Basset Furniture Quietly Proves Its Value

A Soft-Landing For Basset Furniture 

The entire furniture industry has been in a correction and Basset Furniture (NASDAQ: BSET) was not immune. The correction was driven by historically high valuations, fear of slowing growth, peak-rebound, and a round of COVID-related shutdowns that had manufacturing in key hubs at a standstill. Now, more than a year later and with share prices cut in half, Basset Furniture is proving its resilience and value and offering up an attractive entry point. The company’s Q2 results certainly show business in the furniture industry has peaked and even suggest a deeper slowdown is on the way but what they also show is a company well-capitalized and well-prepared for the times. Oh yeah, the furniture business is still strong and fueling a healthy dividend and share repurchases too. 

Basset Furniture Comfortably Beats The Consensus 

Basset Furniture had an outstanding quarter despite the impacts of inflation, supply chain issues, and the shut-downs in Asia. The company reported $128.7 million in revenue despite the divestiture of the Zenith Logistics unit for a gain of 17% over last year. The revenue is nearly double the Q2 2020 level and is up roughly 2000 basis points versus 2019 which beat the Marketbeat.com consensus by almost 900 basis points. The gains were driven by strength in both segments with Wholesale up 15.3% and Retail up a stronger 21%. Internally, the company noted the combined efforts of Outdoor furniture are up 26.7%. 

Moving down to the margins, the news is equally impressive. The Wholesale margin contracted YOY due to the rapid pace of inflation offset by pricing increases but the decline was more than offset by an increase in Retail margin. The Retail margin improved by 730 basis points compared to the 420 bps decline in Wholesale to leave both the gross and operating margins in better shape than last year. The operating margin improved by 210 basis points to drive a 55.4% increase in operating profits. On the bottom line, the company reported $4.94 in GAAP EPS but this includes proceeds from the sale of assets. On an adjusted basis, the company reported $0.81 in EPS for a gain of $0.30 over last year and beat the consensus by $0.36. 

The company did not give specific guidance for the coming quarter or fiscal year but says the backlogs are still high on a historical basis and should drive robust results for the next quarter or two. Written sales have cooled off, however, but are trending in line with the prepandemic levels and suggest steady business if not comp-store growth. In regard to growth, the company says it is judiciously investing in growth with a focus on technology which we think is a good idea. 

Basset Furniture Returns Capital To Shareholders 

Basset Furniture pays a nice 3% dividend trading at $18.75 and it is also buying back shares. The company bought back 3.75% of the market cap during Q2 using proceeds from the sale of Zenith Logistics and funds from operations. The company may not repurchase at such an aggressive rate in the following quarters but we are expecting to see buybacks continue. The dividend itself is only 27% of the earnings and is backed up by a strong balance sheet. The company is carrying no debt and cash is on the rise. 

The Technical Outlook: Basset Furniture Bottoms, Moves Higher 

Price action in Basset Furniture bottomed over the past few quarters and looks ready to move higher. The post-release action has shares up more than 5.0% and trading above key resistance. Now that the stock is above the short-term moving average we see it moving up to the low $20’s and then up into the $25 range.