BSET - Bassett Furniture (BSET) - Call With Management On Business Conditions

Management Call. We were able to speak with CFO Michael Daniel regarding the Company's recent press release on current business conditions. The biggest challenge, one affecting many industries, is finding labor, and then keeping labor. The lack of labor supply is rippling throughout the organization, increasing cost pressure. Bassett also continues to receive additional cost increases from vendors which will negatively impact wholesale margins for the third quarter and likely will result in a fourth price increase this year.COVID Rears Again. In addition, the recent resurgence of COVID in Asia has caused some suppliers to temporarily cease operations. The Company sources a significant amount of its bedroom and formal dining room furniture and certain component parts for manufacturing operations from Asia, particularly Vietnam.Pace of Business Remains Strong. The front end remains positive. Wholesale orders for the fiscal month of July 2021 increased by 2% over July 2020 and 29% over July 2019 and wholesale shipments increased 11% over July 2020 and declined 1% as compared to July 2019. Wholesale backlog increased 9.8% since the end of the second quarter.Updated Projections. We had mentioned the challenging conditions in our 2Q21 update but it appears the conditions are not improving. Given the update, we are lowering our 2H21 estimates. For the third quarter, we reduced our revenue projection to $120 million from $124 million and our EPS estimate to $0.32 from $0.48. For the full year, we are now at revenue of $482.7 million, down from $487.7 million, and our EPS is now at $1.90, down from $2.12.Maintaining Outperform and $32 Price Target. In spite of the current challenges, we are maintaining our Outperform rating and our $32.00 12-month price target. The current constraints will be worked through and we believe BSET shares represent a favorable risk/reward proposition at the current price. Read More >>