BASSETT FURNITURE INDUSTRIES, INCORPORATED (Amounts in thousands except share and per share data)
Our fiscal year, which ends on the last Saturday of November, periodically results in a 53-week year instead of the normal 52 weeks. The prior fiscal year endingNovember 30, 2019 was a 53-week year, with the additional week being included in the first fiscal quarter. Accordingly, the information presented below includes 53 weeks of operations for the year endedNovember 30, 2019 as compared to 52 weeks included in the years endedNovember 28, 2020 andNovember 24, 2018 . 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 Upon Our Business" in Part I, Item 1 of this report. OverviewBassett 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 featureBassett galleries or design centers. We were founded in 1902 and incorporated under the laws ofVirginia in 1930. Our rich 118-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 97 BHF stores atNovember 28, 2020 , 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 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 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 featureBassett 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 throughoutthe 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. We have factories inNewton, North Carolina that manufacture custom upholstered furniture. We also have factories inMartinsville andBassett, Virginia that assemble and finish our custom dining offerings, including our solid hardwood furniture "Bench Made" line. Our manufacturing team takes great pride in the breadth of its options, the precision of its craftsmanship, and the speed of its manufacturing process. Our logistics team then promptly ships the product to one of our home delivery hubs or to a location specified by our licensees. 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 inVietnam ,Thailand andChina . Over 75% of the products we currently sell are manufactured inthe United States . We also ownZenith Freight Lines, LLC ("Zenith") which provides logistical services toBassett along with other furniture manufacturers and retailers. Zenith delivers best-of-class shipping and logistical support services that are uniquely tailored to the needs ofBassett and the furniture industry. Approximately 60% of Zenith's revenue is generated from services provided to non-Bassett customers. OnDecember 21, 2017 , we purchased certain assets and assumed certain liabilities ofLane Venture fromHeritage Home Group, LLC for$15,556 in cash.Lane Venture is a manufacturer and distributor of premium outdoor furniture and is now being operated as a component of our wholesale segment. This acquisition marked our entry into the market for outdoor furniture and we believe thatLane Venture has provided a foundation for us to become a significant participant in this category. Our strategy is to distribute this brand outside of our BHF store network only. See Note 3 to our consolidated financial statements for additional details regarding this acquisition. With the knowledge we have gained through operatingLane Venture , we have developed the Bassett Outdoor brand that is only marketed through the BHF store network. This allowsBassett branded product to move from inside the home to outside the home to capitalize on the growing trend of outdoor living. AtNovember 28, 2020 , our BHF store network included 63 Company-owned stores and 34 licensee-owned stores. During fiscal 2020, we closed seven underperforming Company-owned stores inBurlington andStoughton, Massachusetts ,Newport News, Virginia ,Coral Gables andFt. Lauderdale, Florida , andTorrance andCulver City, California . One new licensee store was opened inThornton, Colorado . 15 -------------------------------------------------------------------------------- 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 increased our traffic to the website by 82% and web orders by 92% for the fourth quarter of 2020 as compared to 2019. Digital advertising dominated our marketing expenditures for the majority of the year as we chose to spend less in traditional television and direct mail advertising. We plan to continue with increased levels of spending on digital advertising and outreach during 2021. We also expect to continue investing in our website to improve the navigation and the ordering capabilities to increase web sales. Much of our current product offerings highlight the breadth and depth of our custom furniture capabilities which are difficult to show and sell online. We plan to expand our merchandising strategies to include more product that can be more easily purchased online with or without a store visit. While we work to increase web sales, we will not compromise on our in-store experience or the quality of our in-home makeover capabilities. 16 --------------------------------------------------------------------------------
Analysis of Operations The following discussion provides an analysis of our results of operations and reasons for material changes therein for fiscal year 2020 as compared to fiscal year 2019. 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 2019 Annual Report on Form 10-K, filed with theSEC onJanuary 23, 2020 for an analysis of the fiscal year 2019 results as compared to fiscal year 2018. Net sales revenue, cost of furniture and accessories sold, selling, general and administrative ("SG&A") expense, new store pre-opening costs, other charges, and income from operations were as follows for the years endedNovember 28, 2020 andNovember 30, 2019 : Change from Prior Year 2020 2019* Dollars Percent Sales Revenue: Furniture and accessories$ 337,672 87.5 %$ 403,865 89.3 %$ (66,193 ) -16.4 % Logistics 48,191 12.5 % 48,222 10.7 % (31 ) -0.1 % Total net sales revenue 385,863 100.0 % 452,087 100.0 % (66,224 ) -14.6 % Cost of furniture and accessories sold 163,567 42.4 % 179,244 39.6 % (15,677 ) -8.7 % SG&A 223,314 57.9 % 264,280 58.5 % (40,966 ) -15.5 % New store pre-opening costs - 0.0 % 1,117 0.2 % (1,117 ) -100.0 % Other charges 15,205 3.9 % 8,041 1.8 % 7,164 89.1 % Income (loss) from operations$ (16,223 ) -4.2 %$ (595 ) -0.1 %$ (15,628 ) 2626.6 %
Our consolidated net sales by segment were as follows:
Change from Prior Year
2020 2019* Dollars Percent
Net Sales
Wholesale $ 221,075 $ 261,105 $ (40,030 ) -15.3 %
Retail 211,944 268,693 (56,749 ) -21.1 %
Logistical services 75,158 80,074 (4,916 ) -6.1 %
Inter-company eliminations:
Furniture and accessories (95,347 ) (125,933 ) 30,586 -24.3 %
Logistical services (26,967 ) (31,852 ) 4,885 -15.3 %
Consolidated $ 385,863 $ 452,087 $ (66,224 ) -14.6 %
*53 weeks for fiscal 2019 as compared with 52 weeks for fiscal 2020.
Refer to the segment information which follows for a discussion of the significant factors and trends affecting our results of operations for fiscal 2020 as compared with fiscal 2019.
Certain other items affecting comparability between periods are discussed below in "Other Items Affecting Net Income".
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--------------------------------------------------------------------------------Segment Information As more fully discussed under the heading "Impact of the COVID-19 Pandemic Upon Our Business" in Part I, Item 1 of this report, the COVID-19 pandemic had a severely disruptive and adverse impact upon our business during the second fiscal quarter of 2020 followed by a return to full operations early in the third fiscal quarter. As a result, we do not believe that a comparative analysis of our segment operating results for the full year of fiscal 2020 as compared to fiscal 2019 is, by itself, meaningful with respect to understanding the significant factors and trends affecting our ongoing operations. Therefore, in addition to the full year-over-year comparative data shown below, we have provided additional information comparing our results of operations for each segment for the six months endedNovember 28, 2020 as compared with the six months endedNovember 30, 2019 , and our analysis is focused primarily on that six month comparative period. For additional discussion and analysis of our operating results during the first half of fiscal 2020, refer to Part I, Item 2 of our Quarterly Report on Form 10-Q for the quarterly period endedMay 30, 2020 , filed with theSEC onJuly 9, 2020 , as well as Part I, Item 2 of our Quarterly Report on Form 10-Q for the quarterly period endedFebruary 29, 2020 , filed with theSEC onApril 2, 2020 . Note that the six months endedNovember 28, 2020 and the six months endedNovember 30, 2019 both contained 26 weeks.
We have strategically aligned our business into three reportable segments 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 ofBassett stores (licensee-owned stores and Company-owned 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. We eliminate the sales between our wholesale and retail segments as well as the imbedded profit in the retail inventory for the consolidated presentation in our financial statements. 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 (including real estate) and capital expenditures directly related to these stores and the Company-owned distribution network utilized to deliver products to our retail customers. Logistical services. With our acquisition of Zenith onFebruary 2, 2015 , we created the logistical services operating segment which reflects the operations of Zenith. In addition to providing shipping and warehousing services for the Company, the revenue from which is eliminated upon consolidation, Zenith also provides similar services to other customers, primarily in the furniture industry. Revenue from the performance of these services to other customers is included in logistics revenue in our consolidated statement of operations. Zenith's operating costs are included in selling, general and administrative expenses. 18
-------------------------------------------------------------------------------- The following tables illustrate the effects of various intercompany eliminations on income (loss) from operations in the consolidation of our segment results for the full fiscal years endedNovember 28, 2020 andNovember 30, 2019 : Year Ended November 28, 2020 Wholesale Retail Logistics Eliminations Consolidated Sales revenue: Furniture & accessories$ 221,075 $ 211,944 $ -$ (95,347 ) (1)$ 337,672 Logistics - - 75,158 (26,967 ) (2) 48,191 Total sales revenue 221,075 211,944 75,158 (122,314 ) 385,863 Cost of furniture and accessories sold 152,982 107,233 - (96,648 ) (3) 163,567 SG&A expense 63,506 114,208 73,913 (28,313 ) (4) 223,314 New store pre-opening costs - - - - - Income (loss) from operations (5)$ 4,587 $ (9,497 ) $ 1,245 $ 2,647 $ (1,018 ) Year Ended November 30, 2019 Wholesale Retail Logistics Eliminations Consolidated Sales revenue: Furniture & accessories$ 261,105 $ 268,693 $ -$ (125,933 ) (1)$ 403,865 Logistics - - 80,074 (31,852 ) (2) 48,222 Total sales revenue 261,105 268,693 80,074 (157,785 ) 452,087 Cost of furniture and accessories sold 173,350 131,528 - (125,634 ) (3) 179,244 SG&A expense 76,299 143,057 78,219 (33,295 ) (4) 264,280 New store pre-opening costs - 1,117 - - 1,117 Income (loss) from operations (5)$ 11,456 $ (7,009 ) $ 1,855 $ 1,144 $ 7,446
(1) Represents the elimination of sales from our wholesale segment to our
Company-owned BHF stores.
(2) Represents the elimination of logistical services billed to our wholesale
segment.
(3) Represents the elimination of purchases by our Company-owned BHF stores from
our wholesale segment, as well as the change for the period in the
elimination of intercompany profit in ending retail inventory.
(4) Represents the elimination of rent paid by our retail stores occupying
Company-owned real estate and logistical services expense incurred from
Zenith by our wholesale segment.
Year Ended
November 28 , November 30,
2020 2019
Intercompany logistical services
(1,346 ) (1,443 )
Total SG&A expense elimination
(5) Excludes the effects of goodwill and asset impairment charges, cost of early
retirement program, litigation costs and lease exit costs which are not
allocated to our segments.
19-------------------------------------------------------------------------------- The following tables illustrate the effects of various intercompany eliminations on income (loss) from operations in the consolidation of our segment results for the six months endedNovember 28, 2020 andNovember 30, 2019 : Six Months Ended November 28, 2020 Wholesale Retail Logistics Eliminations Consolidated Sales revenue: Furniture & accessories$ 122,930 $ 112,927 $ -$ (50,127 ) (1)$ 185,730 Logistics - - 38,584 (14,372 ) (2) 24,212
Total sales revenue 122,930 112,927 38,584
(64,499 ) 209,942
Cost of furniture and
accessories sold 81,805 56,839 - (49,799 ) (3) 88,845
SG&A expense 31,870 55,166 36,332 (15,067 ) (4) 108,301
New store pre-opening
costs - - - - -
Income from operations
367 $ 12,796
Six Months Ended November 30, 2019
Wholesale Retail Logistics Eliminations Consolidated
Sales revenue:
Furniture &
accessories $ 125,193 $ 136,496 $ - $ (61,005 ) (1) $ 200,684
Logistics - - 38,230 (15,858 ) (2) 22,372
Total sales revenue 125,193 136,496 38,230 (76,863 ) 223,056
Cost of furniture and
accessories sold 83,009 65,799 - (61,271 ) (3) 87,537
SG&A expense 38,083 71,453 37,339 (16,571 ) (4) 130,304
New store pre-opening
costs - 254 - - 254
Income (loss) from
operations (5) $ 4,101 $ (1,010 ) $ 891 $ 979 $ 4,961 (1) Represents the elimination of sales from our wholesale segment to our
Company-owned BHF stores.
(2) Represents the elimination of logistical services billed to our wholesale
segment.
(3) Represents the elimination of purchases by our Company-owned BHF stores from
our wholesale segment, as well as the change for the period in the
elimination of intercompany profit in ending retail inventory.
(4) Represents the elimination of rent paid by our retail stores occupying
Company-owned real estate and logistical services expense incurred from
Zenith by our wholesale segment.
Six Months Ended
November 28 , November 30,
2020 2019
Intercompany logistical services
(695 ) (713 )
Total SG&A expense elimination
(5) Excludes the effects of goodwill and asset impairment charges, litigation
costs and lease exit costs which are not allocated to our segments.
20-------------------------------------------------------------------------------- The following table reconciles income from operations as shown above for our consolidated segment results with income (loss) from operations as reported in accordance with GAAP for the full fiscal years and six months endedNovember 28, 2020 andNovember 30, 2019 : Full Fiscal Year Last Six Months 2020 2019 2020 2019 Consolidated segment income (loss) from operations excluding special charges$ (1,018 ) $ 7,446 $ 12,796 $ 4,961 Less: Asset impairment charges 12,184 4,431 - 4,431 Goodwill impairment charge 1,971 1,926 - 1,926 Early retirement program - 835 - - Litigation expense 1,050 700 - 700 Lease exit costs - 149 - 149 Income (loss) from operations as reported$ (16,223 ) $ (595 ) $ 12,796 $ (2,245 ) Asset Impairment Charges During fiscal 2020 the loss from operations included$11,114 of non-cash asset impairment charges on five underperforming retail 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 .
During fiscal 2019 the loss from operations included
Goodwill Impairment Charges Due to the impact of the COVID-19 pandemic, we performed an interim impairment assessment of our goodwill as ofMay 30, 2020 . As a result, we recognized a non-cash charge of$1,971 during fiscal 2020 for the impairment of goodwill associated with our wood reporting unit within our wholesale segment (see Note 6 to our Consolidated Financial Statements). During fiscal 2019 our annual evaluation of the carrying value of our recorded goodwill resulted in the recognition of a$1,926 non-cash charge for the impairment of goodwill associated with our retail reporting unit (see Note 6 to our Consolidated Financial Statements). Early Retirement Program During the first quarter of fiscal 2019, we offered a voluntary early retirement package to certain eligible employees of the Company. These employees received pay equal to one-half their current salary plus benefits over a period of one year from the final day of each individual's active employment. Accordingly, we recognized a charge of$835 during the year endedNovember 30, 2019 . Litigation Expense During fiscal 2020 and 2019 we accrued$1,050 and$700 , respectively for the estimated costs to resolve certain wage and hour violation claims that had been asserted against the Company. Lease Exit Costs During fiscal 2019 we recognized a$149 charge for lease exit costs incurred in connection with the repositioning of a Company-owned retail store inPalm Beach, Florida to a new location within the same market. 21 --------------------------------------------------------------------------------
Wholesale Segment
Net sales, gross profit, SG&A expense and operating income for our Wholesale
Segment were as follows for the full fiscal years and last six months ended
Full Fiscal Year Last Six Months
Change from Change from
Prior Year Prior Year
2020 2019* Dollars Percent 2020 2019 Dollars Percent
Net sales $ 221,075 100.0 % $ 261,105 100.0 % $ (40,030 ) -15.3 % $ 122,930 100.0 % $ 125,193 100.0 % $ (2,263 ) -1.8 %
Gross profit 68,093 30.8 % 87,755 33.6 % (19,662 ) -22.4 % 41,125 33.5 % 42,184 33.7 % (1,059 ) -2.5 %
SG&A 63,506 28.7 % 76,299 29.2 %
(12,793 ) -16.8 % 31,870 25.9 % 38,083 30.4 % (6,213 ) -16.3 %
Income from operations
$ (6,869 ) -60.0 %$ 9,255 7.5 %$ 4,101 3.3 %$ 5,154 125.7 %
Wholesale shipments by category for the full fiscal years and last six months
ended
Full Fiscal Year Last Six Months
Change from Change from
Prior Year Prior Year
2020 2019* Dollars Percent 2020 2019 Dollars Percent
Bassett Custom
Upholstery $ 128,200 58.0 % $ 152,415 58.4 % $
(24,215 ) -15.9 %
$ (5,091 ) -6.9 % Bassett Leather 21,436 9.7 % 19,220 7.4 %
2,216 11.5 % 13,681 11.1 % 8,986 7.2 %
4,695 52.2 %
Bassett Custom Wood 39,311 17.8 % 46,082 17.6 % (6,771 ) -14.7 % 22,389 18.2 % 23,881 19.1 %
(1,492 ) -6.2 %
Bassett Casegoods 32,128 14.5 % 40,920 15.7 % (8,792 ) -21.5 % 17,927 14.6 % 18,301 14.6 % (374 ) -2.0 %
Accessories (1) - 0.0 % 2,468 0.9 % (2,468 ) -100.0 % - 0.0 % 1 0.0 % (1 ) -100.0 %
Total $ 221,075 100.0 % $ 261,105 100.0 % $ (40,030 ) -15.3 % $ 122,930 100.0 % $ 125,193 100.0 % $ (2,263 ) -1.8 %
(1) Beginning with the third quarter of fiscal 2019, our wholesale segment no
longer purchases accessory items for resale to our retail segment or to
third party customers such as licensees or independent furniture retailers.
Our retail segment and third party customers now source their accessory
items directly from the accessory vendors.
*53 weeks for fiscal 2019 as compared with 52 weeks for fiscal 2020.
Fiscal 2020 as Compared to Fiscal 2019
Net sales for the year endedNovember 28, 2020 declined$40,030 or 15.3% as compared to the year endedNovember 30, 2019 due primarily to COVID-related operational disruptions which occurred during the second quarter of fiscal 2020, during which we recorded a 48% decrease in net sales as compared to the second quarter of fiscal 2019 and an operating loss of$7,381 for the period. Gross margins during the second quarter of fiscal 2020 were impacted by reduced leverage of fixed costs due to the temporary shutdown of operations coupled with increased inventory valuation reserves. Although SG&A expenses were reduced during the second quarter, the results were also impacted by reduced leverage from significantly lower sales.
Six Months Ended
Net sales for the six months endedNovember 28, 2020 as compared to the six months endedNovember 30, 2019 decreased$2,263 or 1.8%. Wholesale orders for the six-month period of 2020 increased 26% as compared to the comparable period in 2019 resulting in a wholesale backlog of$54,874 atNovember 28, 2020 as compared to$19,953 atNovember 30, 2019 . Wholesale orders from independent dealers increased 62% for the last six months of 2020 as compared to the prior year period driven by increases from existing dealers along with an expansion of the dealer base. In addition, orders from the BHF store network increased 7.3% whileLane Venture orders increased by 38%. Gross margins for the six months of 2020 as compared to the comparable period in 2019 decreased by 20 basis points as decreases in the imported wood line due to the continued process of lowering inventory levels and reducing overall import wood offerings were almost offset by improved gross margins in both the wood and upholstery manufacturing operations. SG&A costs for the six months of 2020 as compared to 2019 decreased 450 basis points due to lower marketing and promotional spending and bad debt expense, partially offset by increased incentive compensation. 22 --------------------------------------------------------------------------------
Retail Segment - Company Owned Stores
Net sales, gross profit, SG&A expense, new store pre-opening costs and operating income for our retail segment were as follows for the full fiscal years and last six months endedNovember 30, 2019 andNovember 24, 2018 : Full Fiscal Year Last Six Months Change from Change from Prior Year Prior Year 2020 2019* Dollars Percent 2020 2019 Dollars Perccent Net sales$ 211,944 100.0 %$ 268,693 100.0 %$ (56,749 ) -21.1 %$ 112,927 100.0 %$ 136,496 100.0 %$ (23,569 ) -17.3 % Gross profit 104,711 49.4 % 137,165 51.0 % (32,454 ) -23.7 % 56,088 49.7 % 70,697 51.8 % (14,609 ) -20.7 % SG&A 114,208 53.9 % 143,057 53.2 % (28,849 ) -20.2 % 55,166 48.9 % 71,453 52.3 % (16,287 ) -22.8 % New store pre-opening costs - 0.0 % 1,117 0.4 % (1,117 ) -100.0 % - 0.0 % 254 0.2 % (254 ) -100.0 % Income (loss) from
operations$ (9,497 ) -4.5 %$ (7,009 ) -2.6 %$ (2,488 ) 35.5 %$ 922 0.8 %$ (1,010 ) -0.7 %$ 1,932 N/M
*53 weeks for fiscal 2019 as compared with 52 weeks for fiscal 2020.
Fiscal 2020 as Compared to Fiscal 2019
Net sales for the year endedNovember 28, 2020 declined$56,749 or 21.1% as compared to the year endedNovember 30, 2019 due primarily to COVID-related operational disruptions during the second quarter of 2020, during which where we recorded a 47% decrease in net sales as compared to the second quarter of 2019 and an operating loss of$9,170 for the period. Gross margins during the second quarter were impacted by increased inventory valuation reserves as we began a process to simplify our product offerings to make them more web friendly which resulted in increased clearance sales over the last six months of 2020. Although SG&A expenses were reduced during the second quarter, results were also impacted by reduced leverage from significantly lower sales.
Six Months Ended
Net sales for the six months endedNovember 28, 2020 as compared to the six months endedNovember 30, 2019 decreased$23,569 or 17%. Written sales, the value of sales orders taken, but not delivered, increased 3.6% for the six-month period in 2020 as compared to the comparable period in 2019 resulting in a retail backlog of$57,041 atNovember 28, 2020 as compared to$31,146 atNovember 30, 2019 in spite of there being seven fewer stores by the end of fiscal 2020. As previously discussed,Bassett and most of the home furnishings industry has been faced with continuing logistical challenges from COVID-related labor shortages and supply chain disruptions creating significant delays in order fulfillment and increasing backlogs. Gross margins for the six months of 2020 as compared to the comparable period in 2019 decreased by 210 basis points due to the increased clearance sales as discussed above. SG&A costs for the last six months of fiscal 2020 as compared to 2019 decreased 340 basis points due to lower marketing and promotional spending, decreased compensation costs due to permanent workforce reductions and lower travel costs partially offset by decreased leverage of fixed costs from lower sales volumes. SG&A expenses were also reduced by a non-cash gain of$1,160 resulting from the termination of a lease for a store closed during the six months endedNovember 28, 2020 . Logistical Services Segment
Revenues, operating expenses and income from operations for our logistical
services segment were as follows for the full fiscal years and last six months
ended
Full Fiscal Year Last Six Months
Change from Change from
Prior Year Prior Year
2020 2019* Dollars Percent 2020 2019 Dollars Percent
Logistics revenue $ 75,158 100.0 % $ 80,074 100.0 % $ (4,916 ) -6.1 % $ 38,584 100.0 % $ 38,230 100.0 % $ 354 0.9 %
Operating expenses 73,913 98.3 % 78,219 97.7 % (4,306 ) -5.5 % 36,332 94.2 % 37,339 97.7 %
(1,007 ) -2.7 %
Income from operations
*53 weeks for fiscal 2019 as compared with 52 weeks for fiscal 2020.
Fiscal 2020 as Compared to Fiscal 2019
Net revenues for the year endedNovember 28, 2020 declined$4,916 or 6.1% as compared to the year endedNovember 30, 2019 due primarily to COVID-related operational disruptions during the second quarter of fiscal 2020, during which we experienced a 24% decrease in net revenues as compared to the second quarter of 2019 and incurred an operating loss of$1,842 for the period. 23 --------------------------------------------------------------------------------
Six Months Ended
Net revenues for the six months endedNovember 28, 2020 as compared to the six months endedNovember 30, 2019 increased$354 or 0.9%. Operating income increased$1,361 for the last six months of fiscal 2020 as compared to the comparable period in 2019 primarily due to improved fleet costs driven by lower fuel prices and increased demand for over the road trucking partially offset by higher warehousing labor costs as Zenith has been challenged to find and maintain freight-handling personnel in its warehousing operation due to the previously discussed COVID-related labor shortages.
Other Items Affecting Net Income (Loss)
Other items affecting net loss for fiscal 2020 and 2019 are as follows:
2020 2019
Interest income (1) $ 236 $ 568
Interest expense (2) (49 ) (6 )
Net periodic pension costs (3) (499 ) (883 )
Net gains (cost) of company-owned life insurance (4) 647 (39 )
Other investment income (5) 5 57
Other (903 ) (842 )
Total other loss, net $ (563 ) $ (1,145 ) (1) Consists of interest income arising from our short-term investments. The
decline in interest income for fiscal 2020 as compared with fiscal 2019 was
due primarily to lower interest rates as well as lower average invested
balances. See Note 4 to the Consolidated Financial Statements for additional
information regarding our investments in certificates of deposit.
(2) The increase in interest expense in fiscal 2020 over fiscal 2019 is due to
the addition of several finance leases for tractor and trailer 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 gains arising from death benefits from Company-owned life insurance
of
(5) Primarily reflects gains arising from the liquidation of our previously
impaired investment in the Fortress Value Recovery Fund I, LLC , which was
fully impaired during fiscal 2012. The liquidation is complete as of
November 28, 2020 .
Provision for Income taxes
On March 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 ended November 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) of $(6,365) , $188 and $3,988 in
fiscal 2020, 2019 and 2018, respectively. Our effective tax rate of 37.9%
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. Our effective tax rate of (10.8%) for 2019 differs from the federal
statutory rate of 21.0% primarily due to the non-deductible goodwill impairment
charge. Other items affecting the rate include the effects of state income taxes
and certain other non-deductible expense. 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 $4,468 as of November 28, 2020 , which, upon
utilization, are expected to reduce our cash outlays for income taxes in future
years. It will require approximately $17,000 of future taxable income to utilize
our net deferred tax assets.
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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 2020 was$36,675 compared to$9,809 for fiscal 2019, representing an increase in cash provided by operations of$26,866 . This increase in operating cash flow is primarily due to a substantial increase in customer deposits taken against unfilled orders, decreased investment in inventory as there were no store openings in fiscal 2020, other changes in working capital due in part to the timing impact of the additional week in the prior year period, improved operations in our retail segment, and cash conservation measures implemented in the second and third quarters of fiscal 2020 in response to the impact of COVID-19. Our overall cash position increased by$26,112 during fiscal 2020, compared to an overall decrease of$13,781 during fiscal 2019, an improvement of$39,893 over the prior year. In addition to the improvement in cash flows from operations, cash used in investing activities was$3,747 for fiscal 2020 as compared to$11,173 used in the prior year, a net decrease of$7,426 . This decrease was primarily due to lower capital expenditures in the current year and proceeds from the sale of our closedGulfport store location in fiscal 2020, partially offset by lower proceeds from the maturity of investments in CDs as compared to the prior year. Net cash used in financing activities was$6,816 for fiscal 2020 compared to$12,417 used in fiscal 2019, a decrease of$5,601 . This decrease is primarily due to lower repurchases of our stock primarily in response to COVID-19. Share repurchases totaled$2,208 during fiscal 2020 as compared to$7,345 repurchased during fiscal 2019. As ofNovember 28, 2020 ,$8,431 remains authorized under our existing share repurchase plan. With cash and cash equivalents and short-term investments totaling$63,514 on hand atNovember 28, 2020 , 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. Debt and Other Obligations Our bank credit facility, which was amended effectiveJune 15, 2020 , provided for a line of credit of up to$50,000 throughDecember 31, 2020 , after which date the maximum availability was reduced to$25,000 . AtNovember 28, 2020 , we had$2,881 outstanding under standby letters of credit against our line, leaving availability under our credit line of$47,119 . In addition, atNovember 28, 2020 we had outstanding standby letters of credit with another bank totaling$325 . The line bears interest at the rate of LIBOR plus 1.9%, with a fee of 0.25% charged for the unused portion of the line, and is secured by a general lien on our accounts receivable and inventory. Under the terms of theJune 15, 2020 amendment, all covenants based on financial ratios were waived for fiscal 2020. We currently expect to be in compliance with these covenants, which include a minimum fixed charge coverage ratio and a maximum debt to tangible net worth ratio, through the end of fiscal 2021. The credit facility matures onJanuary 31, 2022 . 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 warehousing and distribution hubs used in our logistical services segment. We also lease tractors, trailers and local delivery trucks used in our logistical services and retail segments. The total future minimum lease payments for leases with terms in excess of one year atNovember 28, 2020 is$165,117 , the present value of which is$141,856 and is included in our accompanying consolidated balance sheet atNovember 28, 2020 . We negotiated with a number of our landlords to obtain relief in the form of rent deferrals or abatements of rent as a result of the effects of COVID-19 on our business. AtNovember 28, 2020 , the remaining deferred rent was$1,027 which primarily represents rent deferred to fiscal 2021. We were contingently liable under licensee lease obligation guarantees in the amount of$1,811 atNovember 28, 2020 . Remaining terms under these lease guarantees range from approximately one to five years. See Note 15 to our condensed consolidated financial statements for additional details regarding our leases and lease guarantees.
Dividends and Share Repurchases
During fiscal 2020, we declared and paid four quarterly dividends totaling$4,545 , or$0.455 per share. During fiscal 2020, we repurchased 202,711 shares of our stock for$2,208 under our share repurchase program. The weighted-average effect of these share repurchases on both our basic and diluted loss per share was approximately$0.01 per share. The approximate dollar value that may yet be purchased pursuant to our stock repurchase program as ofNovember 28, 2020 was$8,431 . Capital Expenditures We currently anticipate that total capital expenditures for fiscal 2021 will be approximately$16 to$18 million which will be used primarily for additional tractors for our logistical services segment, additional investments in technology and various remodels or updates to our existing store fleet. 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. 25 --------------------------------------------------------------------------------
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.
Contractual Obligations and Commitments
We enter into contractual obligations and commercial commitments in the ordinary
course of business (See Note 15 to the Consolidated Financial Statements for a
further discussion of these obligations). The following table summarizes our
contractual payment obligations and other commercial commitments and the fiscal
year in which they are expected to be paid.
2021 2022 2023 2024 2025 Thereafter Total
Post employment
benefit
obligations (1) $ 909 $ 1,119 $ 1,051 $ 1,010 $ 1,030 $ 7,878 $ 12,997
Website service
agreement 322 292 292 292 - - 1,198
Letters of credit 3,206 - - - - - 3,206
Lease obligations
(2) 33,894 31,458 26,215 19,249 15,620 38,270 164,706
Lease guarantees
(3) 347 347 353 382 382 - 1,811
Other obligations
& commitments 250 200 100 100 100 - 750
Purchase
obligations (4) - - - - - - -
Total $ 38,928 $ 33,416 $ 28,011 $ 21,033 $17,132$ 46,148 $ 184,668
(1) Does not reflect a reduction for the impact of any company owned life
insurance proceeds to be received. Currently, we have life insurance policies
with net death benefits of
See Note 10 to the Consolidated Financial Statements for more information.
(2) Does not reflect a reduction for the impact of sublease income to be
received. See Note 15 to the Consolidated Financial Statements for more
information.
(3) Lease guarantees relate to payments we would only be required to make in the
event of default on the part of the guaranteed parties.
(4) The Company is not a party to any long-term supply contracts with respect to
the purchase of raw materials or finished goods. At the end of fiscal year
2020, we had approximately
imported inventories, which are in the ordinary course of business.
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 Contractual Obligations and Commitments table above and 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.
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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 adopted ASU 2014-09, Revenue from Contracts with Customers (ASC Topic 606 or "ASC 606") effective as ofNovember 25, 2018 , the beginning of our 2019 fiscal year. ASC 606 requires a company to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration the company expects to receive in exchange for those goods or services. 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$39,762 and$25,341 as ofNovember 28, 2020 andNovember 30, 2019 , respectively. Substantially all of the customer deposits held atNovember 30, 2019 related to performance obligations satisfied during fiscal 2020 and have therefore been recognized in revenue for the year endedNovember 28, 2020 . 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. For our logistical services segment, line-haul freight revenue is recognized as services are performed and are billed to the customer upon the completion of delivery to the destination. Because the customer receives the benefits of these services as the freight is in transit from point of origin to destination, we recognize revenue using a percentage of completion method based on our estimate of the amount of time freight has been in transit as of the reporting date compared with our estimate of the total required time for the deliveries. We recognize an asset for the amount of line-haul revenue earned but not yet billed which is included in other current assets. The balance of this asset was$783 and$441 atNovember 28, 2020 andNovember 30, 2019 , respectively. Warehousing services revenue is based upon warehouse space occupied by a customer's goods and inventory movements in and out of a warehouse and is recognized as such services are provided and billed to the customer concurrently in the same period. All invoices for logistical services are due 30 days from invoice date. Allowance for Doubtful Accounts - We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. Our accounts receivable reserves were$1,211 and$815 atNovember 28, 2020 andNovember 30, 2019 , respectively, representing 5.1% and 3.7% of our gross accounts receivable balances at those dates, respectively. The allowance for doubtful accounts is based on a review of specifically identified customer accounts in addition to an overall aging analysis. We evaluate the collectibility of our receivables from our licensees and other customers on a quarterly basis based on factors such as their financial condition, our collateral position, potential future plans with licensees and other similar factors. Our allowance for doubtful accounts represents our best estimate of potential losses on our accounts and notes receivable and is adjusted accordingly based on historical experience, current developments and present economic conditions and trends. 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 are stated at the lower of cost or market. Cost is determined for domestic furniture inventories, excluding outdoor furniture products, using the last-in, first-out method. The cost of imported inventories and domestic outdoor furniture products is determined on a first-in, first-out 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$4,522 and$2,362 atNovember 28, 2020 andNovember 30, 2019 , respectively, representing 7.6% and 3.4%, respectively, of our inventories on a last-in, first-out basis. If actual demand or market conditions in the future are less favorable than those estimated, additional inventory write-downs may be required. 27
--------------------------------------------------------------------------------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 or Logistical Services. 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, which we adopted for our annual evaluation of goodwill performed as ofSeptember 1, 2019 ). 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. Based on our qualitative assessment as described above for the annual test during fiscal 2019, we concluded that, given declines in our income from operations, primarily resulting from operating losses incurred in our retail reporting unit, as well as in our stock price since the previous analysis in fiscal 2018, it was necessary to perform the quantitative evaluation in the current year. As a result of this test, we recorded an impairment charge of$1,926 during the year endedNovember 30, 2019 . In addition, 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 test of goodwill performed as of the beginning of the fourth fiscal quarter of 2020, we performed the qualitative assessment as described above and concluded that there was no additional impairment of our goodwill as ofNovember 28, 2020 . 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 28, 2020 , our indefinite-lived intangible assets other than goodwill consist of trade names acquired in the acquisitions of Zenith andLane Venture and have a carrying value of$9,338 . 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 28, 2020 our definite-lived intangible assets consist of customer relationships and customized technology applications acquired in the acquisition of Zenith and customer relationships acquired in the acquisition ofLane Venture with a total carrying value of$2,343 . 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 aBassett 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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