Bassett Furniture Industries, Incorporated

Hello, and thank you for standing by, and welcome to BASIC Furniture Industries Q2 2024 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask the question during this session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. I would now like to turn the call over to Mike Daniel, CFO of Bassett Furniture. Sir, you may begin.

Thank you, Tawanda, and welcome to Bassett Furniture's earnings call for the second quarter ended June 1, 2024. Joining me today is our Chairman and Chief Executive Officer, Rob Spillman, Jr. We issued our news release yesterday after the market closed, and it's available on our website. We have updated our reporting format with a fresh look that we believe provides an efficient and easy comparison of important metrics compared to the prior year's second quarter. We're offering today's conference call to provide additional information about our business, including the restructuring plan we announced in the release. We will open the call for a Q&A session after our remarks. In addition, we will post the transcript of the call on our investor site within 48 hours of this call. We believe this process will help enhance how we share our quarterly results with you, and we welcome your feedback. During today's call, certain statements we make may be considered forward-looking and inherently involve risk and uncertainties that could cause actual results to differ materially from management's present view. These statements are made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. The company cannot guarantee the accuracy of any forecast or estimate, nor does it undertake any obligation to update such forward-looking statements. For more information, including important cautionary notes, please see the company's annual report on Form 10-K for the fiscal year ended November 25th, 2023. Other filings with the SEC describing risks related to our business are available on our corporate website. Now, I'll turn it over to Rob for comments about our second quarter. Rob.

Thank you, Mike. Good morning, everyone, and thank you for joining us today. The macroeconomic pressure currently exerted on the furniture industry continued in the second quarter. Elevated home prices, relatively high mortgage rates, and general inflationary tension remain persistent. We also know from our own customer data that many are spending more on experiences than they are in their homes, a reversal from what we saw during COVID. Revenue in both our wholesale and retail segments was down, with greater pressure on our retail business due to the higher level of associated fixed costs. Geographically, sales were stronger in areas where housing is hotter, specifically the southeast and across to Texas. Excluding the $2.7 million in additional inventory valuation charges that we levied, We were pleased with the strong consolidated gross margin that we recorded in the second quarter coming in at 55.7% compared to last year's 53.6%. Although inventories have dropped by 28.6 billion or 33% since the end of fiscal 2022, we believe that we can run an even leaner business in the future because certain elements of our assortment are not productively generating our expected sales velocity. Accordingly, this quarter we elected to record higher reserves on items in anticipation of the sell-off of more discontinued product over the course of the next couple of quarters. Our average retail ticket was $3,960, up 9% from last year. Design makeover projects comprise 43% of total retail sales, down slightly from last year. In the current economic environment that I discussed earlier, the big holiday sales events carry even more weight. We're pleased that our three-week Memorial Day promotion slightly exceeded last year's written business total. Additions to our online product catalog, ongoing website optimizations, and stronger promotional messaging proved to successfully drive consumer engagement during the key holiday period. Particularly notable over the Memorial Day selling event was the success of the addition of leather to our true custom upholstery program. also the recently introduced origins dining program drove new sales as we re-entered the everyday dining category with product designed for kitchen or breakfast areas of the home on the wholesale side we were excited about our showing at the high point furniture show in april for two reasons first The showroom debut of our Bassett design studio concept spotlighting our true custom upholstery program. And second, the strategic outreach to the interior design community through our selling space located in the inner hall area of the International Market Center. We were pleased that we made contact with over 400 interior designers and design firms. and we expect this will yield results well into next year. In our news release yesterday, we reported that we are executing a restructuring strategy effective immediately. While we are going through a down period for the industry, we are setting the table for the inevitable rebound in consumer purchases for the home. This plan is designed to grow our business and to get the most out of our revenue and our working capital to drive profitability. There are five key points to the plan. Number one, drive organic growth through Bassett branded retail locations, omnichannel capabilities, and enhanced customization positioning to expand our dedicated distribution footprint. Number two, Rationalize U.S. wood manufacturing from two locations into one primary location supported by a small satellite operation. Number three, optimize inventory and drop unproductive lines. Number four, improve our overall cost structure and invest capital in refurbishment of current corporate retail locations. And number five, close the NOAA home e-commerce business. We believe that the depths of our custom furniture manufacturing capabilities and our quick response made in America model makes us unique in the industry. With our network of company owned and licensed stores and our organization of highly trained design consultants, we are leveraging people and technology for customer acquisition. Although we are exploring three new markets for store locations, we do not plan any further openings this year. Capital investments are targeted for refurbishment of existing corporate locations. Our approach is well suited to offer personalized solutions to the interior design community to better serve their clients, and we are excited about showcasing our long proven true custom upholstery offering and the new Bassett Design Studio format introduced earlier this year. Many in the industry now refer to offering more than one fabric on a frame as custom upholstery. Our true custom program truly represents what custom upholstery really is, a choice of frame length, arm, back and face styles, cushion options, multiple fabric and leather options, et cetera. Designed for better independent furniture retailers, the 1,000 square foot concept is off to a great start. Recall in April in our first quarter report, we had signed 17 new locations, and through May we are up to 30. For a modest investment in fixtures and displays, our customers receive the quick response setup that Bassett is recognized for, and they are giving us very positive feedback. They're happy with the margins and the fact that they can carry lower inventory. We are targeting to have 50 dealers in the fold by year end toward our ultimate goal of at least 100 locations. Because we believe we can manufacture the same amount of U.S.-made wood furniture that we are currently providing more efficiently and cost-effectively, we are reconfiguring our domestic wood manufacturing footprint. This action is underway and resulted in a charge of $1.4 million for the second quarter. Our goal is to lower our cost structures. We have completed the initial phase of our retail warehouse consolidation that resulted in the closing of three warehouses during the quarter. We also plan to move out of a major wholesale distribution center at the end of the third quarter that will result in significant savings and could result in an additional charge of up to $1 billion to be taken in the third quarter. We made the decision to close NOAA Homes the mid-price e-commerce furniture retailer headquartered in Canada with operations in Canada, Singapore, the U.S., and the U.K. Despite providing NOAA consistently with the working capital that was needed starting in 2022, they were not able to generate sales growth. As a result, we did not feel that additional funding of the operation was in Bassett's best interest and have made the decision to wind down their operation by the end of the fiscal year. Our capital allocation strategy remains to focus on investments in our business, like those I've outlined, and to deliver returns to shareholders through dividends and share repurchase. We also announced on Tuesday that the Bassett Board of Directors approved an 11% increase and our quarterly dividends. We're proud to increase our dividend, and this is a sign of confidence in our growth potential and cash flow. Our company has a long history, 122 years and counting, of weathering economic cycles from housing to inflation. We believe that our restructuring plan, backed by our strong financial position and consistent cash dividend, will grow revenue, reduce costs, and strengthen operating margins. As we implement this plan, we expect the back half of 2024 will be a reset for our business. We are optimistic that consumer demand will improve and that our unique competitive advantages will allow us to increase market share and deliver long-term shareholder returns. Now I'll turn things over to Mike for more details on our financials.