Despite a bumpy history and several bankruptcies, if a company can survive the panic of 1907, the crash of 1929 and the Great Depression, Black Monday of 1987, and more recently the dot-com crash of 2001, housing crisis of 2008 and the Covid-19 crash in 2020, I think that company is worth a look.
Enter Bassett Furniture Industries Inc. (BSET, Financial), a furniture manufacturer and retailer founded in 1902 that is one of the oldest furniture manufacturers in the U.S. The company operates approximately 60 retail locations in the U.S. and Puerto Rico and licenses its retail brand to about 40 additional locations.
Bassett offers a wide range of indoor and outdoor furnishings with prices that are in line or slightly higher than competitors Pottery Barn or Crate and Barrel and more of a selection than RH (RH, Financial) and Arhaus (ARHS, Financial). All this adds up to $475 million in revenue over the last 12 months with a 12.8% profit margin.
In October 2022, the company's Board of Directors rejected proposals from CSC Generation Holdings, stating they undervalued the company. CSC was prepared to pay $21 a share, a sizable premium from the stock price as of this writing. Whether Bassett’s stock has been unfairly beaten down or not, I believe the future is likely to be bright.
Competitive advantages
The furniture industry is impacted by several macro factors, including economic conditions, housing markets and consumer trends. Economic growth usually translates into more disposable income for consumers, which often leads to increased spending on items such as furniture. Also, when more homes are being sold or built, the demand for furniture tends to increase. Even though we’re technically not in a bear market and unemployment is still near historic lows, the fear of recession remains as the U.S. economy comes off historically high inflation rates.
That said, Bassett possesses several competitive advantages that have contributed to its status as a leader in the furniture industry and will likely help it weather any downturn in the economy.
Bassett has been in the furniture business for more than 120 years, building significant brand recognition and a reputation for quality products, which customers have come to trust. The company offers a wide variety of quality furniture across multiple categories, including living room, dining room, bedroom, home office furniture and more. This wide product range allows it to cater to various consumer tastes and preferences.
One unusual advantage with Bassett is its ability to offer customization. Customers can choose from a range of styles, sizes, fabrics, leathers, finishes and other details to create furniture tailored to their specific preferences. The company operates both wholesale and retail business segments. This integration allows it to have better control over the supply chain and a closer relationship with customers.
Bassett has shown an ability to adapt to changing market conditions. For example, it has embraced e-commerce and adjusted its product offerings to meet evolving consumer demands. Its recent acquisition of Noa Home, an e-commerce furniture retailer, is a testament to this commitment.
Bassett is on sound financial footing
Financially speaking, Bassett has survived and grown through every market cycle. Despite several historical bankruptcies, it appears to have learned its lesson and is keeping a solid balance sheet these days.
Going back to 2005, the company had more than 110 stores, most of which were independently owned (97), and dealt a lot more with cheaper foreign furniture makers. Today, that dynamic has been flipped with the company owning a majority of its own stores. Noticing that many locals are willing to buy U.S.-made furniture at higher markups, Bassett decided to shift most of its production to the U.S. Prior to 2005, it had begun to restructure, reducing facilities and head count. This resulted in a much smaller company sales-wise.
By 2010, Bassett had built up 36 company-owned stores, but net sales had fallen from $335 million to $232 million. However, this was a step in the right direction in my view, and by 2015, the company was doing over $340 million in net sales. In 2022, Bassett’s revenue came in just shy of $500 million. Also, long-term debt now stands at zero outside of capital leases.
Thoughts on valuation
The company’s tangible book value currently sits north of $174 million, 35% higher than the company’s market capitalization. Bassett has over $8 per share in cash, and is priced at 28% of sales and 67% of book value. It also generates an incredible $39,220 in net profit per employee on 52% gross margins.
Bassett earned over $10 a share (including the negative years in 2019 and 2020) during the last decade. It took some of this capital and bought back a significant number of shares outstanding, which decreased from 10.9 to 8.9 million. Over that same time, the company paid out $4.20 per share in dividends, increasing the annual payment from $0.22 to $0.60 a year. In fact, despite a few years of missed payments, Bassett has paid dividends since the late 1980s.
