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Bad debt charges lead to $8.3 million quarterly loss for Bassett

Company expects large gain in second quarter as it sells its stake in the IHFC

Jay McIntosh -- Furniture Today, April 13, 2011

BASSETT, Va. — An increased provision for bad debt charges at its dedicated store network, along with other charges, led Bassett Furniture Inds. to an $8.3 million loss in its fiscal first quarter despite a 21.5% sales gain.

The loss in the quarter ended Feb. 26 topped the $1.7 million loss the manufacturer and retailer reported in the comparable period a year earlier.

Sales rose to $64.3 million from $52.9 million a year earlier, driven by a 14% jump in wholesale sales, additional company-owned stores and a 7% gain in comparable store sales. At the end of the quarter, Bassett owned 45 of its Bassett Furniture Direct stores - having acquired three stores and closed five during the quarter - while there were 51 licensee-owned stores, for a total of 96 in the network.

Bassett took a $6.8 million charge for bad debt in the quarter, compared with a $1.7 million charge a year earlier, which it said "reflects a more aggressive strategy for dealing with licensees who are having difficulty meeting their obligations to the company."

Excluding the bad debt charge and other one-time items in both quarters, the company said it would have earned $1.5 million in the latest quarter compared with a $300,000 loss in the period ended Feb. 27, 2010.

"Our weakest licensed and corporate Bassett Home Furnishings retail stores have been a drain on our operating results for the past several years," said Rob Spilman Jr., president and CEO. "The company has steadily addressed many of these situations by closing or acquiring stores.

"These efforts continue in 2011 as we assess the viability of all remaining stores. Driven by a 22% sales increase, the fundamentals of our business improved markedly on a year over year basis. However, the store by store appraisal process produced bad debt, lease termination, and restructuring charges that were responsible for our first-quarter loss," he said.

He said more charges of "a similar size and nature" would be taken in the fiscal second quarter.

"We look forward to then turning our full attention to effectively operating our corporate stores and strengthening the performance of many of the healthy licensed stores in our network," Spilman said.

Bassett also expects to record a big gain in the second quarter with the sale of the International Home Furnishings Center, which it said is expected to close on or before April 29. Bassett, which has about a 46% stake in the High Point showroom complex, said it expects to record pretax proceeds of $73 million to $75 million from the transaction.

Wholesale sales of $46 million in the latest quarter were up 14.1% from $40.3 million a year earlier, reflecting increased sales in Bassett's traditional business and the comparable-store gain in its dedicated network.

"Continuing to move the top line is our top priority for the remainder of 2011, despite the loss of sales volume that comes with store closings," said Spilman. "Therefore, we must concentrate on generating more revenue per dedicated Bassett retail location and on furthering our efforts to improve sales penetration in new and existing multi-line retail accounts in geographic areas that do not conflict with our stores."

He said the company had a "very encouraging" High Point Market with increased dealer attendance, "and we interacted with several significant independent retailers that shopped our showroom for the first time."

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