HomeMost PopularInvestingBassett Furniture (BSET): A Closer Look at the Challenging Business Environment and...

Bassett Furniture (BSET): A Closer Look at the Challenging Business Environment and Earnings Slump

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Bassett Furniture Industries, Inc. (BSET) is currently facing a significantly slower business environment in 2023. As a leading home furnishings company, Bassett operates a network of stores offering free in-home design visits, coordinating accessories, and on-trend furniture styles. It also has a thriving wholesale business and a logistics division specializing in home furnishings.

A Bearish Scenario in Fiscal Third Quarter

In its latest earnings report for the fiscal third quarter of 2023, Bassett Furniture reported a loss of $0.30 per share, surpassing the Zacks Consensus estimate of a loss of $0.59 per share by a substantial margin. However, consolidated sales for the quarter declined by 26.1% to $87.2 million compared to $118 million in the same period a year ago. Moreover, wholesale sales and retail sales were down by 28.2% and 26.2%, respectively.

CEO Robert H. Spilman Jr. acknowledged the difficulties faced by the company in generating new business during the period between Memorial Day and the start of the Labor Day promotion. He also mentioned a 4.6% decline in wholesale orders, indicating further challenges for the company.

Furthermore, Bassett Furniture has been dealing with excess inventory in its Club Level business. Although it has reduced the inventory from $22 million in August 2022 to slightly over $11 million, there is still room for improvement. Bassett aims to reduce the inventory to about $5 to $6 million to support its Club Level line adequately.

The retail segment of Bassett’s business has experienced significant changes, with a decline in revenue compared to the previous year. Gross margins remained comparable to 2022, but the decline in sales prevented the company from reducing its fixed and variable SG&A costs enough to maintain profitability.

Analyzing Analysts’ Bearish Stance and Earnings Outlook

Given the challenging industry conditions and the sharp drop in sales, analysts have become increasingly bearish on Bassett Furniture’s earnings for fiscal 2023. The Zacks Consensus estimate for fiscal 2023 has been revised down to $0.12 per share from $0.94 per share in the past 30 days, representing a decline of 95.6% compared to fiscal 2022 earnings of $2.70 per share. Similarly, the estimate for fiscal 2024 has been reduced to $1.31 per share from $1.75 per share.

Shares Underperforming Despite Dividend Increase

Bassett Furniture shares have not participated in the market rally of 2023, with a year-to-date decline of 12.5%. In contrast, the S&P 500 index has gained 10.7% during the same period. The stock currently trades at a high P/E ratio of 122x due to the significant decline in earnings estimates.

However, Bassett has displayed shareholder-friendly practices, such as a 12.5% increase in dividend payouts in July. The current dividend yield stands at 4.9%, and the company has returned $8.5 million to shareholders through dividends and buybacks year-to-date. Despite these efforts, investors may prefer to wait on the sidelines until the earnings outlook improves.

Key Takeaways: Challenges and Opportunities Ahead for Bassett Furniture

Bassett Furniture Industries is currently facing a difficult business environment, with a significant decline in sales and a bearish earnings outlook for fiscal 2023. The company has been working to reduce excess inventory and adapt to changing retail dynamics, including the launch of its new website. However, the challenges in the market and the economy create uncertainty for investors.

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Sources: Zacks Investment Research

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