Bassett Furniture Provides A Bleak Outlook
Bassett Furniture did not have a bad quarter. The company produced revenue growth, margin expansion, and revealed high demand remains strong within the industry.
Systemic Challenges Weigh On Bassett Furniture Results
Bassett Furniture (NASDAQ: BSET) did not have a bad quarter. The company produced revenue growth, margin expansion, and revealed high demand remains strong within the industry. The problem is that systemic headwinds cut deeply into both the top and bottom lines causing great distress among investors. Headwinds within the economy at large are growing and threaten to hamper both revenue and margins for the foreseeable future but there is a silver lining. The silver lining, at least for Bassett, is that business remains strong and earnings more than support the 3% dividend yield. With shares trading at less than 10X earnings and at a key support level, we feel it may be time to start nibbling on Bassett Furniture once again.
Bassett Exceeds Pre-Pandemic Revenue, Invest In Growth
Bassett's results certainly show the impact of inflation and supply chain issues but also the company's aggressive moves to improve the supply chain and capacity for delivery. The company reported $118.91 in net consolidated revenue good for a gain of 29.9% over last year but there is a darker side to the story. Revenue is up YOY and 8.6% over 2019 but fell sequentially and missed the Marketbeat.com consensus by 50 basis points. 50 basis points is a slim margin but, with backlogs up another 7% for the quarter and still growing, Bassett Furniture should be exceeding the consensus figures not missing them.
Revenue strength was driven by the wholesale division which grew 32.1%. The retail division grew by 21.8% while the logistics division grew by 19.1%. The bad news is that, on the bottom line, the logistics segment cost the company 2.4% of sales due to rising costs and shortages throughout the global system. On a system-wide basis, however, the margin news is good. The operating margin of 3.8% is up 90 basis points from last year despite a - 3.3% margin in the Retail Segment. Retail margin came in below zero because input costs and freight have so far outpaced the company's efforts to raise prices. Bassett has raised prices 4 times this year already and is likely to increase them again.
As for earnings, the company reported GAAP earnings of $0.31 which is up from last year's $0.22 and is in line with the consensus estimate. Looking forward, the company is expecting some margin relief in the form of cost-saving efforts that have been enacted over the past year. Those benefits are, however, tied up in inventory and yet to be realized. We expect to see the company realized a low to mid-single-digit margin impact once the backlogs are alleviated.
Bassett Dividend Is More Than Comfortable
Bassett’s 3% dividend is more than comfortable in our opinion. The 30% payout ratio is backed up by an incredibly strong balance sheet and robust business so we are expecting future growth. The company has a one-year history on the books right now but the longer-term view reveals incremental distribution increases and special distributions along the way. Regardless, 3% at 10X earnings is nearly three times the yield of the average S&P 500 stock at less than half the cost. We like those numbers.
The Technical Outlook: Bassett Furniture May Be At A Bottom
Shares of Bassett Furniture fell more than 6% and the wake of its earnings report and gloomy outlook but price action may be at a bottom. Price action failed to break through the $18 level and the technical indicators remain strong. It is possible that Bassett will fall through the $18 level and moved lower but if it does it will only become a more attractive buy. These headwinds are plaguing the entire industry and, while they present challenges for some companies, are opportunities for others. They will be overcome. Longer-term, Bassett Furniture business is well supported and only limited by its capacity to produce and deliver furniture, and the company is working to fix those issues. Regardless of the nearer-term price action, we see the shares retesting the recent highs near $36 which is good for a gain of 100% from the current price action.