Bassett Furniture Hits A Bottom, Bounces Higher
The furniture industry, and Bassett Furniture (NASDAQ: BSET), are some of the more compelling stories that have emerged from the pandemic.
The furniture industry, and Bassett Furniture (NASDAQ: BSET), are some of the more compelling stories that have emerged from the pandemic. The entire industry was forced to reshuffle its supply chains and restructure its businesses due to the Trump/Xi trade war and that set it up perfectly for the pandemic. Revenue and sales took a hit that first quarter or so in the wake of peak-scare but the industry and the business have bounced back strongly since. While Bassett Furniture isn't the cheapest furniture stock in the group it is significantly undervalued at 13X earnings compared to the broad market in light of its growth, its leverage, its fortress balance sheet, and safe 2% dividend yield.
Bassett Furniture Sustains Growth Into The Current Quarter
Bassett Furniture had a robust second quarter, to say the least. The company's revenue of $124.10 million is up 94.5% from last year and beat the consensus by 670 basis points. This gain is against a fairly easy comparison in last year's second quarter so the two-year comparison is relevant. Revenue in the second quarter of fiscal 2021 is up 15% over the same time frame in fiscal 2019.
Revenue strength was driven by an acceleration in all three operating segments. Wholesale, which came in at 61% of revenue in the quarter, grew 129.7% YOY and 51% over 2019. The company CEO describes the wholesale business as being more wholesale business in a single quarter than they've done in years. The retail segment grew 88.4% and logistics services, the smallest segment by revenue, grew 45.8%.
Bassett Furniture’s second-quarter results also give evidence to the earnings leverage and pricing power of the industry. The company was led to enact three price increases since the start of the year to counter rising inflationary pressures, the price increases aided sales leverage to drive positive margins vs. negative margins in the prior years 2Q. The net consolidated operating margin came in at 6.8% with noteworthy strength in the wholesale segment that offset weaker margins in the retail line. On the bottom line, the GAAP EPS of $0.60 reverses the loss of $2.04 last year and beat the consensus by $0.25
The company didn't give any formal guidance but there are statements within the earnings release that lead us to believe revenue will be sequentially higher in the third quarter. To start with, company CEO Robert H Spilman, Jr referred to the “huge backlog” and how it grew by $19 million this quarter on increasing demand through wholesale and retail channels. That is compounded by the accelerated opening of an upholstery facility in North Carolina that will help increase production levels. The takeaway is the $117 million in revenue expected by the analyst is likely to be $8 to $10 million below actual results, if not more.
Bassett Furniture Pays A Comfortable Dividend
Bassett Furniture suspended its dividend early in the pandemic like so many other companies and, like others in the industry, resumed it rather quickly. The new quarterly payout is below the pre-pandemic levels but offset by two special dividends that have made up the difference and high expectations for future distribution increases. Not only is the company's revenue and earnings growing and beating expectations, but the company’s cash flow and free cash flow are also fantastic, and the balance sheet is a fortress. The takeaway here is the 2% payout is safe and expected to grow by double digits this year next. There's also a chance for special dividends too.
The Technical Outlook: Bassett Furniture Hits Bottom
Shares of Bassett Furniture were in decline over the past two to three months but that trend is over. The stock hit strong support the day before it released the Q2 earnings report and it is now bouncing higher. The report has shares up more than 8.5% and on track to confirm a full reversal very soon. The stochastic is already signaling a strong buy that will be confirmed when price action moves above the short-term moving average and the MACD throws off its own bullish crossover.
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