Bassett Furniture Industries, Inc. (Nasdaq: BSET) announced today its results of operations for its second quarter ended May 30, 2020.
Net loss for the second quarter of 2020 was $20.4 million or $2.04 per diluted share as compared to net income of $0.4 million or $0.04 per diluted share for the prior year quarter.
“Our March – May quarter exposed us to the full effects of the pandemic related shutdown of the U.S. economy,” commented Rob Spilman, Chairman and CEO. “We now know what our business looks like when our factories and stores are forced to close for the better part of a reporting period. I am personally very proud of the tremendous effort and positive attitude put forth by our associates under the most trying of circumstances. We have significantly reduced our cost structure to align with expected lower levels of revenue, although we are not sure what that level will be for the remainder of 2020. Our goal is to continue to implement the structural changes to our business model that are currently underway to return Bassett to profitability in 2021.”
“After the initial few weeks of coming to grips with the depth of the crisis and making the necessary adjustments, we did have the opportunity to look inward and begin to make structural improvements to our model,” Spilman said. “We instituted a ‘virtual appointment’ program in late March, whereby consumers digitally engage with our designers and transact without physically visiting a store. 96 percent of our design appointments were of the virtual variety in the month of April. And, in June, when most of our stores had been re-opened, 21 percent of our appointments were virtual. Adding this new form of engagement is one of the many lasting changes that will come out of the 2020 pandemic. Furthermore, our traditional e-commerce business increased by 97 percent during the quarter and represented 9 percent of our total retail volume. We have admittedly not developed e-commerce to the extent that will be required in the future but the forced shutdown of our store network has propelled us in that direction with increased intensity.”
“The shutdown has also forced us to re-examine the productivity of every one of our stores,” said Spilman. “As we have previously communicated, store traffic has been declining for three years and the effect on our retail economic model has become increasingly challenging. This is not to say that we do not believe in the future of brick and mortar Bassett stores – we wholeheartedly do. However, we believe that on a market-by-market basis, there will be fewer stores in the future and that the remaining locations will require new thinking to provide the consistent productivity that we seek. Along these lines, our retail management team spent a great deal of time in the quarter architecting a new retail staffing model that includes fewer designers, less administrative staff, and a smaller field management organization. We will continue to integrate technology into the sales process to allow us to do more with less. After thorough review during the quarter, we decided to not renew the lease or outright close three additional stores over the next nine months, which would leave us with 63 Corporate stores. We will continue to evaluate store-by-store performance as we wrestle with the ‘right’ store count in the markets in which we compete at retail. Finally, we have been negotiating with our fleet of landlords to discuss our point of view on paying rent on stores that are subject to prolonged government shutdown and on the future of retail rent structures in general in light of the seismic shift in shopping behavior already underway prior to the pandemic, only to see it accelerate tremendously over the past four months.”
“We are now faced with another unforeseen circumstance as the sales that we have generated since mid-May have far exceeded our post re-opening forecast,” Spilman said. “Although store traffic has been down, digital interaction and store close ratios have been at record levels, resulting in written sales for June that were essentially flat to 2019 levels with fewer stores in the fleet. Also, sales have been surprisingly strong to our independent dealers outside of the Bassett store network. While encouraging, given the economic turmoil that the pandemic has created, we are uncertain as to our ability to continue to sell at the current pace for the remainder of 2020. Nevertheless, our retail backlogs are now at record highs and we are concerned about our short term ability to return our wholesale production and shipping to the levels that are necessary to properly service our customers. Although we have gone to great lengths and expense to maintain the safest workplace environments possible while rigidly adhering to every jurisdictional protocol, we continue to confront COVID cases amongst our employee base. We have also found it difficult to return to desired staffing levels, particularly in our upholstery manufacturing plants. All of this has kept our shipping in June at about 70 percent of last year’s rate. While we are working overtime to step up the pace, we acknowledge that reaching the necessary production goals will take time.”
“Once again, the new realities of the COVID crisis are forcing us to think differently about many aspects of our business,” Spilman said. “The migration to digital brand research and compressed transaction cycles have caused us to comprehensively evaluate all of our American made custom products. While our Custom Upholstery, Custom Dining, and Bench Made programs continue to be our most successful offerings, they are not conducive to web transactions; most of these items must be purchased in a store. Furthermore, we offer many upholstery trim options, fabrics, finishes that have low rates of sale and that make web navigation more difficult for the consumer. Consequently, we have decided to begin to methodically re-design each one of these important programs over the next several months. Our intent is to continue to offer the consumer custom options that will help them personalize their home but do so in an edited fashion that will provide a better web experience in the research phase and will also allow the purchase to be made either on the web or in the store. First up is our Custom Dining program that is almost 20 years in the making. We also plan to heavily emphasize our ‘Made in America’ story and utilize locally harvested and organic materials when possible. This will all take time but new products will begin to appear this fall and web work is underway. Part of our operating charges for the quarter are related to existing raw materials that will no longer be part of the mix and to the selloff of retail inventory that has become obsolete as a result of the new thinking. We are energized by the ability to offer a compelling assortment of custom products, sustainably ‘Made in America’ under the 118 year old Bassett brand.”
“There is no doubt that we have been wounded by the pandemic,” said Spilman. “Cash receipts in the first six weeks of the crisis were off by 70 percent. We took drastic measures to protect the Company, including laying off or furloughing over 50 percent of our associates, which was devastating. On the shareholder front, our stock price has been hammered and we have suspended the payment of the dividend that our Board of Directors approved in mid-March, the week before COVID-19 erupted across the nation. Almost four months later, we continue to have associates contract the virus and several states that are particularly strong for our business are dealing with a resurgence of COVID-19. Despite all of this, I am once again proud of the Bassett team and the sacrifices that many have made for the long term health of the Company during these very trying times. And I believe that these efforts, our new programs, our progress in digital commerce, and the recent return to a more normalized sales trend underscore the inherent strength of our brand and our people and will serve as a platform to successfully propel Bassett into what will undoubtedly be a very different post-COVID new world.”