BASSETT, Va. – Bassett Furniture reported a 16.3% drop in consolidated sales during the third quarter ended Aug. 29, an impact that reflected double-digit sales declines across its retail and wholesale segments largely resulting from supply chain disruptions caused by the COVID-19 pandemic.
Consolidated sales totaled $91.6 million, compared with $109.4 million in the third quarter of 2019.
Meanwhile, net income was flat at $2.178 million, or 22 cents per diluted share compared with $2.157 million, or 21 cents per diluted share in the same period of 2019.
“The 2020 roller coaster churned on in our June-August quarter,” said Rob Spilman, chairman and CEO. “In short, business has boomed since the Memorial Day holiday at the end of May. Wholesale orders increased by 117% on a sequential basis compared with the May quarter, and we ended the quarter with a $37.4 million wholesale backlog, 223% more than our backlog of August 2019.
“Once again, we have very little insight into the sustainability of the ‘stay at home’ trend and the positive effect it has on the fortunes of Bassett and on our industry in general,” he continued. “Nevertheless, we are squarely focused on manufacturing and delivering all of the furniture that we possibly can as quickly as possible to maximize the opportunity that is presently before us.
“Unfortunately, a new series of challenges has arisen that has compromised our ability to turn the robust sales trend into revenue,” Spilman added. “The pandemic has disrupted all aspects of the traditional supply chain and resolution of the situation will probably take months to fully unfold.”
For example, Spilman said that the company has faced challenges in ramping up its manufacturing headcount that had been temporarily reduced due to furloughs.
“Efforts to ramp up manufacturing headcount were compromised in part by the $600 per week wage augmentation program stipulated by the CARES Act,” he noted. “Although the labor market has loosened a bit, ramping up staffing levels remains a major problem, especially in-home delivery, warehousing and upholstery manufacturing.”
He said this has been exacerbated due to the inability of some key fabric suppliers to increase their production levels to meet demand.
“In many cases, in fact, they have not been able to meet pre-COVID levels, much less to increase them,” he said. “Disruptions in the chemical industry on the U.S. Gulf Coast has impeded the production of ample stocks of a key ingredient in the manufacturer of polypropylene foam.”
As a result, the company has been allocated 85% of the pre-COVID usage of the foam Bassett uses in its upholstered seat cushions, a situation he expects to improve in the next two weeks.
“Import wood suppliers are also striving to achieve production levels that match current sales volume, although they have returned to pre-COVID strength, Spilman said. “Finally, a major container shortage brought about by the shipping companies’ quick shutdown in March has meant that there are currently not enough containers in Asia to meet demand, at least at the prices for which we have contracted.”
On the wholesale side of the business, sales dropped 11.4%, from $62.7 million to $55.4 million. On the retail side, sales fell 27.6%, from $66.5 million to $48.1 million. Sales in the Logistical Services division fell 5.6%, from $18.9 million to $17.8 million.
Spilman noted that on the wholesale side of the business, incoming orders across all channels accelerated as the quarter progressed, “culminating in a 40% year-over-year lift for the month of August.”
Combined corporate and licensed wholesale sales increased by 10% and accounted for 58% of incoming orders, the company reported.
“Driven by our 100 Bassett Design Centers and our Club Level motion program, open market sales grew by an astounding 61%,” Spilman said. “The pandemic has affected many furniture providers and, despite our challenges, we believe that our service level has held up better than most. Consequently, we appear to be gaining market share with the independent furniture store community, especially with our Club Level assortment. We were able to open several large accounts during the quarter that have and will continue to have a positive impact on our top line.”
He said the company also has been able to reconfigure the geography of a number of our sales territories “to gain greater market penetration and make way for a handful of seasoned sales representatives that have chosen to leave competitors and join Bassett. Finally, our Outdoor Division orders increased by 34% as Lane Venture continued to grow and our new Bassett Outdoor products were sold in our retail network for the first full quarter of its existence.”
Of the corporate retail side of the business, Spilman said that written sales exceeded delivered revenue by approximately $18 million during the quarter. This, he noted, was accomplished despite 20% of the fleet being closed for the first two weeks of June.
“Gross margins of 49.6% suffered as we began a concerted inventory reduction effort, which will continue for the remainder of 2020,” he noted. “Cost-cutting measures around advertising and payroll more than mitigated the margin shortfall, however. We were also moderately successful in obtaining rent abatements from some of our landlords, which was regarded by us as recognition of the inaccessibility to our stores caused by mandatory government shut-downs.”
He added that the company also remains committed to its domestic manufacturing strategy.
“Behind the scenes, we have been architecting product designs that will leverage our domestic supply chain and manufacturing prowess,” he said. “Of course, we operate in a global economy, and there are categories of finished products and componentry that will continue to be sourced from our partners from around the world. But we know that the appreciation for domestic artisanship is real and valued by American consumers today, and we intend to capitalize on this sentiment in a fashion that is unique to Bassett.”
He also noted that the Bassett dining program sold under the Bench Made sub-brand has been expanded and will appear in our stores and on the web in early 2021.
“A major hurdle that must be overcome in this journey is the development and retention of the next generation of manufacturing and logistics associates – a big job,” he added. “Made in America” requires skilled Americans, and the post- COVID environment has made a difficult task even more so as our labor pool has become more scarce and competitive to attract. Our team has embarked on an introspective examination of our facilities, work environment, compensation, and the requirements for every position to provide Bassett the fundamentals for staffing the “workforce of the future.”