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2QFY24 Results Were Ugly; Revenue and EPS Miss; Management Initiates Five-Point Restructuring Plan; New WTR Estimates Crafted Cautiously

Herein, we analyze and discuss Bassett’s 2QFY24 earnings report. Management reported its results for the interim period that ended on June 1, 2024, on Wednesday after market close. It also conducted its “first-ever” management-sponsored and conducted earnings conference call on Thursday before market open, taking and answering analyst questions live. In this note, we also refresh our modeling assumptions and estimates. As we will discuss, we are attempting to be as conservative and cautious as possible. COVID and the aftermath period has been unkind and challenging to residential furniture and furnishings companies although the early effects didn’t suggest the extent to which those conditions might linger. First, the ugly results, 2QFY24 consolidated revenue of $83.4 million landed ~17% below the $100.5 million in 2QFY23. Bassett posted a GAAP net loss of $7.2 million, or $0.82 per share. Revenue missed our estimate by ~$4.4 million and the loss per share missed our $0.10 estimate by $0.72 and was $1.06 worse than the loss of $0.24 in 2QFY23. Significantly affecting the 2QFY24 results were several pre-tax, non-cash asset impairment charges, totaling more than $8.2 million. Acknowledging the difficult environment and underscoring its determination to adapt, management disclosed a five-point restructuring plan/strategy to “right-size” its cost structure and drive long-term revenue growth and enhanced profitability. Bassett’s Chairman and CEO commented that it expects the second half of fiscal 2024 to coincide with the reset of its business as it implements the plan. More on that plan in the following pages. As noted, our new estimates reflect our resetting our assumptions to be more conservative and cautious. Similarly, we are changing the form of showing the estimates herein to include both GAAP and non-GAAP, as adjusted by our analyses. Figure 1 attached shows our new and previous estimates for revenue, GAAP EPS, and non-GAAP EPS. Our new estimate for FY24 revenue falls to ~$340 million from $366 million and our non-GAAP EPS estimate is now ($0.71) versus $0.11. Bassett management does not issue or suggest revenue and earnings guidance. We’ll discuss our new and changed assumptions and rationale in more detail on the inside pages. Bassett, founded in 1902 and has been publicly traded since the 1930s, is a remarkable company. It has weathered many cycles but remains strong financially. Moreover, just before the 2QFY24 results release, its board increased the quarterly dividend by 11% to $0.22 per share, indicating its confidence in the future and its commitment to reward shareholders, even in tough times. We find it notable, as discussed in our Initiation of Coverage report that despite a “mixed-bag” trading history, Bassett shareholders enjoyed positive investment returns in most periods due to its commitment to the dividend.