Bassett Furniture Industries, Inc. :BSET-US: Earnings Analysis: Q3, 2016 By the Numbers : September 30, 2016

Bassett Furniture Industries, Inc. reports financial results for the quarter ended August 31, 2016.

We analyze the earnings along side the following peers of Bassett Furniture Industries, Inc. – LaZBoy Incorporated and Hooker Furniture Corporation (LZB-US and HOFT-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 104.71 million, Net Earnings of USD 4.17 million.
  • Gross margins widened from 59.62% to 61.71% compared to the same period last year, operating (EBITDA) margins now 7.20% from 9.25%.
  • Year-on-year change in operating cash flow of 273.12% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings decline largely a result of non-operational activity, pretax margins improved from 6.50% to 6.58%.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2015-08-31 2015-11-30 2016-02-29 2016-05-31 2016-08-31
Relevant Numbers (Quarterly)
Revenues (mil) 111.01 115.56 106.87 106.67 104.71
Revenue Growth (%YOY) 30.32 22 15.16 -4.38 -5.67
Earnings (mil) 4.27 5.68 3.23 3.39 4.17
Earnings Growth (%YOY) 89.1 55.71 -45.7 -25.26 -2.37
Net Margin (%) 3.84 4.92 3.03 3.17 3.98
EPS 0.39 0.52 0.3 0.31 0.38
Return on Equity (%) 9.81 12.86 7.28 7.54 9.18
Return on Assets (%) 6.29 8.15 4.62 4.92 6.04

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Market Share Versus Profits

Revenues History
Earnings History

BSET-US‘s change in revenue this period compared to the same period last year of -5.67% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that BSET-US is holding onto its market share. Also, for comparison purposes, revenues changed by -1.83% and earnings by 23.04% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Earnings Growth Analysis

The company’s earnings declined year-on-year largely because of the increases in operating costs. Its operating margins (EBITDA margins) went from 9.25% to 7.20%. This decline in earnings would have been worse except for the fact that the company showed improvement in gross margins, from 59.62% to 61.71%. For comparison, gross margins were 60.23% and EBITDA margins 8.11% in the immediate last period.

Gross Margin Versus EBITDA Margin

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

BSET-US‘s improvement in gross margin has been accompanied by an improvement in its balance sheet as well. This suggests that gross margin improvements are likely from operating decisions and not accounting gimmicks. Its working capital days have declined to 57.94 days from 58.98 days for the same period last year.

Gross Margin Versus Working Capital Days

Cash Versus Earnings – Sustainable Performance?

BSET-US‘s change in operating cash flow of 273.12% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Margins

The company’s earnings decline is largely a result of non-operational activity. As a matter of fact, the company showed increases in operating (EBIT) and pretax margins. EBIT margins improved from 6.93% to 7.20% and pretax margins widened from 6.50% to 6.58%.

EBIT Margin Versus PreTax Margin
EBIT Margin History
PreTax Margin History

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Company Profile

Bassett Furniture Industries, Inc. engages in the manufacture and sale of home furnishings. It operates through the following segments: Wholesale, Retail, and Logistical Services. The Wholesale segment focuses on the design, manufacture, sourcing, sale, and distribution of furniture products. The Retail segment consists of company owned stores. The Logistical Services segment offers shipping, delivery, and warehousing services. The company was founded by John David Bassett in 1902 and is headquartered in Bassett, VA.

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