BASSETT FURNITURE INDUSTRIES, INCORPORATED (Amounts in thousands except share and per share data)
Impact of COVID-19
For a discussion of how COVID-19 has impacted and may continue to impact our business and financial condition, please refer to the discussion under the heading "Impact of the COVID-19 Pandemic and Related Supply Chain and Labor Issues Upon Our Business" in Part I, Item 1 of this report.
Overview
Bassett is a leading retailer, manufacturer and marketer of branded home
furnishings. Our products are sold primarily through a network of Company-owned
and licensee-owned branded stores under the Bassett Home Furnishings
("BHF") name, with additional distribution through other wholesale channels
including multi-line furniture stores, many of which feature Bassett galleries
or design centers. We also sell our products through our website at
www.bassettfurniture.com. We were founded in 1902 and incorporated under the
laws of Virginia in 1930. Our rich 120-year history has instilled the principles
of quality, value, and integrity in everything we do, while simultaneously
providing us with the expertise to respond to ever-changing consumer tastes and
meet the demands of a global economy.
With 91 BHF stores at November 26, 2022 , we have leveraged our strong brand name
in furniture into a network of Company-owned and licensed stores that focus on
providing consumers with a friendly and casual environment for buying furniture
and accessories. Our store program is designed to provide a single source home
furnishings retail store that provides a unique combination of stylish, quality
furniture and accessories with a high level of customer service. In order for
the Bassett brand to reach markets that cannot be effectively served by our
retail store network, we also distribute our products through other wholesale
channels including multi-line furniture stores, many of which feature Bassett
galleries or design centers. We use a network of over 30 independent sales
representatives who have stated geographical territories. These sales
representatives are compensated based on a standard commission rate. We believe
this blended strategy provides us the greatest ability to effectively distribute
our products throughout the United States and ultimately gain market share.
The BHF stores feature custom order furniture, free in-home or virtual design
visits ("home makeovers") and coordinated decorating accessories. Our
philosophy is based on building strong long-term relationships with each
customer. Sales people are referred to as "Design Consultants " and are trained
to evaluate customer needs and provide comprehensive solutions for their home
decor. Until a rigorous training and design certification program is completed,
Design Consultants are not authorized to perform in-home or virtual design
services for our customers.
During the second quarter of fiscal 2022, we opened our first regional
fulfillment center ("RFC") in Orlando, Florida where we are stocking our best
sellers for much quicker delivery. This adds an element of immediacy to our
proven platform of made to order custom furniture that has driven our strategy
for the past two decades. During the fourth quarter of 2022, we opened our
second RFC near Baltimore, Maryland . In December of 2022, we opened three more
RFCs in Conover, North Carolina , Grand Prairie, Texas and Riverside, California .
We plan to evaluate the performance of these five RFCs before considering any
additional locations.
In 2018, we added outdoor furniture to our offerings with the acquisition of the
Lane Venture brand. Our strategy is to distribute these products outside of our
BHF store network through a network of over 10 independent sales
representatives. Using Lane Venture as a platform, we developed the Bassett
Outdoor brand that is only marketed through the BHF store network. This allows
Bassett branded product to move from inside the home to outside the home to
capitalize on the growing trend of outdoor living.
We have factories in Newton, North Carolina that manufacture both stationary and
motion upholstered furniture for inside the home along with our outdoor
furniture offerings. We also have factories in Martinsville and Bassett,
Virginia that assemble and finish our custom bedroom and dining offerings. Late
in the third quarter of fiscal 2022, we purchased a facility which we had
formerly leased in Haleyville, Alabama where we manufacture aluminum frames for
our outdoor furniture. With the purchase, we also obtained two additional
buildings which will allow us to expand our footprint at that facility. Our
manufacturing team takes great pride in the breadth of its options, the
precision of its craftsmanship, and the speed of its manufacturing process.
In addition to the furniture that we manufacture domestically, we source most of
our formal bedroom and dining room furniture (casegoods) and certain leather
upholstery offerings from several foreign plants, primarily in Vietnam , Thailand
and China . Over 75% of the products we currently sell are manufactured in the
United States .
14-------------------------------------------------------------------------------- We consider our website to be the front door to our brand experience where customers can research our furniture and accessory offerings and subsequently buy online or engage with an in-store design consultant. Customer acquisition resulting from our digital outreach strategies has significantly increased our traffic to the website since 2019. The migration to digital brand research has caused us to comprehensively evaluate all of our American made custom products. While ourBench Made line of custom upholstery and custom bedroom and dining products continue to be our most successful offerings, most of these items must be purchased in a store as they are not conducive to web transactions due to the number of options available. Consequently, we will continue to methodically re-design each one of these important lines to best serve our customers online, in the store or wherever our customer might be. Our intent is to continue to offer the consumer custom options that will help them personalize their home but to do so in an edited fashion that will provide a better web experience in the research phase and will also allow the final purchase to be made either on the web or in the store. While we work to make it easier to purchase either in store or on-line, we will not compromise our in-store experience or the quality of our in-home makeover capabilities. We are engaged in a multi-year cross-functional digital transformation initiative with the first phase consisting of the examination and improvement of our underlying data management processes. During the second quarter of 2022, we implemented a comprehensive Product Information Management system which will allow us to enhance and standardize our product development and data management and governance processes. This will result in more consistent data that our merchandizing and sales teams can use in analyzing various product and sales trends in order to make better informed decisions. We are also in the process of implementing a new eCommerce platform that we plan to introduce in the second quarter of 2023. The new web platform will leverage world class features including enhanced customer research capabilities and streamlined navigation that we believe will result in increased web traffic and sales. We expect to spend approximately$2,000 on these efforts in 2023. During the fourth quarter of fiscal 2022 we acquired Noa Home for$5,878 cash plus contingent consideration of$1,375 (see Note 3 to the Consolidated Financial Statements for additional information regarding the acquisition). A mid-priced e-commerce furniture retailer headquartered inMontreal, Canada , Noa Home has operations inCanada ,Australia ,Singapore and theUnited Kingdom . With a lean staffing model, the Noa Home team has built an operational blueprint that has the potential for significant growth. We believe the acquisition will provide Bassett with a greater online presence and will allow us to attract more digitally native consumers. While still in the planning phase, we expect to introduce the Noa Home brand inthe United States during 2023.
Company-owned Retail Stores
As we continually monitor the performance of our Company-owned retail store locations, we may occasionally determine that it is necessary to close underperforming stores in certain markets. During the first quarter of fiscal 2022 we closed one retail store inOntario, California , and we closed our store inWichita, Kansas , during the third quarter of fiscal 2022. During the fourth quarter of fiscal 2022 we closed our store inFarmingdale, New York and consolidated its operations with our existing store in nearbyWestbury, New York . All of the above-mentioned closures occurred at or near the lease expirations.
During the second quarter of 2022, we acquired a 25,000 square foot store
property in
We also may occasionally identify opportunities to enhance our presence in existing markets by relocating existing stores to better locations within the same market. During the third quarter of fiscal 2022 we sold the store property of one of ourHouston, Texas locations for$8,217 , net of closing costs, which resulted in a gain of$4,595 . For tax purposes, the sale of theHouston store and the purchase of theTampa store will be treated as a 1031 exchange where the majority of the tax on the gain will be deferred. The store closure sale was completed early in the fourth quarter of fiscal 2022. We expect to open a new leased store in a more upscale shopping area in the vicinity of the closed store in the third quarter of 2023. During the fourth quarter of fiscal 2022 at the end of the lease term, we closed ourDallas, Texas store located at the intersection of McKinney and Knox streets. We plan to open a replacement store in the nearby iconicInwood Village shopping center during the first quarter of 2023.
As of
Sale of the Assets of
During the first quarter of 2022, we entered into a definitive agreement to sell substantially all of the assets of our wholly-owned subsidiary, Zenith, to J,J.B. Hunt for$86,939 in cash. OnFebruary 28, 2022 the transaction was completed with us receiving$85,521 after the payment of$418 in certain transaction costs and the funding of$1,000 held in escrow. The final purchase price was subject to a customary post-closing working capital adjustment, which was settled in the amount of$987 resulting in a pre-tax gain of$52,534 on this transaction. As a result of the sale, the operations of our former logistical services segment, which consisted entirely of the operations of Zenith, are presented in the accompanying condensed consolidated statements of income and in the following discussion as discontinued operations. 15 --------------------------------------------------------------------------------
Analysis of Continuing Operations
The following discussion provides an analysis of our results of operations and reasons for material changes therein for fiscal year 2022 as compared to fiscal year 2021. For an analysis of the fiscal year 2021 results as compared to fiscal year 2020, see "Analysis of Operations" in Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's 2021 Annual Report on Form 10-K, filed with theSEC onJanuary 31, 2022 . Net sales revenue, cost of furniture and accessories sold, selling, general and administrative ("SG&A") expense, gain on sale of real estate, other charges, and income from operations were as follows for the years endedNovember 26, 2022 ,November 27, 2021 andNovember 28, 2020 : Comparative Change 2022 vs 2022 2021 vs 2020 2022 2021 2020 Dollars Percent Dollars Percent Net sales of furniture and accessories$ 485,601 100.0 %$ 430,886 100.0 %$ 337,672 100.0 %$ 54,715 12.7 %$ 93,214 27.6 % Cost of furniture and accessories sold 237,262 48.9 % 209,799 48.7 % 163,567 48.4 % 27,463 13.1 % 46,232 28.3 % Gross profit 248,339 51.1 % 221,087 51.3 % 174,105 51.6 % 27,252 12.3 % 46,982 27.0 % SG&A 218,069 44.9 % 196,830 45.7 % 176,405 52.2 % 21,239 10.8 % 20,425 11.6 % Gain on sale of real estate 4,595 0.9 % - 0.0 % - 0.0 % 4,595 NM - NM
Asset impairments & other charges - 0.0 % - 0.0 % 15,205 4.5 % - NM (15,205 ) -100.0 % Income (loss) from continuing operations$ 34,865 7.2 %$ 24,257 5.6 %$ (17,505 ) -5.2 %$ 10,608 N/M$ 41,762 N/M
Our consolidated net sales by segment were as follows:
Comparative Change
2022 vs 2021 2021 vs 2020
2022 2021 2020 Dollars Percent Dollars Percent
Sales Revenue
Wholesale sales of
furniture and accessories $ 324,569 $ 295,329 $ 221,075 $ 29,240 9.9 % $ 74,254 33.6 %
Less: Sales to retail
segment (125,889 ) (112,270 ) (95,347 ) (13,619 ) 12.1 % (16,923 ) 17.7 %
Wholesale sales to
external customers 198,680 183,059 125,728 15,621 8.5 % 57,331 45.6 %
Retail sales of furniture
and accessories 286,921 247,827 211,944
39,094 15.8 % 35,883 16.9 %
Consolidated net sales of
furniture and accessories
Total sales revenue for the year endedNovember 26, 2022 , increased$54,715 or approximately 13% from the prior year period primarily due to increases in wholesale shipments to both the open market and the BHF store network, along with an approximately 16% increase in retail sales. Gross margins for the year endedNovember 26, 2022 , decreased 20 basis points from 2021 primarily due to rising raw material and inbound freight costs, including the impact of rising fuel prices, partially offset by greater fixed cost leverage from increased sales. While these rising costs have been somewhat mitigated by price increases implemented since the first quarter of 2021, the increase in order backlogs and order fulfillment times limited our ability to match revised pricing to manufacturing costs. Although no increases are currently being contemplated, we will continue to monitor our costs to determine if additional increases are warranted. SG&A expenses as a percentage of sales for year endedNovember 26, 2022 , decreased 80 basis points from 2021 primarily due to improved leverage of fixed costs through higher sales levels.
During fiscal 2022, we also recognized a gain of
Certain other items affecting comparability between fiscal 2022 and 2021 are discussed below in "Other Items Affecting Net Income".
16
--------------------------------------------------------------------------------Segment Information
We have strategically aligned our business into two reportable segments as defined in ASC 280, Segment Reporting, and as described below:
? Wholesale. The wholesale home furnishings segment is involved principally in
the design, manufacture, sourcing, sale and distribution of furniture products
to a network of Bassett stores (Company-owned and licensee-owned stores retail
stores) and independent furniture retailers. Our wholesale segment includes
our wood and upholstery operations as well as all corporate selling, general
and administrative expenses, including those corporate expenses related to
both Company- and licensee-owned stores. Our wholesale segment also includes
our holdings of short-term investments and retail real estate previously
leased as licensee stores. The earnings and costs associated with these assets
are included in other loss, net, in our consolidated statements of operations.
? Retail - Company-owned stores. Our retail segment consists of Company-owned
stores and includes the revenues, expenses, assets and liabilities and capital
expenditures directly related to these stores and the Company-owned
distribution network utilized to deliver products to our retail customers. The
retail segment also includes the operations and net assets of Noa Home since
the acquisition on September 2, 2022 .
Our former logistical services segment which represented the operations of Zenith is now presented as a discontinued operation.
17
--------------------------------------------------------------------------------Reconciliation of Segment Results to Consolidated Results of Operations
To supplement the financial measures prepared in accordance with GAAP, we
present gross profit by segment inclusive of the effects of intercompany sales
by our wholesale segment to our retail segment. Because these intercompany
transactions are not eliminated from our segment presentations and because we do
not present gross profit as a measure of segment profitability in the
accompanying condensed consolidated financial statements, the presentation of
gross profit by segment is considered to be a non-GAAP financial measure. In
addition, certain special gains or charges that are included in consolidated
income from operations are not included in the measures of segment
profitability. The reconciliation of this non-GAAP financial measure to the most
directly comparable financial measure calculated and presented in accordance
with GAAP is presented below along with the effects of various other
intercompany eliminations on our consolidated results of operations.
Year Ended November 26, 2022
GAAP
Non-GAAP Presentation Special Presentation
Wholesale Retail Eliminations Items Consolidated
Net sales of furniture and accessories
(125,889 ) (1) $ -
(124,123 ) (2) - 237,262 Gross profit 99,114 150,991 (1,766 ) (3) - 248,339 SG&A expense 89,828 129,483 (1,242 ) (4) - 218,069 Gain on sale of real estate - - - 4,595 (5) 4,595
Income from continuing operations
(524 ) $ 4,595 $ 34,865
Year Ended November 27, 2021
GAAP
Non-GAAP Presentation Special Presentation
Wholesale Retail Eliminations Items Consolidated
Net sales of furniture and accessories
(112,270 ) (1) $ -
(110,682 ) (2) - 209,799 Gross profit 93,303 129,372 (1,588 ) (3) - 221,087 SG&A expense 75,813 122,328 (1,311 ) (4) - 196,830
Income from continuing operations
(277 ) $ - $ 24,257
Year Ended November 28, 2020
GAAP
Non-GAAP Presentation Special Presentation
Wholesale Retail Eliminations Items Consolidated
Net sales of furniture and
accessories $ 221,075 $ 211,944 $ (95,347 ) (1) $ - $ 337,672
Cost of furniture and accessories
sold 152,982 107,233 (96,648 ) (2) - 163,567
Gross profit 68,093 104,711 1,301 (3) - 174,105
SG&A expense 63,506 114,208 (1,309 ) (4) - 176,405
Asset impairment charges - - - 12,184 (6) 12,184
Goodwill impairment charge - - - 1,971 (7) 1,971
Litigation expense - - - 1,050 (8) 1,050
Income (loss) from continuing
operations $ 4,587 $ (9,497 ) $ 2,610 $ 15,205 $ (17,505 )
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Notes to Segment Consolidation Table:
(1) Represents the elimination of sales from our wholesale segment to our Company-owned BHF stores. (2) Represents the elimination of purchases by our Company-owned BHF stores from our wholesale segment. (3) Represents the change in the elimination of intercompany profit in inventory. (4) Represents the elimination of rent paid by our retail stores occupying Company-owned real estate. (5) Represents the gain on the sale of the real estate at a former retail location. (6) Represents$11,114 of non-cash asset impairment charges on underperforming stores, including$6,239 for the impairment of operating lease right-of-use assets, and$1,070 of non-cash impairment charges in our wholesale segment, primarily due to the closure of our custom upholstery manufacturing facility inGrand Prairie, Texas . (7) Represents a non-cash charge for the impairment of goodwill associated with our retail reporting unit. (8) Represents an accrual of$1,050 for estimated costs to resolve certain wage and hour violation claims that had been asserted against the Company Wholesale Segment Net sales, gross profit, SG&A expense and operating income for our Wholesale Segment were as follows for the fiscal years endedNovember 26, 2022 ,November 27, 2021 andNovember 28, 2020 : Comparative Change 2022 vs 2021 2021 vs 2020 2022 2021 2020 Dollars Percent Dollars Percent
Net sales
89,828 27.7 % 75,813 25.7 % 63,506 28.7 % 14,015 18.5 % 12,307 19.4 %
Income
from
operations $ 9,286 2.9 % $ 17,490 5.9 % $ 4,587 2.1 % $ (8,204 ) -46.9 % $ 12,903 281.3 %
(1) Gross profit at the segment level is considered a Non-GAAP financial measure
due to the included effects of intercompany transactions. Refer to the
reconciliation of segment results to consolidated results of operations
presented above.
Wholesale shipments by category for the fiscal years ended
2022 2021 2020
External Intercompany Total External Intercompany Total External Intercompany Total
Bassett Custom Upholstery $ 124,565 $ 82,437 $ 207,002 63.8 % $ 105,445 $ 69,533 $ 174,978 59.2 % $ 71,840 $ 56,360 $ 128,200 58.0 %
Bassett Leather 35,953 76 36,029 11.1 % 36,157 61 36,218 12.3 % 20,487 949 21,436 9.7 %
Bassett Custom Wood 22,534 24,764 47,298 14.6 % 24,079 24,066 48,145 16.3 % 19,682 19,629 39,311 17.8 %
Bassett Casegoods 15,628 18,612 34,240 10.5 % 17,378 18,610 35,988 12.2 % 13,719 18,409 32,128 14.5 %
Total $ 198,680 $ 125,889 $ 324,569 100.0 % $ 183,059 $ 112,270 $ 295,329 100.0 % $ 125,728 $ 95,347 $ 221,075 100.0 %
Fiscal 2022 as Compared to Fiscal 2021
Net sales for the year endedNovember 26, 2022 increased$29,240 or 9.9% from the prior year period due to a 13% increase in shipments to both the BHF store network, a 32% increase in shipments of Lane Venture product and a 3.8% increase in shipments to the open market. Gross margins for the year endedNovember 26, 2022 declined 110 basis points compared to the prior year period as we experienced significant increases in material and other production costs. In addition, we experienced reduced margins in ourBassett Leather product line due to price discounting during the last half of the year. As this product line is internationally sourced with extended lead times, we received significant amounts of inventory during the second and third quarters of 2022 just as product demand was weakening due to the market downturn in home furnishings. Also, the ocean freight costs associated with the majority of the product received was at significantly higher costs than are currently being realized on current product receipts. Although we have reduced the inventory level by$5,320 since the peak, we still have$16,773 in inventory atNovember 26, 2022 . We expect reduced margins on this product line to continue over the next two quarters as we reduce the inventory to a more normal level. All of these cost increases were partially offset by greater leverage of fixed costs due to higher sales volumes. SG&A expenses as a percentage of sales increased 200 basis points primarily due to increased sales and marketing expenses, employee compensation costs and logistics and warehouse costs partially offset by greater leverage of fixed costs from increased sales volumes. 19 -------------------------------------------------------------------------------- Wholesale backlog decreased to$35,336 atNovember 26, 2022 from$90,057 atNovember 27, 2021 as a 15% decrease in incoming orders combined with the easing of COVID-related labor shortages and supply chain disruptions has enabled us to work down our Company record level backlog from 2021.
Retail Segment - Company Owned Stores
Net sales, gross profit, SG&A expense, and operating income (loss) for our
retail segment were as follows for the fiscal years ended
Comparative Change
2022 vs 2021 2021 vs 2020
2022 2021 2020 Dollars Percent Dollars Percent
Net sales
129,483 45.1 % 122,328 49.4 % 114,208 53.9 % 7,155 5.8 % 8,120 7.1 %
Income
(loss)
from
operations $ 21,508 7.5 % $ 7,044 2.8 % $ (9,497 ) -4.5 % $ 14,464 205.3 % $ 16,541 NM
(1) Gross profit at the segment level is considered a Non-GAAP financial measure
due to the included effects of intercompany transactions. Refer to the
reconciliation of segment results to consolidated results of operations
presented above.
Retail sales by major product category for the fiscal years ended
2022 (2) 2021 2020
Bassett Custom Upholstery$ 163,755 57.1 %$ 139,527 56.3 %$ 112,888 53.3 % Bassett Leather 1,707 0.6 % 226 0.1 % 2,326 1.1 % Bassett Custom Wood 43,208 15.1 % 30,931 12.5 % 28,942 13.7 % Bassett Casegoods 40,146 14.0 % 42,658 17.2 % 35,728 16.9 % Accessories, mattresses & other (1) 38,105 13.3 % 34,485 13.9 % 32,060 15.1 % Total$ 286,921 100.0 %$ 247,827 100.0 %$ 211,944 100.0 %
(1) Includes the sale of goods other than Bassett-branded products, such as
accessories and bedding, and also includes the sale of furniture protection
plans.
(2) Beginning with the fourth quarter of fiscal 2022, our retail segment
includes the sales of Noa Home, which was acquired on
Fiscal 2022 as Compared to Fiscal 2021
Net sales for the year endedNovember 26, 2022 increased$39,094 or approximately 16% from the prior year. Written sales (the value of sales orders taken but not delivered) declined 7.4% from fiscal 2021. Gross margins for the year endedNovember 26, 2022 increased by 40 basis points as compared to the prior year period, primarily driven by improved pricing strategies and lower levels of promotional activity, partially offset by increased clearance activity from five store closing events during the year. Selling, general and administrative expenses for the year endedNovember 26, 2022 as a percentage of sales decreased by 430 basis points as compared to fiscal 2021 primarily due to greater leverage of fixed costs from higher sales volumes. Sales and results of operations of Noa Home, which has been included in our retail segment since its acquisition onSeptember 2, 2022 , were not material.
Retail backlog decreased to
20
--------------------------------------------------------------------------------Discontinued Operations - Logistical Services
Revenues, operating expenses and income from operations for our logistical
services segment were as follows for the fiscal years ended
Comparative Change
2022 vs 2021 2021 vs 2020
2022 2021 2020 Dollars Percent Dollars Percent
Logistical
services revenue $ 16,776 100.0 % $ 55,648 100.0 % $ 48,191 100.0 % $ (38,872 ) -69.9 % $ 7,457 15.5 %
Cost of logistical
services 15,001 89.4 % 53,905 96.9 % 46,910 97.3 % (38,904 ) -72.2 % 6,995 14.9 % Other loss, net
(63 ) -0.4 % (260 ) -0.5 % (54 ) -0.1 % 197 -75.8 % (206 ) 381.5 %
Income from
discontinued
operations $ 1,712 10.2 % $ 1,483 2.7 % $ 1,227 2.5 % $ 229 15.4 % $ 256 20.9 %
*53 weeks for fiscal 2019 as compared with 52 weeks for fiscal 2020.
Analysis of Discontinued Operations - Logistical Services
The amounts shown above represent the results of Zenith's business transactions with third parties. Because the sale of Zenith was closed on the first business day of the second fiscal quarter of 2022, operating results for that period are insignificant. Zenith also charged Bassett$9,121 for logistical services provided to our wholesale segment during the year endedNovember 26, 2022 , and$31,329 and$26,967 for fiscal 2021 and 2020, respectively. These shipping and handling costs are included in selling, general and administrative expenses in the accompanying condensed consolidated statements of income. We have entered into a service agreement withJ.B. Hunt for the continuation of these services for a period of seven years following the sale of Zenith. Subsequent to the sale, we have incurred$27,604 of expense during the year endedNovember 26, 2022 , for the performance of logistical services byJ.B. Hunt .
Other Items Affecting Net Income (Loss)
Other items affecting net income (loss) for fiscal 2022 and 2021 are as follows:
2022 2021
Interest income (1) $ 302 $ 48
Interest expense (2) (38 ) (33 )
Net periodic pension costs (3) (489 ) (422 )
Net gains (cost) of company-owned life insurance (4) 161 (364 )
Other (739 ) (729 )
Total other loss, net $ (803 ) $ (1,500 )
(1) Consists of interest income arising from our short-term investments and
interest-bearing cash equivalents. The increase in interest income for
fiscal 2022 as compared with fiscal 2021 was due primarily to higher
interest rates paid on certificates of deposit. See Note 4 to theConsolidated Financial Statements for additional information regarding our
investments in certificates of deposit.
(2) The interest expense in fiscal 2022 and 2021 is attributable to finance
leases for computer and office equipment. See Note 15 to the Consolidated
Financial Statements for additional information regarding our leases.
(3) Represents the portion of net periodic pension costs not included in income
from operations. See Note 10 to the Consolidated Financial Statements for
additional information related to our defined benefit pension plans.
(4) Includes a gain arising from death benefits from Company-owned life
insurance of $1,441 in fiscal 2022.
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Provision for Income taxes OnMarch 27, 2020 the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") was signed into law. A major provision of the CARES Act allows net operating losses from the 2018, 2019 and 2020 tax years to be carried back up to five years. As a result, for the year endedNovember 28, 2020 , we were able to recognize tax benefits substantially in excess of the current federal statutory rate of 21% due to the effects of carrying back our current net operating loss to tax years in which the federal statutory rate was 35%. We recorded an income tax provision (benefit) on pre-tax income from continuing operations of$8,702 ,$5,836 and ($6,536 ) in fiscal 2022, 2021 and 2020, respectively. Our effective tax rates for both 2022 and 2021 of 25.5% differ from the federal statutory rate of 21.0% due to the effects of state income taxes and various permanent differences. Our effective tax rate of 36.3% for 2020 differs from the federal statutory rate of 21.0% primarily due to the benefit of the CARES Act and to the effects of state income taxes and various permanent differences, including those related to the non-deductible goodwill impairment charge. See Note 13 to the Consolidated Financial Statements for additional information regarding our income tax provision (benefit), as well as our net deferred tax assets and other matters. We have net deferred tax assets of$5,528 as ofNovember 26, 2022 , which, upon utilization, are expected to reduce our cash outlays for income taxes in future years. It will require approximately$22,000 of future taxable income to utilize our net deferred tax assets.
Liquidity and Capital Resources
We are committed to maintaining a strong balance sheet in order to weather difficult industry conditions, to allow us to take advantage of opportunities as market conditions improve, and to execute our long-term retail strategies.
Cash Flows Cash provided by operations for fiscal 2022 was a net use of$2,970 compared to cash provided by operations of$14,563 for fiscal 2021, representing a decrease of$17,533 . Cash provided by the operating activities of our discontinued operations was$1,681 for fiscal 2022 compared to$4,082 for the prior year period, a decline of$2,401 as Zenith only operated during the first quarter of fiscal 2022. Excluding the decline in operating cash flow from discontinued operations, cash flows from continuing operations declined$14,132 from the prior year. Cash flows from operating activities included the payment of$20,176 in estimated income taxes net of refunds in 2022 as compared to$3,092 in 2021, the increase primarily related to the taxable gain on the sale of Zenith. In addition, cash flows from the collection of retail customer deposits declined by$28,318 due to the slowing pace of retail written sales. Our overall cash position increased by$27,251 during fiscal 2022, compared to a decline of$11,425 during fiscal 2021, an increase of$38,676 from the prior year. Excluding the overall cash flow from discontinued operations, overall cash flow from continuing operations increased$35,762 over the prior year. Offsetting the decline in cash flows from operations, net cash flows from investing activities during the fiscal 2022 increased$77,413 to$65,534 of cash provided by investing activities compared to net cash used in investing activities of$11,571 for the prior year. This increase was primarily due to net proceeds of$84,534 received from the sale of Zenith and net proceeds of$8,217 received from the sale of retail real estate inHouston, Texas , partially offset by a$10,543 increase in capital expenditures over the prior year, including our purchase of our new retail store site inTampa, Florida , and our net cash investment in Noa Home of$5,582 . Net cash used in financing activities during the fiscal 2022 increased$21,146 to a net use of$35,563 as compared to a net use of$14,417 for the prior year, primarily due to a special dividend of$14,494 declared and paid during the second quarter of 2022 and a$9,556 increase in share repurchases to$15,122 during fiscal 2022 as compared to$5,566 repurchased during fiscal 2021. OnMarch 9, 2022 , our Board of Directors increased the amount authorized under our existing share repurchase plan to$40,000 , of which$25,999 remains available for future purchases as ofNovember 26, 2022 . With cash and cash equivalents and short-term investments totaling$79,340 on hand atNovember 26, 2022 , expected future operating cash flows and the availability under our credit line noted below, we believe we have sufficient liquidity to fund operations for the foreseeable future. 22 --------------------------------------------------------------------------------
Debt and Other Obligations Bank Credit Facility Our bank credit facility provides for a line of credit of up to$25,000 . AtNovember 26, 2022 , we had$3,931 outstanding under standby letters of credit against our line, leaving availability under our credit line of$21,069 . In addition, we had outstanding standby letters of credit with another bank totaling$250 atNovember 26, 2022 . The line bears interest at the One-Month Term Secured Overnight Financing Rate ("One-Month Term SOFR") plus 1.5% and is unsecured. Our bank charges a fee of 0.25% on the daily unused balance of the line, payable quarterly. Under the terms of the facility, we must maintain the following financial covenants, measured quarterly on a rolling twelve-month basis: ? Consolidated fixed charge coverage ratio of not less than 1.4 times, ? Consolidated lease-adjusted leverage ratio not to exceed 3.0 times, and ? Minimum tangible net worth of$140,000 . We were in compliance with these covenants atNovember 26, 2022 and expect to remain in compliance for the foreseeable future. The credit facility will mature onJanuary 27, 2025 , at which time any amounts outstanding under the facility will be due. We lease land and buildings that are used in the operation of our Company-owned retail stores as well as in the operation of certain of our licensee-owned stores, and we lease land and buildings at various locations throughout the continentalUnited States for warehouse space used in our retail segment. We also lease local delivery trucks used in our retail segment. The total future minimum lease payments for leases with terms in excess of one year atNovember 26, 2022 is$138,543 , the present value of which is$116,938 and is included in our accompanying consolidated balance sheet atNovember 26, 2022 . We were contingently liable under licensee lease obligation guarantees in the amount of$1,880 atNovember 26, 2022 . The remaining terms under these lease guarantees range from approximately one to five years. See Note 15 to our consolidated financial statements for a schedule of future cash payments on our lease obligations and additional details regarding our leases and lease guarantees. We provide post-employment benefits to certain current and former executives and management level employees of the Company. Included among these benefits are two defined-benefit plans with a combined projected benefit obligation of$7,262 atNovember 26, 2022 . See Note 10 to our consolidated financial statements for a projection of future benefit payments under these plans from 2023 through 2032. We also have deferred compensation plans with a total liability of$3,686 atNovember 26, 2022 , the current portion of which is$296 . See Note 10 to our consolidated financial statements for additional information regarding these plans.
Dividends and Share Repurchases
During fiscal 2022, we declared and paid four quarterly dividends totaling$5,668 , or$0.60 per share, as well as one special dividend totaling$14,494 , or$1.50 per share. During fiscal 2022, we repurchased 868,085 shares of our stock for$15,122 under our share repurchase program. The weighted-average effect of these share repurchases on earnings per share from continuing operations was approximately$0.10 per share basic and$0.11 per share diluted. OnMarch 9, 2022 , our Board of Directors increased the remaining limit of the repurchase plan to$40,000 . The approximate dollar value that may yet be purchased pursuant to our stock repurchase program as ofNovember 28, 2022 was$25,999 . Capital Expenditures We currently anticipate that total capital expenditures for fiscal 2023 will be approximately$25 million , which will be used for the upfit of new and remodeled retail stores, the expansion and upgrade of our outdoor furniture manufacturing facilities inHaleyville, Alabama and additional investments in information technology, including a new website. Our capital expenditure and working capital requirements in the foreseeable future may change depending on many factors, including but not limited to the overall performance of the store program, our rate of growth, our operating results and any adjustments in our operating plan needed in response to industry conditions, competition or unexpected events. We believe that our existing cash, together with cash from operations, will be sufficient to meet our capital expenditure and working capital requirements for the foreseeable future. Fair Value Measurements We account for items measured at fair value in accordance with ASC Topic 820, Fair Value Measurements and Disclosures. ASC 820's valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect our market assumptions. ASC 820 classifies these inputs into the following hierarchy:
Level 1 Inputs- Quoted prices for identical instruments in active markets.
Level 2 Inputs- Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3 Inputs- Instruments with primarily unobservable value drivers.
We believe that the carrying amounts of our current assets and current
liabilities approximate fair value due to the short-term nature of these items.
Our primary non-recurring fair value estimates, typically involving the
valuation of business acquisitions (see Note 3 to the Consolidated Financial
Statements), goodwill impairments (see Note 8 to the Consolidated Financial
Statements) and asset impairments (see Note 14 to the Consolidated Financial
Statements) have utilized Level 3 inputs.
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--------------------------------------------------------------------------------Off-Balance Sheet Arrangements
We utilize stand-by letters of credit in the procurement of certain goods in the normal course of business. We lease land and buildings that are primarily used in the operation of BHF stores and Zenith distribution facilities. We have guaranteed certain lease obligations of licensee operators as part of our retail strategy. See Note 15 to the Consolidated Financial Statements, included in Item 8 of this Annual Report on Form 10-K, for further discussion of lease guarantees, including descriptions of the terms of such commitments and methods used to mitigate risks associated with these arrangements. Contingencies We are involved in various claims and litigation as well as environmental matters, which arise in the normal course of business. Although the final outcome of these legal and environmental matters cannot be determined, based on the facts presently known, it is our opinion that the final resolution of these matters will not have a material adverse effect on our financial position or future results of operations.
Critical Accounting Policies and Estimates
Our consolidated financial statements have been prepared in conformity with accounting principles generally accepted inthe United States of America ("GAAP") which requires that certain estimates and assumptions be made that affect the amounts and disclosures reported in those financial statements and the related accompanying notes. Actual results could differ from these estimates and assumptions. We use our best judgment in valuing these estimates and may, as warranted, solicit external advice. Estimates are based on current facts and circumstances, prior experience and other assumptions believed to be reasonable. The following critical accounting policies, some of which are impacted significantly by judgments, assumptions and estimates, affect our consolidated financial statements. Revenue Recognition - We recognize revenue when we transfer promised goods to our customers in an amount that reflects the consideration that we expect to receive in exchange for those goods. For our wholesale and retail segments, revenue is recognized when the risks and rewards of ownership and title to the product have transferred to the buyer. At wholesale, transfer occurs and revenue is recognized upon the shipment of goods to independent dealers and licensee-owned BHF stores. We offer payment terms varying from 30 to 60 days for wholesale customers. Estimates for returns and allowances have been recorded as a reduction of revenue based on our historical return patterns. The contracts with our licensee store owners do not provide for any royalty or license fee to be paid to us. At retail, transfer occurs and revenue is recognized upon delivery of goods to the customer. We typically collect a significant portion of the purchase price as a customer deposit upon order, with the balance typically collected upon delivery. These deposits are carried on our balance sheet as a current liability until delivery is fulfilled and amounted to$35,963 and$51,492 as ofNovember 26, 2022 andNovember 27, 2021 , respectively. Substantially all of the customer deposits held atNovember 27, 2021 related to performance obligations satisfied during fiscal 2022 and have therefore been recognized in revenue for the year endedNovember 26, 2022 . Estimates for returns and allowances have been recorded as a reduction of revenue based on our historical return patterns. We also sell furniture protection plans to our retail customers on behalf of a third party which is responsible for the performance obligations under the plans. Revenue from the sale of these plans is recognized upon delivery of the goods net of amounts payable to the third-party service provider. Allowance for credit losses - We maintain an allowance for credit losses for estimated losses resulting from the inability of our customers to make required payments. Our accounts receivable reserves were$1,261 and$567 atNovember 26, 2022 andNovember 27, 2021 , respectively, representing 6.6% and 2.7% of our gross accounts receivable balances at those dates, respectively. The allowance for credit losses is based on a review of specifically identified customer accounts in addition to an overall aging analysis which is applied to accounts pooled on the basis of similar risk characteristics. Judgments are made with respect to the collectibility of accounts receivable within each pool based on historical experience, current payment practices and current economic trends based on our expectations over the expected life of the receivables, which is generally ninety days or less. Although actual losses have not differed materially from our previous estimates, future losses could differ from our current estimates. Unforeseen events such as a licensee or customer bankruptcy filing could have a material impact on our results of operations. Inventories - Inventories accounted for under the first-in, first out ("FIFO") method are stated at the lower of cost or net realizable value, and inventory accounted for under the last-in, first out method ("LIFO") is stated at the lower of cost or market. Cost is determined for domestic furniture inventories, excluding outdoor furniture products, using the LIFO method. The cost of imported inventories, domestic outdoor furniture products and Noa Home product inventories is determined on a FIFO basis. We estimate an inventory reserve for excess quantities and obsolete items based on specific identification and historical write-offs, taking into account future demand and market conditions. Our reserves for excess and obsolete inventory were$5,167 and$4,816 atNovember 26, 2022 andNovember 27, 2021 , respectively, representing 5.7% and 5.8%, respectively, of our inventories on a LIFO basis. If actual demand or market conditions in the future are less favorable than those estimated, additional inventory write-downs may be required. 24 --------------------------------------------------------------------------------Goodwill -Goodwill represents the excess of the fair value of consideration given over the fair value of the tangible assets and liabilities and identifiable intangible assets of businesses acquired. The acquisition of assets and liabilities and the resulting goodwill is allocated to the respective reporting unit: Wood, Upholstery, Retail - Company-Owned Stores, and Noa Home. We review goodwill at the reporting unit level annually for impairment or more frequently if events or circumstances indicate that assets might be impaired. In accordance with ASC Topic 350, Intangibles -Goodwill & Other, we first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the quantitative goodwill impairment test described in ASC Topic 350 (as amended by Accounting Standards Update No. 2017-04, Intangibles -Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment). The more likely than not threshold is defined as having a likelihood of more than 50 percent. If, after assessing the totality of events or circumstances, we determine that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the quantitative impairment test is unnecessary and our goodwill is considered to be unimpaired. However, if based on our qualitative assessment we conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we will proceed with performing the quantitative evaluation process. We performed an interim test of goodwill as ofMay 30, 2020 due to the severe impact of the COVID-19 pandemic and resulting business interruption during the second fiscal quarter of 2020. This interim test resulted in an impairment charge of$1,971 for the year endedNovember 28, 2020 . For the annual tests of goodwill performed as of the beginning of the fourth fiscal quarters of 2021 and 2022, we performed the qualitative assessment as described above and concluded that there has been no additional impairment of our goodwill as ofNovember 26, 2022 . The quantitative evaluation compares the carrying value of each reporting unit that has goodwill with the estimated fair value of the respective reporting unit. Should the carrying value of a reporting unit be in excess of the estimated fair value of that reporting unit, a goodwill impairment charge will be recognized in the amount by which the reporting unit's carrying amount exceeds its fair value, but not to exceed the total goodwill assigned to the reporting unit. The determination of the fair value of our reporting units is based on a combination of a market approach, that considers benchmark company market multiples, an income approach, that utilizes discounted cash flows for each reporting unit and other Level 3 inputs as specified in the fair value hierarchy in ASC Topic 820, Fair Value Measurements and Disclosure, and, in the case of our retail reporting unit, a cost approach that utilizes estimates of net asset value. The cash flows used to determine fair value are dependent on a number of significant management assumptions such as our expectations of future performance and the expected future economic environment, which are partly based upon our historical experience. Our estimates are subject to change given the inherent uncertainty in predicting future results. Additionally, the discount rate and the terminal growth rate are based on our judgment of the rates that would be utilized by a hypothetical market participant. As part of the goodwill impairment testing, we also consider our market capitalization in assessing the reasonableness of the combined fair values estimated for our reporting units. While we believe such assumptions and estimates are reasonable, the actual results may differ materially from the projected amounts. Other Intangible Assets - Intangible assets acquired in a business combination and determined to have an indefinite useful life are not amortized but are tested for impairment annually or between annual tests when an impairment indicator exists. The recoverability of indefinite-lived intangible assets is assessed by comparison of the carrying value of the asset to its estimated fair value. If we determine that the carrying value of the asset exceeds its estimated fair value, an impairment loss equal to the excess would be recorded. AtNovember 26, 2022 , our indefinite-lived intangible assets other than goodwill consist of trade names acquired in the acquisitions of Lane Venture and Noa Home and have a carrying value of$8,723 . Definite-lived intangible assets are amortized over their respective estimated useful lives and reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. We estimate the useful lives of our intangible assets and ratably amortize the value over the estimated useful lives of those assets. If the estimates of the useful lives should change, we will amortize the remaining book value over the remaining useful lives or, if an asset is deemed to be impaired, a write-down of the value of the asset may be required at such time. AtNovember 26, 2022 our definite-lived intangible assets consist of customer relationships acquired in the acquisition of Lane Venture with a carrying value of$232 . Impairment of Long-Lived Assets - We periodically evaluate whether events or circumstances have occurred that indicate long-lived assets may not be recoverable or that the remaining useful life may warrant revision. When such events or circumstances are present, we assess the recoverability of long-lived assets by determining whether the carrying value will be recovered through the expected undiscounted future cash flows resulting from the use of the asset. In the event the sum of the expected undiscounted future cash flows is less than the carrying value of the asset, an impairment loss equal to the excess of the asset's carrying value over its fair value is recorded. When analyzing our real estate properties for potential impairment, we consider such qualitative factors as our experience in leasing and selling real estate properties as well as specific site and local market characteristics. Upon the closure of a Bassett Home Furnishings store, we generally write off all tenant improvements which are only suitable for use in such a store. Right of use assets under operating leases are written down to their estimated fair value. Our estimates of the fair value of the impaired right of use assets include estimates of discounted cash flows based upon current market rents and other inputs which we consider to be Level 3 inputs as specified in the fair value hierarchy in ASC Topic 820, Fair Value Measurement and Disclosure.
Recent Accounting Pronouncements
See Note 2 to our Consolidated Financial Statements regarding the impact or potential impact of recent accounting pronouncements upon our financial position and results of operations.
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