 custom studios in the quarter bringing the fleet total to 64. We are auditing the results of both our Bassett partners and the less productive locations to drive higher levels of standardization and performance across both of our dedicated distribution concepts. Integrated into our initiative to grow wholesale is our expanded focus on increasing Bassett's share of the professional interior design channel. We have the breadth of assortment fabric line, custom capabilities, and the ability to upholster in a customer's own material, known as COM, that arms us with the product currency to effectively serve this disparate but growing channel. Our new High Point showroom location is more relevant to the design trade and will showcase all of these attributes in a much more forceful way than was accomplished in our prior location. We will also unveil a new product collaboration with an accomplished interior designer that we will begin to market later this summer. A natural extension of our wholesale outreach is our 6-month-old Bassett hospitality division. Although we must be patient with our progress in gaining acceptance from this somewhat insular community, we have written some orders with entities as varied as hospitals boutique hotels, and senior living communities. We have also recently quoted some large hospitality projects. This is a new business for us, and we are committed to learning the ropes and becoming a factor in this segment of the industry. This plan is our road map for growth. and improved performance. Our organization is energized by recent order trends, and we are focused on getting the job done. Mike, I will turn things over to you.

Thank you, Rob. In my commentary, the comparisons I will discuss will be the second quarter of fiscal 26 compared to the second quarter of fiscal 25. Unless otherwise noted. Total consolidated revenue was $83.8 million. A decrease of $500 thousand or 0.7%. This consisted of a $1.9 million or 6.3% decrease in sales to external wholesale customers partially offset by $1.3 million or 2.4% increase in retail sales from our company owned stores. Gross margin at 56.5 represented a 90 basis point increase when compared to the prior year. Primarily driven by higher margins in the wholesale business and partially offset by lower margins in the retail business. Selling, general, and administrative expenses, including new store-- excuse me, excluding new store preopening costs were 53.3% of sales, 60 basis points higher than the prior year. These preopening costs are related to our May opening in Cincinnati and include expenses related to our upcoming retail location in Orlando. Excluding $700 thousand of proceeds, from business interruption insurance recorded in the second quarter of 25 as a result of a cyber incident in fiscal 24, SG&A expenses as a percentage of sales, actually decreased 20 basis points as compared to 2025. Operating income was $2.2 million or 2.7% of sales, as compared to income of $2.5 million or 3% of sales in the prior period. Diluted earnings per share were $0.24 versus $0.22. Now I will cover more details on the wholesale operations, Net sales were $53.1 million. A 2% decrease compared to last year. This decrease was due to 5.5% less shipments to the open market. Partially offset by a 1% increase in lane venture shipments to wholesale customers. And a 0.8% increase in shipments to our retail store network. As previously discussed, we introduced the Lane Venture Outdoor brand to the Bassett Home Furnishing store stores during the first quarter of 26 and have included those shipments to the store network in the 0.8% increase for the retail stores. However, including those shipments in the total Lane Venture brand, shipments of that brand actually increased 18%. Gross margins increased 110 basis points from the prior year period, primarily due to improved efficiencies in our domestic upholstery and wood operations, coupled with improved pricing strategies in our import wood offerings. SG&A expenses as a percentage of sales increased 90 basis points compared with the prior year period. Primarily due to increased outbound freight expenses from higher fuel costs. Now moving on to the retail store operations. Net sales of $55.5 million represented $1.3 million increase over the prior year. Written sales, the value of sales orders taken but not delivered, increased 9.5%. Gross margin at 51.2% represented a decline of 120 basis points primarily due to lower margins on inline goods because the full effect of the mid January price increase was not realized for the entire quarter, coupled with lower margins on clearance goods. We continue to be more aggressive in cycling through returned goods and phased out floor samples. Total SG&A expenses, excluding new store preopening cost as a percentage of sales decreased 50 basis points from the prior year. Excluding $569 thousand of proceeds from business interruption insurance recorded in the second quarter of 25, SG&A expenses as a percentage of sales decreased 150 basis points as compared to 2025. This decrease was primarily due to lower health insurance and workers' compensation costs from better claim experience and improved efficiency in the warehouse and delivery operation. During the quarter, we incurred $473 thousand of new store preopening costs associated with the new stores in the Cincinnati Ohio market which opened late in the second quarter. And the Orlando, Florida market expected to open by the end of fiscal 26. Prior to opening a new store, we incur such expenses as rent, training costs, and other payroll related costs. These costs generally range from $200 thousand to $400 thousand per store, depending on the overall rent cost for the location and the period between the time when we take physical possession of the store space, and the time of the store opening. Now, I will address our liquidity position. Our liquidity remains solid with $53.9 million of cash and short-term investments. During the quarter, we generated $7.4 million of operating cash flow, which ultimately increased our cash and short term investments by $2.9 million during the quarter after taking into consideration our normal cash outflows for investing and financing activities. As we previously mentioned, Bassett opened 1 new store during the quarter and plans to open another new store by the end of the year. We have also begun construction of the tenant improvements for a new showroom in High Point that will be unveiled at the fall furniture market. As a result, we expect total capital expenditures to be between $10 million and $12 million for 2026, considerably more than the $4.5 million spent last year. opportunistically. We continue to pay our quarterly dividend and repurchase shares. We spent $1.7 million on dividends and $500 thousand on share buybacks in the quarter. We remain committed to delivering shareholder returns through dividends and when appropriate share buybacks. Now we will open up the line for questions. Michelle, please provide instructions to do so.

Thank you. As a reminder, to ask a question, please press *1. To withdraw your question, please press *1 again. 1 moment for our first question. And our first question is going to come from the line of Anthony Lebiedzinski with Sidoti. Your line is open. Please go ahead.

Thank you very much, and good morning, everyone. Thanks for taking the questions. So it is really nice to hear the positive trends in May and June. So just actually, just curious, you are seeing this momentum here. Wondering if you are seeing this across all your product categories, or is the strength in sales concentrated in your core upholstery segment. Just wondering if you could provide some more color on that.

Good morning, Anthony. This is Rob. Morning. I would I would say slightly more in upholstery. But you know, pretty good across the board in terms of the increase but slightly more momentum in the upholstery segment.

Gotcha. Okay. that is encouraging to hear. Okay.

And as far as, like, the this momentum, I know you talked about the changing some of your media partners. I think that is that is helped. But as far as, like, the, you know, the reason for this, I mean, is it the fact that you are, just being more effective with your new product introductions or better marketing? I mean, what would you say is, like, the core reasons for this, and how do you think about the, you know, the sustainability of these positive trends? Well, I think we have got some new folks in here. We have that have joined us over the last couple years. that is that is an important part of the equation. I think we are understanding our customer better. I think the analytics that a new agency is providing with us is making us more efficient. And our investment dollars in terms of reaching the consumer. it is it is really a combination of things, and we asked that quest that same question around the office quite a bit. What is doing it? But it is a combination of things. And we do feel that we have got some momentum in this area. And we pointed out as you just mentioned, that the quarter and the April, May and we have seen the same kind of thing in June. So I think we just stay on this track. Integrating AI into this is a big opportunity for us. That we just now gotten started with. But I think our formula is just improving.

Mhmm. that is great to hear. So as we look at the gross margin, you know, you pointed out to higher wholesale margin, lower retail margin. So, you know, given the various puts and takes, you know, relative to price increases and input costs and then, of-- Robert, you mentioned fuel surcharges. Yeah. How do we think about the growth margins going forward? I know you also mentioned the clearance activity at retail. So you know, as we look at know, either consolidated gross margins or you wanna separate those, I mean, how do we think about, you know, gross margins here on a go forward basis?

Well, I think we are at the level we are going to be. To a certain extent on the wholesale side. I think the retail side is where we have opportunity. Reference that we were going to increase our margins in July And we think the pricing model that we have in which stands that And you know, we obviously wanna be good stewards of our balance sheet, and we wanna move some of this clearance out more aggressively. And we did in the quarter, and that affected our margin. So if we if our original input margin is slightly higher than we have been operating under recently. I think you will see that consolidated gross margin bump up as a result of better retail margin.

Gotcha. Okay.

Believe just as you are thinking about modeling, just remember that the as we are talking about the pricing or the 200 to 250 basis points. that really will not show itself until the fourth quarter. So very little of that will actually hit in the third quarter. that is as you know, because we have got to make the furniture and then deliver.

Of course. Yeah. Yeah. Thanks for that. Okay. Gotcha. And then, lastly for me, before I pass it on to others. So, obviously, Bassett is a primarily a domestic manufacturer, but, you do have some imports. So just wondering as far as the Section 301 tariff refunds, did you see any of that, or do you expect any of that here in the coming months here? Just wondering if you could comment on that.

We have seen some so far And we think there will be more to come. We do not know the magnitude of it. Entirely yet. And then, of course, we have to work with our public accounts to figure out how this flows through. But, anyway, yes, we do expect to see some of that, and we have not we have not received definitive qualification on exactly the extent of it.

Right. Understood. Okay. Well, thank you very much, and best of luck.

Thank you, Mike and Anthony.

Thank you. And 1 moment for our next question. Great.

I think both are the best.

And our next question is gonna come from the line of Douglas Lane with Water Tower Research. Your line is open. Please go ahead.

Yes. Thank you, and good morning, everybody. Staying on the P&L, you mentioned on an adjusted basis, the SG&A down 20 basis points from last year. Are we now at a point where consolidated SG&A should be, lower year over year on a go forward basis? Or is there other puts and takes I am missing here?

Well, 1 thing to remember, and Robert, pointed this out as the mix could shift with how much is retail. Versus how much is wholesale open market wholesale. And that mix the more that is retail, the higher the SG&A number is, you know, just the dollars. However, we should be seeing and we pointed that out, $1.5 million to $2 million cost savings that will really start showing its head in the third quarter and the fourth quarter. So with all that said, you can figure out for our liquidity that is gonna put the SG&A. Okay.

That makes sense. So maybe on a segment basis, I should show some leverage on both segments, and then the mix will determine how that washes out on a consolidated basis. Is that a good way to look at it?

I think that is I think that is reasonable. Okay.

That makes sense. And then shifting to demand with the, the written orders News is good. The Memorial Day news was really good. Maybe explain how the 4% more traffic converted to a 14% increase in sales. what is driving that higher average ticket?

Well, you know, Douglas, we have we still have a lumpy model. Of and some of these jobs that we do are big. And I mean, we wrote a couple tickets over a $100 thousand this quarter. And so when you get those kind of things, it really pops up the average ticket. And it seemed like we got some big design jobs coming through disproportionately, maybe, from a historical basis at the end of the quarter. So that is that is what I would attribute that to.

And just remember, I mean, that traffic has been going down pretty consistently over the last I do not know, however many years. there is also the conversion rate that you have got to factor in there. We are doing a better job of what we do have converting.

And that is your question.

The next question. Okay. Can you talk a little bit about your the e commerce? it is it is you know, they have been big numbers, and they have been consistent. So help us understand what do you sell over ecommerce, specifically what kind of products And do you measure, or is there a way for you to measure how much of those customers also go into your showrooms and make purchases?

Well, we you know, historically, well, way back in the beginning of ecommerce, we were-- it was mostly a closeout vehicle, frankly. And then we began to sell more in line And that was primarily wood. Products and non custom wood product. But with some of these enhancements and the navigation that I referred to, we have begun to sell more upholstery and more custom upholstery on the website. than we have historically. So that Forgot what you were going to say? Targeted customer. I would say that is really what is been driving from a product point of view. A disproportionate amount of the increase Okay. And the second part of the question, I am trying to remember what was that.

Oh, it was just on do is there a way for you to measure if people that buy online also go into your showrooms and buy there?

Well, with our clientele platform, we basically can track all of that And Yes. We can we can see that. I mean, it occurs in the back office. Your percentage, Douglas, off the top of my head here, but generally speaking, our web customer is a massive customer. That also shops in the store. So it is really just part of a broader ecosystem is the way to look at it. Yes. that is that is exactly right. And that is exactly what we are trying to Yes. To grow. That makes sense.

Now I know we talked about new stores in Orlando in October, so we will have new store expenses I guess, throughout the remainder of the year. About that. Have you made any comments about store openings after Orlando?

Well, we have talked about domestic next year in Melville, New York, and that is a well, actually, be a trade out of a store that we are going to close in Garden City. That was a very-- And Westbury. that is it is it is got several names for the same place. So but, anyway, we call it Westbury, but others call it Garden. City. But, anyway, we are we are gonna move east on the on Long Island and slightly north to Belleville near the that is the Walt Whitman Mall there. A smaller location. a reasonably better store economics. Higher. Not-- and got it. that is what we have announced so far. And so that is a little bit different.

Will that have a new store cost called out, or will it just be sort of below the surface? With 1 store going away and another store opening?

Unfortunately, the way this account works, even though in most of these cases, we are we are not actually paying rent Yeah. We have to charge the rent when we get the keys to the empty shell. Alright. So that is that is kind of-- it is irritating, frankly. But that is what we have to do. So it is it is a noncash charge, but it does hit your earnings. And you do not really get relief from that, obviously, until you open the store. And then in our case, you have gotta wait another 30, 45 days to And to get any revenue because we have got to make the furniture and deliver So it is it is kind of a front end loaded bad guy just that we have to absorb into going to these big stores. And, you know, we think they are significant enough that we call it out. But if we do not And, Douglas, he likes to blame me for that. Yeah. Yeah. I can understand. Logic of it. that is my problem. I do not really get the logic. Anyway But, Douglas, to answer your question is a couple of things I wanna point out. So, yes, there will be new store preopening costs associated with Melville. The other piece to that where Robert was talking about, you do not ring the register for, you know, 1 to 2 months after you make after you start the store. I think we will have we may have some backlog coming over from the Garden City stores. We do not have that kind of that those losses that happened in the first couple of months of the opening. Now I want to point out for Cincinnati, While it opened in May, But the fact You know, we will not have any sales to ring the register until June and you kind of have to build up the backlog. So you are going to have a couple of months of losses associated with after it opens, because you are building up the backlog, if you will. Oh, I got it. So we are still gonna have Cincinnati here in the third quarter. At that 30 Yeah. You will still have some drag from Cincinnati.

Everyone picked up on it. Okay. And just finally on the new opening price point product you launched at the spring market, looks like you mentioned they will be in the stores Labor Day. Is there, an impact to margins from the opening price point? Or are you able to accommodate it at, you know, segment level margins?

You know, for the most part, we will be able to accommodate we will definitely be able to accommodate it on the retail side. We did price it slightly sharper on the wholesale side. But this is not anything new for us from the industry, really. it is something that you know, you need you need some unit throughput to cover your fixed expenses in these big factories. And that is what this is designed to do. And generally speaking, when we do that in a first successful in moving the units through, we like the answer at the end of the at the end of the day.

Okay. that is helpful. Thank you.

Thank you.

And I am showing no further questions at this time. And I would like to hand the conference back over to Robert Spillman, Chairman and CEO, for any further remarks.

Okay, Michelle. Thank you for giving us some of your time today, everyone, and I your interest in Bassett. We are excited about the changes we are making, and confident in our ability to deliver for customers and shareholders. We look forward to reporting again in October on the eve of the debut of our new High Point showroom on October 15, when we swing the doors for the first time. So have a wonderful holiday weekend on this special fourth of July.

This concludes today's conference call. Thank you for participating and you may now disconnect. Everyone have a great day.