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1QFY24 Disappointing but Not Surprising; EPS of ($0.14), down $0.30 Y/Y; Sales Fall 19.6%

Bassett’s 1QFY24 operating results disappointing, but not surprising. In its 2023 Annual Report, Bassett CEO Rob Spilman’s opening line was, “The other side of the COVID sales boom has proven to a rough ride for the home furnishings sector.” It remains challenging. Several untimely winter storms hit on important selling days, including the MLK holiday sale period. Moreover, comments from several other reporting companies noting the recent challenges underscore the recent malaise. Investors seem to have anticipated the sales and earnings miss. BSET has traded down since the beginning of 2024 (see page 2). Accordingly, Bassett’s 1QFY24 results compared negatively with 1QFY23 and our estimates. Figure 1 compares Bassett’s 1QFY24 results with 1QFY23 and our pre-report published estimates. Figure 2 drills down to Bassett’s operating segments, comparing 1QFY24 with 1QFY23 and our pre-report estimates. 1QFY24 consolidated fell $21.1 million Y/Y, or 19.6%, to $86.6 million. 1QFY24 EPS was ($0.14) versus $0.16 in 1QFY23, with SG&A dragging down results by $0.46, offset by $0.13 from improved gross margin. See Figures 1 and 2 for more details. 1QFY24 revenue also missed our $90.3 million estimate by $3.8 million ($2.0 million Retail and $1.8 million Wholesale). EPS missed our estimate by $0.14, with the SG&A drag accounting for more than the net miss, again offset by a better-than-forecast gross margin. Notably, 1QFY24 gross margin was a record high. The 1QFY24 SG&A expenditures, while responsible for the misses mathematically, were lower in total and in each segment versus the expense dollars booked in 1QFY23. Thus, too few sales are at the heart of this earnings miss. Retail furniture stores typically sport high fixed costs for rent, payroll, and other. Our math suggests that Bassett’s retail segment incurs variable SG&A of ~20% of sales and quarterly fixed SG&A of ~$20 million. Despite the noted actions to control costs in both segments, Bassett needs higher sales than posted in 1QFY24 at good margins to cover its retail segment’s quarterly fixed expenses and deliver good operating profits. We are cutting estimates. Our reduced updated estimates, reflecting the ongoing challenging sales environment, are now: (1) 2QFY24 EPS of ($0.10), down from $0.04; (2) 2QFY24 consolidated net revenue of $87.8 million, down from $90.3 million; (3) FY24 EPS of $0.11, down from $0.68; and (4) FY24 consolidated net revenue of $366.2 million, down from $380.6 million. Irrespective, we are modestly raising our FY25 estimates and introducing full-year estimates for FY26. BSET has been publicly owned and traded since the 1930s. Keeping to its long-term practice, Bassett does not issue formal guidance and does not hold public earnings conference calls. Irrespective, management is both accessible to investors and refreshingly candid when questioned about the state of the consumer and furniture market economy.