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Bassett optimistic about 2014
Despite slower start than 2013
Carter Underwood, plant manager for Bassett Plant No. 11 in the Patriot Centre, stands in an area that will be enclosed by the expansion. The project is about a month behind schedule and may be completed at the end of April, Bassett President/CEO Rob Spilman said Wednesday. (Bulletin photo by Mike Wray)
Thursday, March 13, 2014
By GINNY WRAY - Bulletin Staff Writer
Following a “great year” in 2013, Bassett Furniture Industries is optimistic about its prospects in 2014, its president/CEO said Wednesday, following the company’s annual meeting.
“We had a great year in 2013. 2014 has not gotten off to as robust a start as 2013, but we still feel good about the year,” R.H. “Rob” Spilman said after the meeting at the company’s headquarters in Bassett.
Severe weather in the first quarter of 2014 has delayed work on the expansion of Bassett’s Plant 11 at the Patriot Centre industrial park by about a month, Spilman said.
That expansion, to handle growing demand for casual custom dining furniture, likely will be complete at the end of April, he added. It is adding 5,000 square feet in the upholstered chair work area of the 90,000-square-foot plant, officials have said.
That plant’s 111 employees are working 40-hour weekly schedules, according to Jeb Bassett, senior vice president-wood. The 500 employees at Bassett’s Newton, N.C., plant also are working 40-hour schedules, Spilman said.
At the meeting, Spilman focused on the company’s performance in 2013, when it posted 16.9 percent “normalized” revenue growth; enhanced operating profitability by 97 percent (3.1 percent of sales); distributed $6.4 million to shareholders ($4.6 million in dividends and $1.8 million in share repurchase); and noted 23 percent appreciation in its stock price.
Consolidated net sales (for retail and wholesale sectors) for 2013 were $321 million, compared with $270 million in 2012, Spilman said. Income from operations doubled to $10 million. Net income fell to $5.1 million from $26.7 million in that period.
Wholesale net sales rose 30 percent to $215.5 million in 2013 from $185.2 million in 2012. Income from operations was $10.9 million in 2013, compared with $7.5 million in 2012. Upholstery sales accounted for 57 percent of the wholesale sales, and wood sales accounted for 43 percent.
Sales of domestic upholstery and wood rose more than that of imported upholstery and wood. The upholstery increase was 21 percent for domestic and 1 percent for imported sales, and for wood, the increase was 23 percent for domestic and 7 percent for imported sales.
Spilman described the company’s custom upholstery program, which offers the consumer thousands of choices and two-week delivery. He said that is “best of class in the industry,” and added that it “drives the store concept” in which designers work to tailor customers’ purchases to their individual preferences.
The wood furniture Bassett imports comes from 12 partners worldwide, but mostly from those in Vietnam, he said.
On the retail side, there are 93 Bassett stores — 59 company owned and 34 operated by licensees — and 600 multi-line furniture stores, Spilman said. As a percentage of sales, that breaks down to 42 percent from company-owned stores, 22 percent from licensee stores and 36 percent from furniture stores.
The company’s “retail team has been enjoying great success” with 13 consecutive quarters of increases, he said. “Keeping up with that is going to be challenging.”
He attributed the comparable stores’ success to quality designers in the stores; in-home consultations, which account for one-third of the sales and those of the biggest ticket items; personalized solutions in a short amount of time; better communication of the company’s “makeover” strategy through its relationship with HGTV; and design centers that have been remodeled into HGTV Design Studios at Bassett.
The company’s contract with HGTV will expire at the end of 2016, Spilman said in response to an audience question.
Bassett plans to open and/or reposition 10 stores this year, a volume Spilman called unprecedented. It opened five in 2013 and three in 2012.
There are costs to that, he noted. For instance, for each new store there are pre-opening costs, such as rent, of $100,000 to $200,000 and losses in the first two or three months as deliveries ramp up. As a result, he said, total startup losses typically range from $300,000 to $400,000 per store.
Bassett has had retail stores for 15 years, and “we are still looking for our first year of retail profitability,” Spilman said. Still, retail drives so much of Bassett’s wholesale business that “it’s a good use of capital.”
In 2013, the corporate stores posted operating losses of $1.5 million. That is down from $2 million in 2012, $4.5 million in 2011 and $7.4 million in 2010.
In response to a question from the audience, Spilman said depending on how the 2014 openings go, it is possible Bassett could open five to eight stores a year “indefinitely.”
Bassett’s open market sales — through a gallery program of independent dealers that emulate Bassett stores in displays, marketing and custom capabilities; furniture stores; design/contract, such as independent design firms and local designers; and specialty channels, such as exports, the military and juvenile furniture — rose 36 percent in 2013.
Spilman added that he thinks there is more room for growth in that area.
The company’s long-term strategy to create shareholder value includes leveraging wholesale costs with increased open market and store network sales; improving retail comparable store financials; investing in new high ROIC (return on investment capital) retail store properties; and disciplined capital allocation.
Spilman noted the company’s strong balance sheet, with $40.9 million in cash and short-term investments. Most of its capital spending is for new stores ($5.9 million in 2013 and an estimated $5.5 million in 2014), he added.
Its capital allocation projected for 2014 totals $19.2 million, down from $19.4 million in 2013. For 2014, that includes $13 million in capital expenditures (compared to $14.3 million in 2013), $4.8 in dividends ($2.9 million in 2013), $1 million for store repurchase ($1.7 million in 2013), and $400,000 in debt repayment ($500,000 in 2013).
According to Spilman, Bassett’s near-term goals are continuing its growth trend; further improving corporate retail financial metrics; leveraging growth to improve operating performance; and providing shareholders with short-term returns while building long-term value.
In response to a question from the audience, Spilman said 2-3 percent of Bassett’s sales are online. It does such sales where it has a store or someone who can deliver furniture to a customer’s home, he said.
The company would be doing more online sales if it were not for delivery issues, he said, adding that Bassett will look at how it can do more online sales in the future.