Everyone, great to have you with us. Thanks for joining the WTR Insights Conference session with Bassett Furniture. I'm Doug Lane, Managing Director for Consumer here at Water Tower Research, and I'll be guiding today's conversation. We're excited to be speaking with Mike Daniel, the CFO at Bassett. Welcome, Mike, and thanks for joining us.
Well, thank you, and appreciate you having me.
Before we dive in, a quick note. Bassett Furniture includes safe harbor statements in its quarterly earnings releases that are available on the Company News tab on their investor relations website. As a reminder, this fireside chat cannot be reproduced or transcribed without written permission from Water Tower Research. Feel free to send your questions in through the chat. We'll address as many as possible in a follow-up email or cover them in our Management Series Report later. Also, if you'd like to request a meeting with Bassett, simply indicate that on the conference portal. With that, let's get started. Mike, organic revenue growth is critical for Bassett. For the first quarter of fiscal 2026, wholesale sales were roughly flat, and retail sales were down 1.4% versus the prior year. What are your plans to drive greater revenue growth?
Yeah, let me just first start by saying the most important piece to what we can do is to grow our sales in our existing store boxes, be it our corporate stores or our licensee stores. That is first and foremost the most important thing that we can do. Now, how are we going to do that? Well, there's a couple of things that we do rely on, and particularly the brand. We've been around for 124 years, and obviously the brand is well-known, and that's really the biggest thing that we lean on. Now, once you get past that, the other things that we're kind of using to grow the sales, well, we've had great product introductions, particularly some casegoods collections that we have introduced in the last year, kind of a whole home type collection.
There have been three of those that really have gotten great response. Another product offering that's gotten great response is our HideAway Dining program. When I say HideAway, let me first just say that it is solid hardwood furniture made through our BenchMade process and assembled and finished in our manufacturing location here in Martinsville, Virginia. HideAway being there's a leaf, typically you have a leaf to a table, and you have to take that leaf and go put it in the closet, so to speak. Well, with this program, you actually store the leaf right there in the table. You open it up, you can put the leaf down, closes in behind it. That has been a new program that we introduced that's really selling well. Really, the biggest thing that we have is our upholstery operation.
Roughly 75% of what we sell is upholstery. The biggest piece of our upholstery facility is what we call our True Custom upholstery program. That's where customers can come in, they can order a sofa in really 6-in increments, starting from 60 in on up to, I think it's 118 in. I may have the math wrong, but somewhere in that range, and a myriad of different options that you can have with that. After that, you got over 400 fabrics that you can choose from. That's one thing that we think we do better than anybody, both from the number of options we provide, but then the quick ship nature of the program. We can take an order, manufacture it in less than three weeks, and get it into the home in anywhere from 30 -45 days.
We think that's best in class. That's really the guts of what we lean on from a product standpoint. One other thing that we have done just recently, we have historically had the Bassett Outdoor brand in our stores. While we've had the brand in the stores, we also own the Lane Venture brand. Lane Venture's been around for 50+ years, really has, I guess, more brand recognition than Bassett Outdoor. We've really taken the Bassett Outdoor brand, melded it into the Lane Venture brand. Now when you come into our stores, instead of seeing Bassett Outdoor, you're going to see the Lane Venture brand. We think that's going to be, well, certainly it's an added outlet for the brand, but we think that gives better brand recognition to our outdoor capabilities. I go back to just what I said.
The first, push more product through the existing boxes. As with any retailer, the number one fixed cost that you have to deal with is the occupancy costs. The more that we can leverage those fixed costs, the better we're going to be.
Yeah, no question about it. Just basic store economics, right?
Yep.
Along with all you're doing with your existing stores, you're also opening up new locations. You have company-owned stores that you're opening. I know that sometimes you acquire licensed locations. What are your plans there?
Yeah. Let me just start with the licensees, because it's an interesting phenomenon that's happening now. The licensees are starting to get, and I'm going to use the term long in the tooth. They're getting older. Some may or may not have succession plans in place, and those that really don't have succession plans gives us an opportunity to buy out the licensee, if you will. We have had one of those opportunities this past month in the Philadelphia market. Happy that we've been able to take over some of that operation in that market. Frankly, I expect some more of that to happen in the future. We're not out there trying to buy out our licensees.
It just gives them the opportunity to, if they want to get out of the business, go to the mothership, and generally, we'll acquire the business. Now, on the corporate store side, we do have two new store markets that we're opening this year. It's been really two or three years since we've gone into new markets. One is Cincinnati. It's going to be opening next month. The other is Orlando, which we will open probably late in the third quarter, represents, again, new markets. We've gotten leases in those locations. The thing about these store projects, you just don't go say, "We're going to open up in Orlando," and two days later, you've got a lease. There is much more gestation period. You got to go look, and it takes months to generally find an appropriate lease.
We've been looking at both of those markets for the last couple of years and happy to be in a position to open up, again, Cincy in next month and Orlando next quarter. Now, with those significant capital investments to build out the stores and to make them into a Bassett store, if you look at last year when we had $4.5 million of capital expenditures, this year's going to be considerably more. On top of those two markets, we're also repositioning our Long Island store, which historically has been in a very nice area. The rent factor just never worked out for us, and so we're moving to a location with a much better rent factor associated with it. Again, here's a new box that we're going to have to put some capital expenditures in. We're excited about those.
Right now, we really don't have anything in the hopper after that. We're certainly looking at locations, but nothing that's got to the point where we're ready to talk about it.
No, that makes sense. It's still early, and you have your hands full this fiscal year. Just as a rule of thumb, can investors expect a couple of new stores each year, just in general?
That's the cadence that we've always wanted to get to.
Okay.
Is about two new stores a year. I don't see us doing that next year because of just where we are in the process. Ultimately, that's where we want to get to, is two to three new stores a year.
Okay, fair enough. Let's talk about e-commerce. Your e-commerce numbers have been strong for the past several quarters, up in the double digits. How does e-commerce fit into the overall Bassett ecosystem?
Yeah, great question. Let me just preface that by saying if you go back five to 10 years, and you look at how we used the website, it primarily was used more as a marketing tool as opposed to trying to really use it as something to drive e-commerce. Now, we have taken the tack in the last couple of years that we want to get more, I don't know, you can say aggressive in e-commerce. We did put in a new platform in 2023. We have seen, as you pointed out, significant gains in the last six quarters or so. We still believe most customers want to still go in, touch, feel, sit on, look at the finishes before they pull the trigger, particularly at our price points.
We look at the website and e-commerce and where we have to get to is a true omni-channel model, I guess you'd say. Seamless that, all right, I look at something on the website, go to the store, touch and feel, go back and order it, and feel comfortable about that process. We're getting to that point where we're much better from an omni-channel standpoint. Again, that's where we're headed. Yes, we've been up, as you said, double digits. It's actually 25% up in the last quarter. I guess the other thing that I would point out is we don't have stores, we don't have partners in Montana. We can now deliver to Montana. We've got the 48 contiguous states. We can deliver pretty much anywhere in those 48 states.
We have seen an uptick in sales because we've been able to do that, and we do that through our delivery partner, and very proud and pleased with how that's working out.
No, that makes sense. E-commerce is really part of your overall omni-channel strategy, and in this day and age, you really need it, don't you?
Correct.
You also have two gallery concepts to grow the dedicated wholesale network. You've got the Bassett Design Centers and Custom Studios. What are the differences between the two, and how are they performing relative to the overall company?
Right. If you look at our wholesale sales, 60% of our wholesale sales goes to the licensed and corporate store network. There's 40% that goes to traditional third parties, and I say traditional third-party retailers. These two concepts you just said are the main ways that we try to take the Bassett brand to those third-party retailers. We've got the Bassett Design Centers, roughly 3,000 sq ft-5,000 sq ft, right inside a retailer. There's been gallery programs like that in a store-within-a-store concept for many years. That concept's certainly not revolutionary, but what we do is in that 3,000 sq ft-5,000 sq ft, we have a great representation of our Bassett True Custom upholstery, which is, again, as we said, the most important piece to our product lineup.
In addition to that, we also have some of the custom wood that we do, the casual dining program. We have displays of that, and other pieces of Bassett Furniture. It's really a good overall brand representation. We also have the Custom Studios, which is about 1,000 sq ft, and those solely around the True Custom program. We have about 60 of those, and this just started a little over a year ago. The concept or the idea is, here's 1,000 sq ft, small footprint, very little inventory required, and they get to see the True Custom program. Hopefully, they have such great success with that we can step them up to the Bassett Design Centers with 3,000 sq ft-5,000 sq ft. We have seen that that has happened three times in the last quarter, so very happy with how that's working.
Both are very important to growing the Bassett brand and particularly the wholesale sales.
Bassett also has a history of providing complimentary design services at the retail store and a reputation for a high level of customer service. Your philosophy is based on building strong long-term relationships with each customer, and retail salespeople are referred to as design consultants. One of the opportunities you've identified for growth is to expand your reputation to outside interior designers and design firms. This is new, and so what are the plans under this initiative?
Yeah, that's one channel we have not focused on in the past. We've had our retail stores, and we've also had the typical furniture stores. As we looked at our product line and looked at the way we can do custom furniture, the interior designers, they do projects, and our manufacturing process, our product offerings really are geared to projects. We just see it as a natural extension of the brand and natural extension of what we do and what we do well. Let me back up, because one thing I should say about that is what we're seeing is fewer and fewer furniture stores. People are retiring, and people are finding out it's hard to be a furniture store.
Hmm.
There's fewer and fewer people to sell to. Again, another opportunity to sell our brand in another channel. We're focusing on that. We are, I'd say, in the early stages of really getting our act together. Got to work with our sales reps out in the field to give them the tools and get them up to speed on how best to go after designers, if you will, and design firms. One thing that we have done or actually haven't done, we're in the process of doing, we're moving out the Bassett showroom to a location that's really more conducive to the design trade, I say conducive, much more designer traffic in this area. Another thing that we're doing to address that.
I guess, kind of, as another piece to that, we have opened up, or shouldn't say opened up, but we've started the Bassett Hospitality division, again, looking at contract commercial projects, and we've hired somebody that has a significant amount of experience in that area. A lot of that's going to be pick and shovel work. We do see that, again, another opportunity for us. Let's see, is there anything else? I don't think there's anything else to expound upon there, but looking forward to getting really involved in that, though.
There's so much going on here for you guys to gain market share. There's a lot of company-specific initiatives underway, which is impressive, but you're operating under a very difficult macro backdrop. We've talked about the housing market and the furniture market and all that, and a macro environment. Maybe we should touch a little bit, Mike, on how you're responding to the macro environment today with all that's going on in the Middle East.
That's obviously a great question. Tariffs have been quite disruptive for the industry. Funny, we talk about April 2nd. We just passed April 2nd, which was Liberation Day last year.
Right
Now, I don't know if it was very liberating, but it was called Liberation Day. That kicked off all the tariff disruption. The good thing is we're all wading through this together. None of us know what could happen. I'm just using the tariffs at this point. In fact, we just had a meeting this morning, and there's new interpretations of what the changes in tariffs mean to steel and other inputs into the product. So, still questions about that. We have waded through that. Actually, I'm not going to use the term regularly scheduled price increases when I say we sort of have a cadence on when we do price increases if we're going to do them.
We did a regular price increase early in the summer, and as things got more and more disrupted, we did institute on the wholesale side a tariff surcharge. You can call that a price increase, call it a surcharge because it doesn't technically affect the price of the product, but they do have to pay the surcharge. What we didn't do is increase the retail prices at that point. Consequently, particularly for Q4 of last year and Q1 of this year, our retail margins were a little thin comparatively. We did, kind of, on our regular cadence, did do a retail price increase in January. The margins should be better going forward.
Now, on the other side, other than tariffs, really the petroleum costs, the fuel costs, that's resulting in our partner that hauls our product, that delivers our product, instituting higher and higher, I guess you'd say, fuel surcharges. There's another cost that's increasing that we have to deal with. We've instituted a fuel surcharge on our side, basically to offset what we're having to pay from a fuel standpoint. The other piece on the petroleum side, really, the foam, which is a petroleum derivative, and is very significant to our upholstery process. I think Furniture Today said they were seeing anywhere from 10%-20% increases coming through, and this has been in the last couple of weeks. We, too, are getting a 12% increase starting in the middle of this month.
Again, we'll have to look at that and decide on what pricing we have to change to take care of that. Costs have been increasing. It's made it difficult to manage the business.
Yeah. There's been very little relief on the macro front, that's for sure. We'll stay tuned on that. Let's talk a little bit about what this means for shareholders. Talk a little bit about how you return cash to shareholders, between the dividend and share repurchase.
Right. Yeah. Let me just give a, not a big history, but a history. We've been blessed with conservative forefathers in this company, and they've left us with a healthy balance sheet that we've continued to nurture and lean on when we need to, add to when we can. Consequently, we're in a position that we can weather these kind of storms. One thing we didn't talk about, though, in the macro is the housing industry, and that's the biggest single item that drives our business. The disruption, the housing market, it makes it difficult to manage the business and to manage your balance sheet, and to manage the cash flow, and look at the things that you're talking about. Dividend, historically we pay a dividend. Above all, that's what we want to protect. We do repurchase shares rather opportunistically.
There's no stated formula that we have, but we look at that every day and sort of make a call almost every day. Do we buy or do we not? Ultimately, our goal is to make sure we're giving appropriate returns to our shareholders. That above all is what we're trying to do, be it repurchases, dividends, and just running a good business.
Right. That's important. There's a lot of near-term volatility that we're talking about between the macros and just the cyclical aspect, the macroeconomic, the geopolitics.
Yeah.
Let's step back a little bit. As you talked about earlier on in this chat, you're a 124-year-old brand. You've navigated decades of industry change. Just look out over maybe three to five years, and what gives you the most confidence that Bassett's well-positioned to emerge from this current cycle stronger than ever?
Well, first and foremost, you said it, 124-year-old brand. We'll continue to lean on that brand, and people know the Bassett brand, and it's known for quality, and that's first and foremost. We're going to continue investing in the business, and trying to drive innovation with the new products, e-commerce. Again, the number one thing that we think we're the best at is custom upholstery and driving that as best we can through our stores, through our Bassett Design Centers, through our Custom Studios. Of course, we've got the new stores that are coming on. Hopefully, they'll be profitable. We expect them to and drive more business. We've got, as we've talked about, the design business that's on the radar, the Hospitality division. We think all of those things together are going to continue to drive the Bassett brand and drive the business.
I think it's a good strategy that we've got in place, and hopefully, get a little bit of help from the housing market. We get a little bit of help. We've cut our costs to the point where we can really leverage when we get additional sales.
No, it sounds like there's a lot going on here. You're doing all you can from a company-specific standpoint, and to your point, it is a cyclical business.
Yeah.
Any kind of help you can get on that side would be welcome, I'm sure. Mike, thank you for joining us. It was a great discussion. Thanks to everybody else for tuning in.
Thank you, Doug.
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