Bassett Furniture Inds. reported $117 million in sales for its second fiscal quarter, a 2.5% increase over the $114.1 million reported last year. Net income totaled $4.3 million, a 26% drop from the $5.8 million reported in the prior year second quarter.
Company Chairman and CEO Rob Spilman said that the company’s sales growth was generated by its acquisition of Lane Venture, while he described sales for the rest of the company as “virtually flat.” Net income fell partly due to last year's inclusion of a pre-tax gain of $3.3 million from the sale of an equity investment.
For the full six-month period, the company reported total sales revenue of $227.3 million, up 3.3%, while net income totaled $3.4 million, compared with $8.7 million in the first half of last year.
During the second quarter, Spilman said, the company opened two Bassett store locations, including a corporately own location in El Paso, Texas, and a third licensee-owned store in the San Diego market. He said for the remainder of the fiscal year, the company plans to open three to four new corporate locations and two licensee-owned stores. It also plans to re-position two more corporate stores and open its first clearance center.
In addition, Spilman noted, the company has made enhancements to its web site including a new sectional configurator and has added staff to “augment our digital marketing capabilities. … The foundational elements of our digital strategy are ongoing but necessary for us to effectively compete today and into the future. Part of our strategy involves the fusion of digital technology and our physical store environment which will initially culminate with the opening of our new Generation 3 stores in Texas this fall.”
Other highlights of the report are as follows:
Sales in Bassett’s 64 company owned stores, totaled $68.7 million during the second quarter, up 2.3% from the $67.1 million reported last year. The overall increase, the company said, was due to a $2.6 million increase in non-comparable store sales partially offset by a 1.8% decrease in comparable store sales.
Consolidated retail operating income for the quarter was $1.6 million, compared with $1.4 million for the second quarter of 2017. The 53 comparable stores generated operating income of $2.7 million for the quarter, or 4.4% of sales, compared with $2.8 million, or 4.5% of sales for the prior year quarter. Non comparable stores generated $8.6 million in sales with an operating loss of $1 million, compared with sales of $6 million and an operating loss of $1.4 million in the prior year quarter.
Net sales in the wholesale segment were $63.8 million in the second quarter, up 2.4% from $62.3 million in the second quarter of 2017. The increase, the company said, was driven by $3.3 million in sales from Lane Venture, which the company acquired in the first quarter of 2018. It was also partially offset by a 1.6% decrease in furniture shipments to the open market outside the Bassett store network, as well as a 3.8% decrease in furniture shipments to the Bassett store network.
Gross margins were 32.9% compared with 33.8% in the prior year quarter, which was due to lower margins in the Bassett Custom Upholstery operations resulting from continued higher material costs and the lower absorption of fixed costs from lower volumes. In June the company implemented targeted price increase in its custom upholstery line to help offset the cost increases. Meanwhile, operational efficiencies in the Bassett Custom Wood operations led to improved margins in this area. Operating income in the wholesale segment was $3 million, or $4.8% of sales compared with 4.8 million, or 7.7% of sales last year.
Revenue for its Zenith logistical services segment totaled $24.9 million, up 1.2% from $24.6 million in 2017. This was largely due to increased revenues from non-Bassett customers. Zenith’s operating expenses for the second quarter were $24.6 million, or 98.8% of revenue, compared to $23.8 million, or 96.8% of revenue for the second quarter of 2017. Operating profit, which totaled $300,000 compared to $800,000 last year, fell due to increased fleet insurance costs due to claims experience, higher fuel costs and inefficiencies in the final mile operation.
The company said it is also testing a new home delivery model for its Zenith division.
“We believe we can operate fewer delivery centers and maintain our industry-leading speed-to-home proposition for truly customized furniture more efficiently and more profitably,” Spilman noted. “Given the importance of these initiatives and the pending debut of our Generation 3 prototype, we plan to slow the pace of new corporate store openings once we enter 2019.”
In an overview regarding the quarter, Spilman said, “We continued to invest energy and capital into all facets of our vertically integrated model during the fiscal 2018 second quarter. As we navigate the competitive traditional brick and mortar marketplace and face the challenge of pure play e-commerce, we believe more than ever that our closed loop of proprietary product, a vibrant store and digital experience, and the end of transaction service provided by our logistics arm offers the consumer a unique home furnishings experience that builds customer loyalty and repeat business. To that end, we are broadening our product assortment, re-architecting our customer service paradigm, researching a new digital marketing template, and refining the capabilities of our middle mile and final mile delivery platform; all underway as we expand our store network.
“As previously communicated, these endeavors may prove detrimental to our short term financial performance as witnessed this past quarter. We are committed to the proper development of all elements of our strategy as we seek to further enhance Bassett’s position in today’s fluid retail environment.”