Bassett Furniture Industries, Inc. Stock

Good day, and thank you for standing by. Welcome to the Bassett Furniture Industries Q3 2026 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your first speaker today, Mike Daniel, Chief Financial Officer. Please go ahead.

Thank you, Latanya, for the introduction. Welcome to the Bassett Furniture Industries earnings call for the third quarter of fiscal 2026, which ended August 29, 2026.

Joining me today is our Chairman and CEO, Robert Spilman. We issued our news release and Form 10-Q yesterday after the market closed, and they're available on our website. After today's remarks, Rob and I will be open for questions. We will also post a transcript of this call on Bassett's Investor Relations website following the call.

During this call, certain statements we make may be considered forward-looking statements and inherently involve risks and uncertainties that could cause actual results to differ materially from management's present view. These statements are made pursuant to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. The company cannot guarantee the accuracy of any forecast or estimate, nor does it undertake any obligation to update such forward-looking statements. Other filings with the SEC describing risks related to our business are available on our corporate website under the Investors tab.

Now I'll turn things over to Rob. Rob?

Thank you, Mike. Good morning, everyone. We are pleased to report a 3.4% increase in consolidated revenue, bolstered by increases in both retail and wholesale sales. All product categories were positive, with domestic upholstery leading the way. Written retail sales from company-owned stores increased 4.4%, continuing the momentum from the second quarter in spite of 1 less week of the Labor Day promotion in the quarter compared to last year. Wholesale written orders were up 7.9% led by double-digit gains in domestic upholstery and the Lane Venture outdoor division.

Operating profit showed nice improvements thanks to sales increases in key product categories, improved expense control, and tariff refunds that offset tariff costs that were embedded in our balance sheet. It's important to note that Bassett imports less than 25% of our products. Therefore, refunds are much lower for us than for others. Mike will give you more color on the net impact of tariff refunds in his financial review.

Consolidated gross margins grew by 130 basis points, primarily due to improved wholesale margins and, to a lesser extent, tariff refunds. Retail gross profit fell by 80 basis points. We are encouraged by the gross margin improvement that we have seen since the pricing strategies that we implemented in July have started to take effect. The full 4-week Labor Day promotion that spilled into the current quarter generated a 9% written sales increase with improved written gross margins.

We've made progress on reducing operating expenses, which remains a key goal for our management team. SG&A, excluding pre-opening costs for the Orlando store, was 150 basis points lower than last year's third quarter. We're on track to meet our goal of reducing the annual run rate of expenses by an additional $1.5 million to $2 million. I'm pleased with the gains we've made on our strategic initiative, especially that is to grow sales from new and existing stores.

Our marketing team's ability to optimize and refine the media mix continues to produce positive outcomes. We had excellent response to our 84-page fall catalog, which featured curated room layouts and styling tips, along with new collections.

We have improved the visual presentation of our products on the website, helping consumers on their path to fully experience the Bassett brand. These efforts are paying off with e-commerce written sales up 48% this quarter and website delivered sales rising more than 42%. Average order value on the web was up 33%, which was propelled by stationary and motion upholstery categories.

Our technology investments during the past 2 years continue to enhance the website presentation and navigation, benefiting the user experience and driving the sales results that I just mentioned. Once again, our domestic custom furniture products drove the majority of our written wholesale sales gain. Custom upholstery and custom motion upholstery in particular was very strong. Also on the domestic front, our BenchMade dining program had a nice quarter. And once again, Lane Venture performed very well.

Our product team continues to seek new expressions of comfort and innovation to add to the assortment. We are extremely excited about the debut of our new 44,000-square-foot showroom at the High Point Market on October 15. We are in a new location designed to provide greater traffic and visibility while inspiring customers with a broad range of new products.

Our teams have worked hard to enhance the styling and appeal of the Bassett brand, which is embodied in the new showroom presentation. We recently announced our partnership with Birmingham-based interior decorator and textile designer Heather Chadduck. Heather is highly respected for her portfolio of design projects and for her successful line of textiles.

The highlight of our events in High Point will be the launch of a major new collection on which Heather collaborated with our internal team. The whole home collection features 30 furniture pieces with 5 finishes and 70 inline fabrics that she has personally curated. Heather says the collection feels timeless, but very organic and fresh.

The Heather Chadduck collection for Bassett will be in retail stores next spring. Our priority remains growth from existing and new stores, and we're happy to add another location, bringing our corporate retail store total to 60. Tomorrow, we are opening a new store in Orlando, which has a similar footprint to the 14,000-square-foot store we opened in May 2017 in Cincinnati. These are important markets and position us in quality real estate, catering to our targeted demographic profile.

We rely on our 2 dedicated distribution concepts, Bassett Design Centers and Bassett Custom Studios, for growth in the open market. Our 94 Design Centers and 64 Custom Studios currently represent over half of our wholesale business outside of the Bassett store network. With the low end of the market dominating so much of furniture retail in U.S. mid-sized towns, we view our dedicated dealer network as our local showcase of well-crafted custom home furnishings.

Our executive team has been traveling to these Bassett partner locations this summer with the goal of strengthening our collaboration with the dedicated network. We have been gathering input to formulate enhancements to the concepts for 2027 and beyond. For the quarter, shipments to our dedicated concepts were essentially flat, while our orders increased by 4.2%.

The natural extension of our wholesale outreach is our Bassett Hospitality Division, now operating for about 9 months. We've had several orders, but acknowledge that this effort will take time while we are gaining a foothold in the hospitality segment. All in all, we were pleased with our third quarter trajectory. Housing remains slow, and mortgage rates are in lockstep with the Federal Reserve's recent rate increases.

The ongoing effect of high inflation rates on the U.S. consumer continues to be a major concern. That said, we remain optimistic about managing through these challenges.

Now, I'll turn things over to Mike.

Thank you, Rob. In my commentary, the comparisons I'll discuss will be the third quarter of fiscal 2026 compared to the third quarter of fiscal 2025, unless otherwise noted. And let me start by discussing the $2.8 million in tariff refunds that we received from U.S. Customs and Border Protection as a result of the U.S. Supreme Court's February 2026 decision invalidating the IEEPA tariffs imposed by the President in 2025. Of this amount, $1 million was recorded as an increase in gross profit for this quarter, with additional amounts to be recorded primarily in the fourth quarter of 2026.

Tariff costs are capitalized into inventory at the time they are incurred and subsequently recognized in the income statement when those goods are sold to a third party. The high tariff costs recognized in the quarter were substantially offset by the tariff refund income that we recorded. As Rob pointed out, we import less than 25% of our products.

Total consolidated revenue was $82.8 million, an increase of $2.7 million, or 3.4%. This consisted of a $2.3 million or 4.5% increase in retail sales from our corporate-owned stores and a $400,000 or 1.4% decrease or increase in sales to external wholesale customers. Gross margin of 57.5% represented a 130-basis-point increase when compared to the prior year, primarily driven by the previously discussed tariff refund and partially offset by lower margins in the retail business.

The margin increase was also due to a higher mix of retail sales, which carry a higher gross margin than third-party wholesale sales. Selling, general and administrative expenses, excluding new store pre-opening costs, was 53.9% of sales, 150 basis points lower than the prior year. This decrease was driven primarily by increased leverage and fixed costs on higher sales in our retail segment, coupled with lower corporate expenses.

Operating income was $2.8 million or 3.4% of sales as compared to income of $593,000 or 0.7% of sales in the prior period. Diluted earnings per share were $0.24 versus $0.09 last year.

I'll now cover more details on our wholesale operations. Net sales were $53.7 million, up 5.7% compared to last year. This increase consisted of a 7.5% rise in shipments to the retail store network, a 28% increase in Lane Venture shipments to wholesale customers, and 3.7% more shipments to the open market. As previously discussed, we introduced Lane Venture outdoor brands in the Bassett Home Furnishings store during the first quarter of 2026 and have included those shipments to the store network in the 7.5% increase for the retail stores.

In total, shipments of Lane Venture were up 44%. Gross margins rose 150 basis points, primarily due to the previously discussed IEEPA tariff refund, along with improved margins in both the domestic wood and the Lane Venture operations. The increase was partially offset by lower margins in the imported wood and upholstery, which carried tariff costs.

SG&A expenses as a percentage of sales were flat as the effects of greater leverage of fixed costs from higher sales were offset by greater outbound freight expenses, primarily driven by higher fuel costs.

Now, moving on to our retail store operations, net sales of $54.2 million represented a $2.3 million or 4.5% increase over the prior year. Written sales, the value of sales orders taken but not delivered, increased 4.4%. Gross margin at 51.5% is a decline of 90 basis points, primarily due to lower margins on inline goods from increased promotional activity. Total SG&A expenses, excluding new store pre-opening costs, as a percentage of sales decreased 130 basis points due to greater leverage of fixed costs, higher sales levels, and lower advertising and marketing costs, partially offset by higher employee costs.

During the quarter, we incurred $144,000 of new store pre-opening costs associated with our Orlando location opening tomorrow. Before opening a new store, we incur such expenses as rent, training costs, and other payroll-related costs. These costs generally range between $200,000 and $400,000 per store, depending on the location and the period of time between when we take physical possession of the store space and the opening.

Now, I will cover our liquidity position, which remains strong with $53.4 million of cash and short-term investments. During the quarter, we generated $6.1 million of operating cash flow. We also spent $4.3 million on capital expenditures, which was significantly higher than the recent run rate. This increased spending was primarily related to the Orlando store that opens tomorrow and the build-out of our new showroom in High Point.

We expect capital expenditures in the fourth quarter to be between $2 million and $4 million and are updating our full capital expectations for 2026 to range between $9 million and $11 million versus our prior forecast of $10 million to $12 million. We continue to pay our quarterly dividend and repurchase shares optimistically or opportunistically, I should say. We spent $1.7 million on dividends and $126,000 on share buybacks in the quarter. We remain committed to delivering shareholder returns through dividends and, when appropriate, share buybacks.

Now we'll open up the line for questions. Latanya, please provide instructions on how to do so.

[Operator Instructions] Our first question will be coming from the line of Anthony Lebiedzinski of Sidoti.

And certainly nice job improving the top and bottom line in the quarter. So, yes -- as we look at the reported revenue, can you give us just a rough idea as far as the impact of pricing versus unit volumes that you saw in the quarter?

Mike's digging that out right now. Anthony, you asked that last quarter as well.

Yes, well, just as we think about all the noise with the...

That's a good question given what's going on in the world today.

Yes, here we go. So yes, on the wholesale side, units were down slightly. I won't give you the exact percent, but it was low single digits. And unit price was up, and I would say up in the less than double-digit range. -- and the -- on the retail side, pretty similar, pretty similar. Let's just leave it at that.

Okay, fair enough. Got you. And then, certainly it was encouraging to hear that you guys did very well during your Labor Day promotion with your written sales. Just curious, did you see any notable regional differences throughout the country, or was it more or less kind of consistent?

No, it's pretty consistent. All the regions were up.

That's good to hear. Okay. And then, so earlier this year you guys opened a new store and acquired another dealer store, and you're about to open a new store in Orlando tomorrow. So as we kind of look forward, I mean, how do we think about the additional store locations in FY '27 and beyond? What's the latest thinking on that?

We will open 2 stores next year, Anthony. And honestly, beyond that, we don't have 1 in the queue.We are looking at upgrading existing locations as part of our consideration on future capital expenses. But at the moment, we have 2 for '27.

And Anthony, let me just add, one of those is a reposition, so there'll be a closure and an opening. So it's net up 1.

Got you. Okay. Okay. And then my last question before I pass it on to others. So as it relates to your comment about being more aggressive with Black Friday promotions, can you provide more details as to what your plans are? How do we think about the impact that may have on margins? I don't think it's going to have a big impact.

I don't think it's going to have a big impact on the margin, Anthony. It's just Black Friday has for us grown into such a big event and closes the year, that we just want to make sure that we end the year with a bang, but I don't anticipate an acceptable diminishing of margin as a result.

And our next question will be coming from the line of Linda Bolton-Weiser of Water Tower Research.

Yes. So I just wanted to ask about your retail sales growth in the quarter was pretty good. And you've had a couple quarters here of pretty decent growth. However, the growth is not as strong as what you saw in Q4. So, just stepping back in terms of the larger picture, I'm wondering, how would you characterize consumer behavior right now? Are they still buying to replace things that they bought during the pandemic, and here it is 6 years later and they want to buy something new?

And if so, what do you think is making the slower growth? Is it just the concern from the war in the Middle East?

And then what general impact do you think the higher mortgage rates, interest rates will have on your business going forward? Do you think it'll slow it even further?

Well, Linda, this is Rob. We haven't met yet. I look forward to meeting you. But look, there's a lot of facets to the answer to your question. I would say for us, we feel the consumer remains cautious. We have nice interest in project business, which drives an appreciable part of our business. So the bigger ticket business was very good in the quarter. But I do feel that folks are taking longer to pull the trigger. We are doing the work, and they may not always pull the trigger.

So it's not what I would characterize as an easy environment at the moment for us. I would say yes. Just the momentum, and this is not unique to us by any means, and you can certainly read about it and you know about it. Just the general malaise in the housing sector, we were looking for more of an uptick nationally than we've experienced this year, and it hasn't materialized in that regard.

And certainly, if you raise mortgage rates further than they were, that is not providing a tailwind in that regard. So, I think our guys did a nice job of closing the business that came through the door, and again, our project business has been strong but cautious, conservative, and you can understand why. There's a lot of uncertainty out there right now.

And Linda, I would add to what Rob said. If you look at the pace of business over the course of the year, you look back at our first quarter, our first quarter was pretty slow. I think we were up 9.5% written in Q2. And we did see a nice pickup in the May timeframe, and we had a very successful Memorial Day event.

The other thing I would say is if you look at our quarter, you have to remember, at least Labor Day last year was basically 2 days after the quarter end last year compared to this year, which was a week and 2 days after quarter end. So there's a week time shift in that promotion, and that's why Rob pointed out that for the 4-week promotion, we were actually up 9%, but it doesn't show, at least in the pace of business for the quarter, because a big chunk of that ends up in the fourth quarter.

Okay. That's very helpful color. So turning to margins, your gross margin was up nicely, and I think it was up even if you want to strip out that positive refund effect. So it was up year-over-year. Do you think with more effect from the retail price increase in the fourth quarter that the gross margin can be up even more year-over-year? Let's say excluding the tariff refund. Do you think that could be the case in the fourth quarter?

Well, we are still in the first month of the fourth quarter, Linda. It is tomorrow. So we haven't seen the retail gross margin strategy on a piece of paper yet, on a P&L. But the written margins are looking better for the month of September at retail. We are very hopeful that that's going to materialize. We think it will.

So that is something that will help us in the fourth quarter. I don't expect to see a lot of difference in the wholesale margin. So we do have that going for us. It's hard to quantify at this moment because we instituted a new pricing strategy in mid-July, and those deliveries will be showing through on the P&L here this month, or begin to show this month.

Okay. And then, I'm just curious, the SG&A expense, it was up slightly in dollar terms both year-over-year and sequentially from the second quarter. I'm just wondering, like your $1.5 million to $2 million of savings, is that primarily reflected in SG&A or not?

And did we see any of that in the quarter, or are we going to see more of a positive effect of that in the fourth quarter?

Yes, so during the quarter, we essentially did realize all of the quarterly effect of that $1.5 million to $2 million. But when you look at the SG&A by itself, you got to remember more of our sales, consolidated sales came from retail, which carries more SG&A expense. So I think, as you're analyzing that SG&A, that's kind of the big difference.

Okay. Okay. That's helpful. And then, I noticed that your inventory reduction was very, very good in the quarter, and it did boost your operating cash flow, which was quite strong, even excluding that tariff refund. So what is going on there? Why did the inventory come down so much? And then can we expect more inventory reduction in the fourth quarter?

Well, do you want to talk about the tariff?

Well, keep in mind there's a chunk in inventory related to the tariff that's going to be coming through on the P&L this quarter. But, ex that, we still had nice reduction in inventory primarily around, frankly, imported product.

Our Club Level motion product inventory came down nicely, and we've been working on that. Also, we're doing less of the cut and sew fabric where we bring the kits in from offshore, still important to us. But our consumers are gravitating more and more to the special order, and that's cut and sewn domestically, so we don't have the carrying cost of the pre-sewn kits. So we're certainly working hard to continue reductions, but I don't think you're going to see something in this next quarter as dramatic as you just saw this quarter.

Okay, sounds good. And then my last question just has to do with sort of your capital allocation policy. Your cash dividends per year are nearly $7 million. And in most of the recent years, you have been using balance sheet cash to pay the dividend. And I'm not sure how it's going to turn out this year, but it looks like that might be the case again for FY '26, that you'll use balance sheet cash to pay at least part of it. Have you considered reducing the dividend just to be able to invest more behind growth initiatives in your business?

We consider the dividend every quarter. We think it's a very important part of what we do. We think our cash balance is appropriate and strong. And yes, every quarter we discuss capital allocations for whether it be growth or return to shareholders. But I think Bassett has a history of returning dividends to shareholders, and I don't think we're anywhere near a situation where we would feel like we're under pressure on the dividend.

And, frankly, we need to vet any kind of capital expenses based on the returns that we receive from those. And so we're pretty conservative about that. So, yes, we certainly look at all these things as we should and as appropriate. And obviously, we would strive to pay the dividend out of operating cash flow, and we haven't done it every year, but we've done a lot of years, so we -- that's our objective, but we do view the dividend as an important part of the picture so long as the Board feels the same way.

And one thing I'd add to that, Linda, is keep in mind that the fourth quarter is our best cash generation quarter. So, if you look at it right now, you certainly get that come to the conclusion you just did for the year, but hopefully, the cash will come through as we expect for the fourth quarter.

I'm showing no further questions. I would now like to turn the call to Rob Spilman, Chairman and CEO, for closing remarks.

Okay, thank you very much. We look forward to seeing some of you soon in our new showroom in High Point, touring you around this space. We're very excited about it.

I'll close by just saying, thank you for your interest in Bassett Furniture and for your support of our business. Good day.

This concludes today's conference. Thank you for participating. You may now disconnect.

Good day, and thank you for standing by. Welcome to the Bassett Furniture Industries Q3 2026 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your first speaker today, Mike Daniel, Chief Financial Officer. Please go ahead.

Thank you, Latanya, for the introduction. Welcome to the Bassett Furniture Industries earnings call for the third quarter of fiscal 2026, which ended August 29, 2026.

Joining me today is our Chairman and CEO, Robert Spilman. We issued our news release and Form 10-Q yesterday after the market closed, and they're available on our website. After today's remarks, Rob and I will be open for questions. We will also post a transcript of this call on Bassett's Investor Relations website following the call.

During this call, certain statements we make may be considered forward-looking statements and inherently involve risks and uncertainties that could cause actual results to differ materially from management's present view. These statements are made pursuant to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. The company cannot guarantee the accuracy of any forecast or estimate, nor does it undertake any obligation to update such forward-looking statements. Other filings with the SEC describing risks related to our business are available on our corporate website under the Investors tab.

Now I'll turn things over to Rob. Rob?

Thank you, Mike. Good morning, everyone. We are pleased to report a 3.4% increase in consolidated revenue, bolstered by increases in both retail and wholesale sales. All product categories were positive, with domestic upholstery leading the way. Written retail sales from company-owned stores increased 4.4%, continuing the momentum from the second quarter in spite of 1 less week of the Labor Day promotion in the quarter compared to last year. Wholesale written orders were up 7.9% led by double-digit gains in domestic upholstery and the Lane Venture outdoor division.

Operating profit showed nice improvements thanks to sales increases in key product categories, improved expense control, and tariff refunds that offset tariff costs that were embedded in our balance sheet. It's important to note that Bassett imports less than 25% of our products. Therefore, refunds are much lower for us than for others. Mike will give you more color on the net impact of tariff refunds in his financial review.

Consolidated gross margins grew by 130 basis points, primarily due to improved wholesale margins and, to a lesser extent, tariff refunds. Retail gross profit fell by 80 basis points. We are encouraged by the gross margin improvement that we have seen since the pricing strategies that we implemented in July have started to take effect. The full 4-week Labor Day promotion that spilled into the current quarter generated a 9% written sales increase with improved written gross margins.

We've made progress on reducing operating expenses, which remains a key goal for our management team. SG&A, excluding pre-opening costs for the Orlando store, was 150 basis points lower than last year's third quarter. We're on track to meet our goal of reducing the annual run rate of expenses by an additional $1.5 million to $2 million. I'm pleased with the gains we've made on our strategic initiative, especially that is to grow sales from new and existing stores.

Our marketing team's ability to optimize and refine the media mix continues to produce positive outcomes. We had excellent response to our 84-page fall catalog, which featured curated room layouts and styling tips, along with new collections.

We have improved the visual presentation of our products on the website, helping consumers on their path to fully experience the Bassett brand. These efforts are paying off with e-commerce written sales up 48% this quarter and website delivered sales rising more than 42%. Average order value on the web was up 33%, which was propelled by stationary and motion upholstery categories.

Our technology investments during the past 2 years continue to enhance the website presentation and navigation, benefiting the user experience and driving the sales results that I just mentioned. Once again, our domestic custom furniture products drove the majority of our written wholesale sales gain. Custom upholstery and custom motion upholstery in particular was very strong. Also on the domestic front, our BenchMade dining program had a nice quarter. And once again, Lane Venture performed very well.

Our product team continues to seek new expressions of comfort and innovation to add to the assortment. We are extremely excited about the debut of our new 44,000-square-foot showroom at the High Point Market on October 15. We are in a new location designed to provide greater traffic and visibility while inspiring customers with a broad range of new products.

Our teams have worked hard to enhance the styling and appeal of the Bassett brand, which is embodied in the new showroom presentation. We recently announced our partnership with Birmingham-based interior decorator and textile designer Heather Chadduck. Heather is highly respected for her portfolio of design projects and for her successful line of textiles.

The highlight of our events in High Point will be the launch of a major new collection on which Heather collaborated with our internal team. The whole home collection features 30 furniture pieces with 5 finishes and 70 inline fabrics that she has personally curated. Heather says the collection feels timeless, but very organic and fresh.

The Heather Chadduck collection for Bassett will be in retail stores next spring. Our priority remains growth from existing and new stores, and we're happy to add another location, bringing our corporate retail store total to 60. Tomorrow, we are opening a new store in Orlando, which has a similar footprint to the 14,000-square-foot store we opened in May 2017 in Cincinnati. These are important markets and position us in quality real estate, catering to our targeted demographic profile.

We rely on our 2 dedicated distribution concepts, Bassett Design Centers and Bassett Custom Studios, for growth in the open market. Our 94 Design Centers and 64 Custom Studios currently represent over half of our wholesale business outside of the Bassett store network. With the low end of the market dominating so much of furniture retail in U.S. mid-sized towns, we view our dedicated dealer network as our local showcase of well-crafted custom home furnishings.

Our executive team has been traveling to these Bassett partner locations this summer with the goal of strengthening our collaboration with the dedicated network. We have been gathering input to formulate enhancements to the concepts for 2027 and beyond. For the quarter, shipments to our dedicated concepts were essentially flat, while our orders increased by 4.2%.

The natural extension of our wholesale outreach is our Bassett Hospitality Division, now operating for about 9 months. We've had several orders, but acknowledge that this effort will take time while we are gaining a foothold in the hospitality segment. All in all, we were pleased with our third quarter trajectory. Housing remains slow, and mortgage rates are in lockstep with the Federal Reserve's recent rate increases.

The ongoing effect of high inflation rates on the U.S. consumer continues to be a major concern. That said, we remain optimistic about managing through these challenges.

Now, I'll turn things over to Mike.

Thank you, Rob. In my commentary, the comparisons I'll discuss will be the third quarter of fiscal 2026 compared to the third quarter of fiscal 2025, unless otherwise noted. And let me start by discussing the $2.8 million in tariff refunds that we received from U.S. Customs and Border Protection as a result of the U.S. Supreme Court's February 2026 decision invalidating the IEEPA tariffs imposed by the President in 2025. Of this amount, $1 million was recorded as an increase in gross profit for this quarter, with additional amounts to be recorded primarily in the fourth quarter of 2026.

Tariff costs are capitalized into inventory at the time they are incurred and subsequently recognized in the income statement when those goods are sold to a third party. The high tariff costs recognized in the quarter were substantially offset by the tariff refund income that we recorded. As Rob pointed out, we import less than 25% of our products.

Total consolidated revenue was $82.8 million, an increase of $2.7 million, or 3.4%. This consisted of a $2.3 million or 4.5% increase in retail sales from our corporate-owned stores and a $400,000 or 1.4% decrease or increase in sales to external wholesale customers. Gross margin of 57.5% represented a 130-basis-point increase when compared to the prior year, primarily driven by the previously discussed tariff refund and partially offset by lower margins in the retail business.

The margin increase was also due to a higher mix of retail sales, which carry a higher gross margin than third-party wholesale sales. Selling, general and administrative expenses, excluding new store pre-opening costs, was 53.9% of sales, 150 basis points lower than the prior year. This decrease was driven primarily by increased leverage and fixed costs on higher sales in our retail segment, coupled with lower corporate expenses.

Operating income was $2.8 million or 3.4% of sales as compared to income of $593,000 or 0.7% of sales in the prior period. Diluted earnings per share were $0.24 versus $0.09 last year.

I'll now cover more details on our wholesale operations. Net sales were $53.7 million, up 5.7% compared to last year. This increase consisted of a 7.5% rise in shipments to the retail store network, a 28% increase in Lane Venture shipments to wholesale customers, and 3.7% more shipments to the open market. As previously discussed, we introduced Lane Venture outdoor brands in the Bassett Home Furnishings store during the first quarter of 2026 and have included those shipments to the store network in the 7.5% increase for the retail stores.

In total, shipments of Lane Venture were up 44%. Gross margins rose 150 basis points, primarily due to the previously discussed IEEPA tariff refund, along with improved margins in both the domestic wood and the Lane Venture operations. The increase was partially offset by lower margins in the imported wood and upholstery, which carried tariff costs.

SG&A expenses as a percentage of sales were flat as the effects of greater leverage of fixed costs from higher sales were offset by greater outbound freight expenses, primarily driven by higher fuel costs.

Now, moving on to our retail store operations, net sales of $54.2 million represented a $2.3 million or 4.5% increase over the prior year. Written sales, the value of sales orders taken but not delivered, increased 4.4%. Gross margin at 51.5% is a decline of 90 basis points, primarily due to lower margins on inline goods from increased promotional activity. Total SG&A expenses, excluding new store pre-opening costs, as a percentage of sales decreased 130 basis points due to greater leverage of fixed costs, higher sales levels, and lower advertising and marketing costs, partially offset by higher employee costs.

During the quarter, we incurred $144,000 of new store pre-opening costs associated with our Orlando location opening tomorrow. Before opening a new store, we incur such expenses as rent, training costs, and other payroll-related costs. These costs generally range between $200,000 and $400,000 per store, depending on the location and the period of time between when we take physical possession of the store space and the opening.

Now, I will cover our liquidity position, which remains strong with $53.4 million of cash and short-term investments. During the quarter, we generated $6.1 million of operating cash flow. We also spent $4.3 million on capital expenditures, which was significantly higher than the recent run rate. This increased spending was primarily related to the Orlando store that opens tomorrow and the build-out of our new showroom in High Point.

We expect capital expenditures in the fourth quarter to be between $2 million and $4 million and are updating our full capital expectations for 2026 to range between $9 million and $11 million versus our prior forecast of $10 million to $12 million. We continue to pay our quarterly dividend and repurchase shares optimistically or opportunistically, I should say. We spent $1.7 million on dividends and $126,000 on share buybacks in the quarter. We remain committed to delivering shareholder returns through dividends and, when appropriate, share buybacks.

Now we'll open up the line for questions. Latanya, please provide instructions on how to do so.

[Operator Instructions] Our first question will be coming from the line of Anthony Lebiedzinski of Sidoti.

And certainly nice job improving the top and bottom line in the quarter. So, yes -- as we look at the reported revenue, can you give us just a rough idea as far as the impact of pricing versus unit volumes that you saw in the quarter?

Mike's digging that out right now. Anthony, you asked that last quarter as well.

Yes, well, just as we think about all the noise with the...

That's a good question given what's going on in the world today.

Yes, here we go. So yes, on the wholesale side, units were down slightly. I won't give you the exact percent, but it was low single digits. And unit price was up, and I would say up in the less than double-digit range. -- and the -- on the retail side, pretty similar, pretty similar. Let's just leave it at that.

Okay, fair enough. Got you. And then, certainly it was encouraging to hear that you guys did very well during your Labor Day promotion with your written sales. Just curious, did you see any notable regional differences throughout the country, or was it more or less kind of consistent?

No, it's pretty consistent. All the regions were up.

That's good to hear. Okay. And then, so earlier this year you guys opened a new store and acquired another dealer store, and you're about to open a new store in Orlando tomorrow. So as we kind of look forward, I mean, how do we think about the additional store locations in FY '27 and beyond? What's the latest thinking on that?

We will open 2 stores next year, Anthony. And honestly, beyond that, we don't have 1 in the queue.We are looking at upgrading existing locations as part of our consideration on future capital expenses. But at the moment, we have 2 for '27.

And Anthony, let me just add, one of those is a reposition, so there'll be a closure and an opening. So it's net up 1.

Got you. Okay. Okay. And then my last question before I pass it on to others. So as it relates to your comment about being more aggressive with Black Friday promotions, can you provide more details as to what your plans are? How do we think about the impact that may have on margins? I don't think it's going to have a big impact.

I don't think it's going to have a big impact on the margin, Anthony. It's just Black Friday has for us grown into such a big event and closes the year, that we just want to make sure that we end the year with a bang, but I don't anticipate an acceptable diminishing of margin as a result.

And our next question will be coming from the line of Linda Bolton-Weiser of Water Tower Research.

Yes. So I just wanted to ask about your retail sales growth in the quarter was pretty good. And you've had a couple quarters here of pretty decent growth. However, the growth is not as strong as what you saw in Q4. So, just stepping back in terms of the larger picture, I'm wondering, how would you characterize consumer behavior right now? Are they still buying to replace things that they bought during the pandemic, and here it is 6 years later and they want to buy something new?

And if so, what do you think is making the slower growth? Is it just the concern from the war in the Middle East?

And then what general impact do you think the higher mortgage rates, interest rates will have on your business going forward? Do you think it'll slow it even further?

Well, Linda, this is Rob. We haven't met yet. I look forward to meeting you. But look, there's a lot of facets to the answer to your question. I would say for us, we feel the consumer remains cautious. We have nice interest in project business, which drives an appreciable part of our business. So the bigger ticket business was very good in the quarter. But I do feel that folks are taking longer to pull the trigger. We are doing the work, and they may not always pull the trigger.

So it's not what I would characterize as an easy environment at the moment for us. I would say yes. Just the momentum, and this is not unique to us by any means, and you can certainly read about it and you know about it. Just the general malaise in the housing sector, we were looking for more of an uptick nationally than we've experienced this year, and it hasn't materialized in that regard.

And certainly, if you raise mortgage rates further than they were, that is not providing a tailwind in that regard. So, I think our guys did a nice job of closing the business that came through the door, and again, our project business has been strong but cautious, conservative, and you can understand why. There's a lot of uncertainty out there right now.

And Linda, I would add to what Rob said. If you look at the pace of business over the course of the year, you look back at our first quarter, our first quarter was pretty slow. I think we were up 9.5% written in Q2. And we did see a nice pickup in the May timeframe, and we had a very successful Memorial Day event.

The other thing I would say is if you look at our quarter, you have to remember, at least Labor Day last year was basically 2 days after the quarter end last year compared to this year, which was a week and 2 days after quarter end. So there's a week time shift in that promotion, and that's why Rob pointed out that for the 4-week promotion, we were actually up 9%, but it doesn't show, at least in the pace of business for the quarter, because a big chunk of that ends up in the fourth quarter.

Okay. That's very helpful color. So turning to margins, your gross margin was up nicely, and I think it was up even if you want to strip out that positive refund effect. So it was up year-over-year. Do you think with more effect from the retail price increase in the fourth quarter that the gross margin can be up even more year-over-year? Let's say excluding the tariff refund. Do you think that could be the case in the fourth quarter?

Well, we are still in the first month of the fourth quarter, Linda. It is tomorrow. So we haven't seen the retail gross margin strategy on a piece of paper yet, on a P&L. But the written margins are looking better for the month of September at retail. We are very hopeful that that's going to materialize. We think it will.

So that is something that will help us in the fourth quarter. I don't expect to see a lot of difference in the wholesale margin. So we do have that going for us. It's hard to quantify at this moment because we instituted a new pricing strategy in mid-July, and those deliveries will be showing through on the P&L here this month, or begin to show this month.

Okay. And then, I'm just curious, the SG&A expense, it was up slightly in dollar terms both year-over-year and sequentially from the second quarter. I'm just wondering, like your $1.5 million to $2 million of savings, is that primarily reflected in SG&A or not?

And did we see any of that in the quarter, or are we going to see more of a positive effect of that in the fourth quarter?

Yes, so during the quarter, we essentially did realize all of the quarterly effect of that $1.5 million to $2 million. But when you look at the SG&A by itself, you got to remember more of our sales, consolidated sales came from retail, which carries more SG&A expense. So I think, as you're analyzing that SG&A, that's kind of the big difference.

Okay. Okay. That's helpful. And then, I noticed that your inventory reduction was very, very good in the quarter, and it did boost your operating cash flow, which was quite strong, even excluding that tariff refund. So what is going on there? Why did the inventory come down so much? And then can we expect more inventory reduction in the fourth quarter?

Well, do you want to talk about the tariff?

Well, keep in mind there's a chunk in inventory related to the tariff that's going to be coming through on the P&L this quarter. But, ex that, we still had nice reduction in inventory primarily around, frankly, imported product.

Our Club Level motion product inventory came down nicely, and we've been working on that. Also, we're doing less of the cut and sew fabric where we bring the kits in from offshore, still important to us. But our consumers are gravitating more and more to the special order, and that's cut and sewn domestically, so we don't have the carrying cost of the pre-sewn kits. So we're certainly working hard to continue reductions, but I don't think you're going to see something in this next quarter as dramatic as you just saw this quarter.

Okay, sounds good. And then my last question just has to do with sort of your capital allocation policy. Your cash dividends per year are nearly $7 million. And in most of the recent years, you have been using balance sheet cash to pay the dividend. And I'm not sure how it's going to turn out this year, but it looks like that might be the case again for FY '26, that you'll use balance sheet cash to pay at least part of it. Have you considered reducing the dividend just to be able to invest more behind growth initiatives in your business?

We consider the dividend every quarter. We think it's a very important part of what we do. We think our cash balance is appropriate and strong. And yes, every quarter we discuss capital allocations for whether it be growth or return to shareholders. But I think Bassett has a history of returning dividends to shareholders, and I don't think we're anywhere near a situation where we would feel like we're under pressure on the dividend.

And, frankly, we need to vet any kind of capital expenses based on the returns that we receive from those. And so we're pretty conservative about that. So, yes, we certainly look at all these things as we should and as appropriate. And obviously, we would strive to pay the dividend out of operating cash flow, and we haven't done it every year, but we've done a lot of years, so we -- that's our objective, but we do view the dividend as an important part of the picture so long as the Board feels the same way.

And one thing I'd add to that, Linda, is keep in mind that the fourth quarter is our best cash generation quarter. So, if you look at it right now, you certainly get that come to the conclusion you just did for the year, but hopefully, the cash will come through as we expect for the fourth quarter.

I'm showing no further questions. I would now like to turn the call to Rob Spilman, Chairman and CEO, for closing remarks.

Okay, thank you very much. We look forward to seeing some of you soon in our new showroom in High Point, touring you around this space. We're very excited about it.

I'll close by just saying, thank you for your interest in Bassett Furniture and for your support of our business. Good day.

This concludes today's conference. Thank you for participating. You may now disconnect.

Good day, and thank you for standing by. Welcome to the Bassett Furniture Industries' Q2 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mike Daniel, CFO. Sir, please go ahead.

Thank you, Michelle, for the introduction. Welcome to Bassett Furniture Industries Earnings Call for the second quarter of fiscal 2026, which ended May 30. Joining me today is our Chairman and CEO, Rob Spilman. We issued our news release and Form 10-Q yesterday after the market closed, and it's available on our website.

After today's remarks, Rob and I will open up for questions. We will also post a transcript of this call on Basset's Investor Relations website following the call. During this call, certain statements we make may be considered forward-looking statements and inherently involve risks and uncertainties that could cause actual results to differ materially from management's present view. These statements are made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995.

The company cannot guarantee the accuracy of any forecast or estimate nor does it undertake any obligation to update such forward-looking statements. Other filings with the SEC describing risks related to our business are available on our corporate website under the Investors tab.

Now I'll turn things over to Rob. Rob?

All right. Thank you, Mike, and good morning, everyone. I'll start with some insights on the second quarter, and Mike will get into more of the financial details. I'll also discuss our strategic initiatives to drive further growth at Bassett.

Operating profit on an adjusted basis improved in the second quarter on slightly lower consolidated revenue. As we move through the quarter, positive traffic during April and May contributed to retail written sales being up 9.5%. Our Memorial Day promotion was especially strong with written sales up 14% and 4% more traffic than last year. We saw these trends continue into June, which is a good start for the third quarter.

Wholesale orders were up 5.2% for the second quarter, but shipments were down 2% as the increase in written sales were back-end loaded. We also generated $7.4 million of cash from operations during the period. Our consolidated gross margins grew by 90 basis points for the quarter, primarily due to improvements in wholesale margins on slightly lower revenue. Despite significant cost cutting in recent quarters, our SG&A has remained stubbornly high. Part of this is the higher percentage of overall sales that corporate retail represents with a structurally higher amount of SG&A compared to the traditional wholesale model.

And we did have some unforeseen expenses run through such as fuel surcharges that stemmed from the Iranian conflict. In any event, we are committed to improving our operating margins and our SG&A percentage is a major part of the picture. In keeping with last quarter's announced target, we remain focused on reducing expenses by an additional $1.5 million to $2 million on an annual basis.

Although we have seen recent forecasts for telling modestly better housing numbers in the second half of 2026, we must generate higher sales in our existing store network and the environment in which we operate today. We are not simply waiting on things to get better. Obviously, higher average sales per store means greater leverage of our fixed costs. That is why the quarterly 9.5% written sales increase was particularly encouraging.

That said, our retail gross margins fell by 120 basis points in the quarter, partially due to more aggressive pricing of our clearance inventory. Accordingly, we plan to raise retail gross margins in mid-July by 200 to 250 basis points. Our marketing organization has begun to consistently deliver greater efficiency on investment as our adjusted media mix drove more foot traffic to our stores for the first time since the COVID boom.

We engaged a new agency last year, and their analytics platform is giving us a better understanding of our customer. We have also begun to use artificial intelligence to further reach our customers on a more personalized basis. Augmenting the more precise digital strategy is our growing utilization of direct [indiscernible], which we successfully reincorporated into the mix 18 months ago. We are excited about these results and believe that more fertile ground lies ahead due to our marketing efforts.

We continue to benefit from the successful product introductions of 2025, both in upholstery and case goods. Several of these offerings have become top 5 items in their respective categories and offer a nice complement to our legacy custom programs that remain the hallmark of our assortment. At the April market in High Point, we had very positive response to our introduction of opening price point lines, both in living room and bedroom. These collections will bolster our good, better, best strategy and will be available in Bassett stores and an independent dealers in advance of the important Labor Day selling events.

Our second initiative is to generate growth from opening new corporate and licensed retail locations. On May 8, we opened a new 14,000 square foot store in Cincinnati, which marks a return to Bassett -- or Bassett for this important market. We spent almost 2 years researching the location, negotiating terms with the landlord and converting this space in a highly traffic retail center to our specifications. Early indications of traffic and written sales are encouraging. In fact, on the wholesale side, we sold more products than 8 weeks in Cincinnati than we did all of last year.

We will open a location of similar size and economics in Orlando in early October. In addition, just after the quarter ended, an existing open market dealer in Nashville, Tennessee, converted an existing location into a new 12,000 square foot Bassett home furnishing store. Currently, we have 59 corporate stores and 28 licensed stores in operation. We will also continue to evaluate opportunities to convert current license location to corporate stores as owners retire and exit the business.

Third, we continue to invest in e-commerce for a fully integrated omnichannel experience. We are seeing a return on this investment as web traffic was up more than 3% in the quarter. Perhaps more importantly, written web sales were up by 40%, marking 7 of the last 8 quarters with increases exceeding 20%. Contributing to that performance was a 24% increase in average order value. Upholstery sales saw the greatest job aided by an updated fabric module that improves the customization process. This is part of an overall improvement to the user experience including a new navigation menu that makes it easier for customers to shop and find products.

Finally, the national home delivery program that we launched last fall is contributing as we reach customers where we don't have stores and all the contiguous 48 states.

Fourth, we plan to expand our overall wholesale business through several efforts. Outside the Basset store network, we rely on 2 dedicated distribution concepts: Bassett Design Centers, the BDC; and Bassett Custom Studio the BCS, which represent well over half of our open market business. The combined orders for the quarter rose by 1.3%, shipment fell by 4.5%. Behind these numbers, the BDC is contracted by 6.3%, while the smaller footprint of the studio grew by 7.2%. Currently, we have 94 accounts on the books classified as BDCs, generally consisting of 3,000 to 5,000 square feet of floor space dedicated to our products.

The newer video concept is a 1,000 but little sister presentation of our true custom upholstery program. We opened 4 custom studies in the quarter, bringing the fleet total to 64. We are auditing the results of both our best partners and the less productive locations to drive higher levels of standardization and performance across both of our dedicated distribution concepts.

Integrated into our initiative to grow wholesale is our expanded focus on increasing Best's share of the professional interior design channel. We have the breadth of assortment, fabric line, custom capabilities and the ability to upholster and customers' own material, known as COM, that arms us with the product currency to effectively serve this disparate but growing channel.

Our new High Point showroom location is more relevant to the design trade and will showcase all of these attributes in a much more forceful way than was accomplished in our prior location. We will also unveil a new product collaboration with an accomplished interior designer that we will begin to market later this summer. A natural extension of our wholesale outreach is our 6-month old Bassett Hospitality division. Although we must be patient with our progress in gaining acceptance from this somewhat insular community, we have written some orders with entities as varied as hospitals, boutique hotels and senior living communities. We have also recently quoted some large hospitality projects.

This is a new business for us, and we are committed to learning the ropes and becoming a factor in this segment of the industry. This plan is our road map for growth and improved performance. Our organization is energized by recent order trends, and we are focused on getting the job done.

Mike, I'll turn things over to you.

Thank you, Rob. In my commentary, the comparisons I'll discuss will be the second quarter of fiscal 2026 compared to the second quarter of fiscal 2025, unless otherwise noted. Total consolidated revenue was $83.8 million, a decrease of $500,000 or 0.7%. This consisted of a $1.9 million or a 6.3% decrease in sales to external wholesale customers partially offset by a $1.3 million or 2.4% increase in retail sales from our company-owned stores.

Gross margin at 56.5% represented a 90 basis point increase when compared to the prior year, primarily driven by higher margins in the wholesale business and partially offset by lower margins in the retail business. Selling, general and administrative expenses, including new store -- excuse me, excluding new store preopening costs were 53.3% of sales, 60 basis points higher than the prior year. These preopening costs are related to our May opening in Cincinnati and include expenses related to our upcoming retail location in Orlando.

Excluding $700,000 of proceeds from business interruption insurance recorded in the second quarter of 2025 as a result of a cyber incident in fiscal 2024. SG&A expenses as a percentage of sales actually decreased 20 basis points as compared to 2025. Operating income was $2.2 million or 2.7% of sales. as compared to income of $2.5 million or 3% of sales in the prior period. Diluted earnings per share were $0.24 versus $0.22.

Now I'll cover more details on the wholesale operations. Net sales were $53.1 million, a 2% decrease compared to last year. This decrease was due to 5.5% less shipments to the open market, partially offset by a 1% increase in lane venture shipments to wholesale customers and a 0.8% increase in shipments to our retail store network. As previously discussed, we introduced the Lane Venture outdoor brand in the Bassett Home Furnishing stores during the first quarter of 2026 and have included those shipments to the store network in the 0.8% increase for the retail stores.

However, including those shipments in the total Lane Venture brand, shipments of that brand actually increased 18%. Gross margins increased 110 basis points from the prior year period, primarily due to improved efficiencies in our domestic upholstery and wood operations, coupled with improved pricing strategies in our import wood offerings. SG&A expenses as a percentage of sales increased 90 basis points compared with the prior year period, primarily due to increased outbound freight expenses from higher fuel costs.

Now moving on to the retail store operations. Net sales of $55.5 million represented a $1.3 million increase over the prior year. Written sales, the value of sales orders taken, but not delivered increased 9.5%. Gross margin at 51.2% represented a decline of 120 basis points primarily due to lower margins on in-line goods because the full effect of the mid-January price increase was not realized for the entire quarter, coupled with lower margins on clearance goods. We continue to be more aggressive in cycling through return goods and phased out floor samples.

Total SG&A expenses, excluding new store preopening costs as a percentage of sales decreased 50 basis points from the prior year. Excluding $569,000 of proceeds from business interruption insurance recorded in the second quarter of 2025, SG&A expenses as a percentage of sales decreased 150 basis points as compared to 2025. This decrease was primarily due to lower health insurance and workers' compensation costs from better claim experience and improved efficiency in the warehouse and delivery operation.

During the quarter, we incurred $473,000 of new store preopening costs associated with the new stores in the Cincinnati, Ohio market, which opened late in the second quarter, and the Orlando, Florida market expected to open by the end of fiscal 2026. Prior to opening a new store, we incur such expenses as rent, training costs and other payroll-related costs. These costs generally range between $200,000 to $400,000 per store depending on the overall rent cost for the location in the period between the time when we take physical possession of the store space in the time of the store opening.

Now I will address our liquidity position. Our liquidity remains solid with $53.9 million of cash and short-term investments. During the quarter, we generated $7.4 million of operating cash flow, which ultimately increased our cash and short-term investments by $2.9 million during the quarter, after taking into consideration our normal cash outflows for investing in financing activities. As we previously mentioned, Bassett opened one new store during the quarter and plans to open another new store by the end of the year. We've also begun construction of the tenant improvements for a new showroom in High Point that will be unveiled at the fall furniture market. As a result, we expect total capital expenditures to be between $10 million and $12 million for 2026, considerably more than the $4.5 million spent last year.

We continue to pay our quarterly dividend and repurchase shares opportunistically. We spent $1.7 million on dividends and $500,000 on share buybacks in the quarter. We remain committed to delivering shareholder returns through dividends and, when appropriate, share buybacks.

Now we'll open up the line for questions. Michelle, please provide instructions to do so.

[Operator Instructions]

And our first question is going to come from the line of Anthony Lebiedzinsk with Sidoti.

Thank you very much, and good morning, everyone. Certainly nice to hear the positive trends in May and June. So just -- actually just curious, as you're seeing this momentum here. Just wondering if you're seeing this across all your product categories? Or is the strength in sales concentrated in your core upholstery segment. Just wondering if you could provide some more color on that?

This is Rob. I would say slightly more in upholstery, but pretty good across the board in terms of the increase, but slightly more momentum in the upholstery segment.

Got you. Okay. That's encouraging to hear. Okay. And as far as like this momentum I know you talked about changing some of your media partners. I think that's helped. But as far as like the -- the reason for this, I mean, is it the fact that you are just being more effective with your new product introductions or better marketing? I mean, what would you say is that the core reasons for this? And how do you think about the sustainability of these positive trends?

Well, I think we've got some new folks in here who have joined us over the last couple of years. That's an important part of the equation. I think we are understanding our customer better. I think the analytics that a new agency is providing with us is making us more efficient in our investment dollars in terms of reaching the consumer.

It's really a combination of things. And we asked the same question around the office quite a bit. One is doing it, but it's a combination of things, and we do feel we've got some momentum in this area. And we pointed out, as you just mentioned, the quarter and the April, May, and we've seen the same kind of thing in June. So I think we just stay on this track. Integrating AI into this is a big opportunity for us. that we've just now gotten started with. But I think our formula is just improving.

That's great to hear. So as we look at the gross margin, you pointed out to higher wholesale margin, the lower retail margin. So given the various puts and takes relative to price increases and input costs and then Rob, you mentioned fuel surcharges, how do we think about the gross margins going forward? I know you also mentioned the clearance activity at retail. So as we look at either consolidated gross margins or if you want to separate those? I mean how do we think about gross margins here on a go-forward basis?

Well, I think we are at the level we're going to be to a certain extent on the wholesale side. I think the retail side is where we have opportunity, reference that we were going to increase our margins in July. And we think the pricing model that we have in which stand that. And we -- we obviously want to be good stewards of our balance sheet, and we want to move some of this clearance out more aggressively, and we did in the quarter, and that affected our margin.

So if we -- if our original input margin is slightly higher than we've been operating under recently, I think you'll see that consolidated gross margin bump up as a result of better retail margin.

Anthony, just as you're thinking about modeling, just remember that as we're talking about the pricing or the 200 to 250 basis points, that really won't show itself until the fourth quarter. So very little of that will actually hit in the third quarter.

As you know, ramping is because we've got to make the furniture and then deliver.

Of course, Okay. Got you. And then lastly for me before I pass it on to others. So obviously, Bassett is primarily a domestic manufacturer, but you do have some imports. Just wondering, as far as the [ IEPA ] tariff refunds, did you see any of that? Or do you expect any of that here in the coming months here. Just wondering if you could comment on that.

We have seen some so far. And we think there will be more to come. We don't know the magnitude of it entirely yet. And then of course, we have to work with our public accountants who figure out how this flows through. But anyway, yes, we do expect to see some of that. And we haven't received definitive qualification on exactly the extent of it.

And our next question is going to come from the line of Doug Lane with Water Tower Research.

Staying on the the P&L, you mentioned on an adjusted basis, the SG&A down 20 basis points from last year. Are we now at a point where consolidated SG&A should be lower year-over-year on a go-forward basis? Or is there other puts and takes I'm missing here?

Well, one thing to remember, and Rob pointed this out as the mix could shift with how much is retail versus how much is wholesale, open market wholesale. And that mix, the more that's retail, the higher the SG&A number, just the dollars. However, we should be seeing -- and we pointed that out to $1.5 million to $2 million cost savings that will really start showing its head in the third quarter, in the fourth quarter. So with all that said, you can figure out where that's going to put the SG&A.

Okay. That makes sense. So maybe on a segment basis, I should do some leverage on both segments, and then the mix will determine how that washes out on a consolidated basis. Is that a great way to look at it?

I think that's reasonable.

Okay. That makes sense. And then shifting to demand with the written orders news is good. The Memorial Day news was really good. Maybe explain how the 4% more traffic converted to 14% increase in sales. What's driving that higher average ticket?

Well, Doug, we still have a lumpy model and some of these jobs that we do are being. And I mean, we wrote a couple of tickets over $100,000 this quarter. And so when you get those kind of things, it really pops up the average ticket. And it seemed like we got some big design jobs coming through disproportionately, maybe on a historical basis at the end of the quarter. So that's what I would attribute that to.

And just remember, I mean, traffic has been going down pretty consistently over the last, I don't know, however, many years. But there's also the conversion rate that you got to factor in there. We're doing a better job of what we do have converting.

Okay. Can you talk a little bit about your -- the e-commerce. It's -- they have been big numbers and they've been consistent. So help us understand what do you sell over e-commerce, specifically what kind of products? And do you measure -- is there a way for you to measure how much of those customers also go into your showrooms and make purchases?

Well, we historically -- well, way back in the beginning of e-commerce, we were mostly a closeout vehicle, frankly. And then we began to sell more in line. And that was primarily wood products and [indiscernible] custom wood product. But with some of these enhancements and the navigation that I referred to, we have begun to sell more upholstery and more custom upholstery on the website and is something we have historically. So that are or the customer, I would say that's really what been driving from a product point of view just for an amount of the increase.

And the second part of the question, I'm trying to remember. What was that?

It was just on -- is there a way for you to measure if people that buy online also go into your showrooms and buy there?

Well, with our client tailing platform, we basically can track all of that. And, yes, we can see that. I mean -- I can't tell you as a percentage at the top of my head here. But generally speaking, our web customer is a base customer that also shops in the store.

So it's really just part of a broader ecosystem is the way to look at it?

Yes, that's exactly right. And that's exactly what we're trying to throw.

That makes sense. Now I know we talked about new stores in Orlando in October. So we'll have new store expenses, I guess, throughout the remainder of the year. Have you made any comments about store openings after Orlando?

Well, we have talked about next year in Melville, New York. And that is a -- will actually be a fad out of a store that we're going to close in Garden City, several names for the same place. But anyway, we call it West Berry, but others call it Garden City. But anyway, we're going to move east on Long Island and slightly north to Bellville near the Walt Whitman mall, there. A smaller location better store economics. And that's what we've announced so far.

And so that's a little bit different. Will that have new store costs called out or will it just be sort of below the surface with one store going away and another store opening?

Unfortunately, the way that accounting works, even though in most of these cases, we're not actually paying rent. We have to charge the rent when we get the keys to the empty shell. So that's is kind of irritating, frankly. But that's what we have to do. So it's a noncash source, but it does hit your earnings you don't really get relief on that. And obviously, until you open the store, and then in our case, you've got to wait another 30, 45 days and to get any revenue because we've got to make the furniture and deliver.

So it's kind of a front-end loaded bad that we have to absorb in to go into these new stores, and we think there is significant enough that we call it out.

And Doug, [indiscernible].

Yes.

Yes. Yes. I don't miss on. That's my problem. I don't really get the logic.

But Doug, to answer your question couple of things I want to point out. So yes, there will be new store preopening costs associated with Melville. The other piece to that Rob was talking about, you don't ring the register for 1 to 2 months after you may -- after you start the store. I think we'll have -- we may have some backlog coming out from the Garden City stores. So we don't have that kind of the losses that happened in the first couple of months of the opening now for -- I did want to point out for Cincinnati.

While it opened in May, we won't have any sales to ring the register until June and you kind of have to build up the backlog, you're going to have a couple of months of losses associated with -- after it opens because you're building up the backlog, if you will.

I got it. So we're still going to have Cincinnati here in the third quarter.

Yes, you'll still drag for Cincinnati.

Okay. And just finally on the new opening price point products, you launched the spring market. looks like you mentioned they will be in the stores Labor Day. Is there an impact to margins from the opening price point? Or are you able to accommodate it at segment level margins?

For the most part, we'll be able to comment -- we'll definitely be able to accommodate it on the retail side. We did price it slightly sharper on the wholesale side. But this is not anything for us or from the industry really. It's something that you need some unit throughput to cover takes expenses in these big factories. And that's what this is designed to do. And generally speaking, when we do that and if we're successful in moving the units through, we like to answer at the end of the day.

And I'm showing no further questions at this time. And I would like to hand the conference back over to Rob Spilman, Chairman and CEO, for any further remarks.

Okay, Michelle. Thank you for giving us some of your time today, everyone, and for your interest in Bassett. We're excited about the changes we're making and confident in our ability to deliver for customers and shareholders. We look forward to reporting again in October on the eve of the debut of our new Point showroom on October 15 when we swing the doors for the first time. So have a wonderful holiday weekend on the special fourth of July.

This concludes today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day.

Good day, and thank you for standing by. Welcome to the Bassett Furniture Industries First Quarter 2026 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Mike Daniel. Please go ahead.

Thank you so much, Latania, for the introduction. Welcome to Bassett Furniture Industries Earnings Call for the First Quarter of Fiscal 2026, which ended February 28 of 2026. Joining me today is our Chairman and CEO, Rob Spilman. We issued our news release and Form 10-Q yesterday after the market closed, and it's available on our website. After today's remarks, Rob and I will be open for questions. We will also post a transcript of this call on Basset's Investor Relations website following the call.

During this call, certain statements we make may be considered forward-looking statements and inherently involve risks and uncertainties that could cause actual results to differ materially from management's present view. These statements are made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. The company cannot guarantee the accuracy of any forecast or estimates nor does it undertake any obligation to update such forward-looking statements.

Other filings with the SEC describing risks related to our business are available on our corporate website under the Investors tab. Now I'll turn things over to Rob. Rob?

Thanks, Mike. Good morning, everyone. First, I'll provide some perspective on the quarter and then lay out our initiatives going forward to grow the Bassett business. After a solid start to first 7 weeks of fiscal 2026, the pace of business slowed abruptly in mid-January. As a result, consolidated sales declined by 2.2% due to a variety of factors.

Against the backdrop of ongoing weak residential housing activity, severe weather interrupted both wholesale and retail sales as well as product distribution flow due to warehouse closures. We rely heavily on retail traffic during weekends. More than 50% of the retail fleet was closed due to weather through one weekend in January, followed by more than 25% of our locations being closed the following weekend.

On the positive side, we benefited from changes to our marketing strategy this year which expanded our President's stay, a promotional event to 3 weeks. This helped us drive retail sales up for the back half of February. While written sales were essentially flat for the first quarter, we had a double-digit increase in written orders for the back half of February. These sales will be delivered in the second quarter.

We had margin pressure on our retail business from our decision to eat the tariff impact until midway through the quarter. In fact, retail gross margins were down 170 basis points because we did not pass this along on goods sold in the fourth quarter that were delivered in the first quarter. With the tariff costs now included in the retail pricing, we expect to see improved retail margins going forward.

Wholesale margins decreased slightly primarily due to lower volume in our domestic upholstery operation. Mike will cover the details on the financials shortly. We've been conservative in designing our plan, but SG&A for the quarter remained higher than we like for the revenue we deliver, and we're addressing this. We're operating in a macro environment of challenging housing, higher political tensions, which continue as headwinds for our top line.

To combat this, we have several initiatives in the works that are projected to save between $1.5 million and $2 million annually starting late in the second quarter. Looking ahead, we have organized our strategic thinking around 5 key initiatives to grow the Bassett business. The first is to generate comp store growth. We have a strong brand in Bassett. We feel good about the product offerings we have in place, and we're excited about what we have coming.

Consumer response to our updated case goods collection has been good. We've also had good reception to the recent introductions of the sleeper and the Highway Dining programs. Customers continue to love our true custom upholstery program, the most significant piece of our business which showed a 6% increase in retail written sales in the first quarter.

At the upcoming April high point market, Basset will introduce new opening price point upholstery collections that offer excellent value with customized options for the consumer. As we've shared previously, the Bassett outdoor line has been absorbed into the Lane Venture brands to further leverage the strong reception and rich history behind Lane Venture, which is now more than 50 years old.

Since we acquired Lane Venture in 2017, invested a domestic manufacturing infrastructure to offer custom options and to improve lead times. In addition to our TIC and weaker offerings, our domestic aluminum product now represents 45% of our outdoor sales. Second, we expect further growth to come from investing to open additional retail store locations, both corporate and license.

As we announced, we will own corporate stores in Cincinnati and Orlando this year and will relocate a store on Long Island. The Cincinnati store is under construction, and we will begin work on our new Orlando location next week. Given the escalation of retail rents and construction costs since COVID, we will meticulously research the sales potential of future locations before we commit to a new store.

Both the Cincinnati and Orlando locations have taken almost 2 years to come online by the time they open later this year. Also, we have opportunities to convert some current license locations to corporate stores as owners retire and exit the business. We have just finished this kind of conversion in the greater Philadelphia market.

The retirement of independent furniture operators with no succession plan is a trend that has picked up steam in the past several years, and Bassett licensed stores are not in -- under the right circumstances, this trend represents an opportunity for us to continue growing in existing markets by leveraging customer relationships and our brand.

Third, we are investing to increase e-commerce sales and build a successfully integrated omnichannel experience. Retail customers are responding well to the enhancement in our e-commerce site, allowing them to see the full breadth of our offerings. The investments we've made in presentation and functionality allow us to reach many more markets where we don't have physical locations. And late last year, we began national home delivery to previously unserved geography.

While overall traffic was down in the first quarter, our customers are generating more frequent transactions. Conversion was up 130% for the quarter, resulting in a 28% increase in orders. Our goal is to use our website to reach younger, higher-income demographics to represent a strong growth opportunity.

Fourth, we are enhancing the model for Bassett design centers which remain a critical part of our wholesale growth strategy. With the footprint of 3,000 to 5,000 square feet, the BDC is the best representation of our brand outside of a bath and home furnishing store. During the first quarter, we added 2 Bassett design centers and currently seek to improve the visual merchandising standards and marketing programs for the BDC fleet this year.

The little sister Bassett custom studio concept at 1,000 feet serves as a wholesale gateway for us as we have opened 60 studios into 2 years since its inception, the custom studio price offering focuses exclusively on the merits of our true custom upholstery program. No inventory is required and the turnaround time is short.

The studio model is a great way for the open market to test the Bassett brand. We aim to convert the best customers under the studio into full Bassett design centers and recently completed 3 such conversions. Fifth, we are focusing on building the interior design channel. We believe that the styling of our assortment and our ability to customize our products beautifully fit the needs of today's interior designer.

We are enhancing a technology platform to cater to designers, and we are working with our independent wholesale sales force to equip them with the tools and mindset to adapt to the current world of design. To showcase our brand in a more design-centric fashion, this summer, we plan to relocate our wholesale showroom to better target this growing channel and time for the October fall market.

Demolition is now progressing and extensive renovations are already taking place. This new consolidated showroom will include the Lane Venture brand, which historically has had showroom space separate from Bassett. In concert with the design effort, we are developing the hospitality and commercial channel by leveraging the quality and brand equity behind the Bassett name.

The launch of the Basset Hospitality division is underway, and we will go after contract business across various commercial areas from hotels to senior living. We have put the team in place, but this will take time to gain traction. This 5-point strategy articulates the blueprint that our management team is employing to ensure a bright future for asset.

The challenging macro environment that we have experienced since the COVID boom, thanks for a difficult balance between investing to grow while controlling or cutting operating expenses. In short, we are doing both, reshaping our organization and technology to compete in a changing world and deliver improved shareholder returns. With that, I'll turn things over to Mike for details on the quarter results.

Thank you, Rob. In my commentary, the comparisons I'll discuss will be the first quarter of fiscal 2021 and compared to the first quarter of fiscal 2025 unless otherwise noted. Total consolidated revenue was $80.3 million, a decrease of $1.8 million or 2.2%. This consisted of a $700,000 decrease in revenue from our retail stores and a $1.1 million decrease to our external wholesale customers primarily due to the impact of winter weather on store operations and retail and wholesale logistics.

Gross margin at 56.2% representing an 80 basis point decrease when compared to the prior year, primarily driven by lower margins in both the retail and wholesale business. Selling, general and administrative expenses, excluding new store preopening costs were 54.7% of sales, 70 basis points higher than the prior year reflecting reduced leverage of fixed costs due to lower sales levels.

Operating income was $1.2 million or 1.4% of sales as compared to income of $2.5 million or 3% of sales in the prior period. Diluted earnings per share were $0.13 versus $0.21.

Now let me cover more details on our wholesale operations. Net sales were $53 million, essentially flat to last year. Net sales were impacted by a 0.6% increase in shipments to our for network and a 2.6% increase in Lane Venture shipments to wholesale customers, partially offset by a 5.3% decrease in shipments to the open market.

As previously discussed, we introduced the Lane Venture brand in the Basset Home furnishing stores during the first quarter 2026, and have included those shipments in the above change in the 0.6% increase for the retail stores, including those shipments in the total Lane Venture brand, it lots of that brand increased 32%.

Shipments were negatively impacted by winter weather because our major distribution centers were closed for multiple days during the quarter. Gross margins decreased 30 basis points in our period as margin decreases of some upholstery operations due to reduced leverage of fixed costs, that were partially offset by improved margins in the Bassett case good operations due to improved pricing strategies. SG&A expenses as a percent of sales were essentially flat compared with the prior year period.

Now moving on to our retail store operations. Net sales of $52.5 million represented an $800,000 or a 1.4% decrease again, primarily due to the impacts of the weather. Written sales, the value of sales orders taken but not delivered decreased 0.2%. Gross margin at 51.5% represented a decline of 170 basis points due to lower margins on in-line goods as we did not institute a price increase related to the increased tariff costs until mid-January.

Total SG&A expenses as a percent of sales increased 20 basis points primarily due to the preopening costs associated with the new stores in Cincinnati and Orlando and reduced leverage of fixed costs due to lower sales levels, partially offset by improved efficiency in the warehouse and delivery operation.

Prior to opening a new store, we incur such expenses as rent, training costs and other payroll-related costs. These costs generally range between $200,000 to $400,000 per store depending on the overall rent cost for the location in the period between the time when we take physical possession of the store space and the time of the store opening. These costs should be higher in the second quarter.

Now let me address our liquidity position. Our liquidity remains solid with $51 million of cash in short-term investments. With the first quarter historically being the lowest in cash generation, operating cash flow was a negative $5.5 million, which also included certain negative working capital changes, which were expected.

As we previously mentioned, we plan to open 2 new stores, relocate another store and move our existing High Point showroom during the year, which will result in additional capital spending for tenant improvements. As a result, we expect total capital expenditures to between $8 million and $12 million for 2026, considerably more than the $4.5 million we spent last year.

We continue to pay our quarterly dividend and repurchase shares opportunistically. We spent $1.7 million on dividends and $147,000 on share buybacks in the quarter. We remain committed to delivering shareholder returns through dividends and when appropriate, share buybacks. Our Board also approved a $0.20 dividend to be paid May 29.

Now we'll open up the line for questions. Latonia, please provide instructions to do so.

Certainly. [Operator Instructions] And our first question will be coming from the line of Anthony Lebiedzinski of Sidoti.

So just thinking about the retail margins, can you help us better understand the impact of the delayed price increases that you took in mid-January and how that should impact the second quarter.

Well, that's unfolding as we speak, Anthony, but we have seen -- since we implemented that the tariff thing last year was difficult for the whole industry to deal with, and everybody had their own take on it. And of course, we've got a wholesale consideration and a retail consideration. So I'm going to give you a little bit of the logic behind our decision. So we increased wholesale and retail prices in July. And then there were some further adjustments to the tariffs.

And at that point in the fall, we said, given the environment, we don't want to put on another price increase within 60 days of what we just did. So we elected to go with and as we've mentioned already and you're asking about, we and that 170 basis point decline. But I can't predict exactly how these margins will come through in the quarter, but they will be closer to what we had last year than what we just reported. And so I can't give you any more insight than that. Mike, maybe you can help. I don't know if we'll get all the way back up to 170 basis points, but we are seeing improved margins so far this quarter since we have implemented the increase.

Got you. Okay. So given the recent spike in fuel prices, are you thinking about potential additional pricing actions and/or surcharges to offset the higher delivery and shipping costs? Just wondering how you guys are thinking about what's been going on since your quarter ended?

Well, on the retail side, we have a captive freight situation with J.B. Hunt, and we're receiving surcharges weekly on that, which fluctuates with diesel prices. So yes, that's already happening. And we're also getting increases from petroleum derivative products. such as foam and poly and that kind of thing. And those are fairly significant, and we will have to pass those along in the next -- they actually have not been implemented yet, but there is a -- the various dates in the next few weeks that these things will take effect, and we will have to adjust for those increases.

And, Anthony, yes, on the freight surcharge -- the fuel surcharge side we do and build back from a wholesale perspective, the freight -- or the freight surcharge that we are charged from our freight partner. So yes, that fluctuates along that surcharge that we bill out fluctuates with what we're getting charged from our partner.

Got you. Got it. Okay. And then just wondering if you can comment on the trends that you've seen in the business since the end of your quarter, which coincides with the start of the conflict in Iran, whether you've seen any noticeable the differences in trends. I know your target customer is generally a higher-income consumer, so maybe not as much impacted by fuel prices as lower income consumers, but obviously, we've seen the stock market react negatively since then. So just wondering if you could talk at a high level as to what you've seen so for the first few weeks of the -- of your current quarter.

Pretty much more of the same, I would say. Anthony, we haven't had a tremendous decline, but we haven't had an uptick either. So it's still grinding it out pretty much the way I would describe it. We -- obviously, this is Easter weekend, and we're closed on Sunday and the week around Easter is always a tough week. So we're going to deal with that, but more of the same is what we're seeing, that not a lot up or down.

Got you. All right. Best of luck.

Thank you.

And our next question will be coming from the line of Doug Lane of Water Tower Research.

Staying on the conflict in the Middle East, are you seeing any -- are you expecting price increases you mentioned foam and some of the plastic derivatives. What about accessibility? Do you have any -- are you worried about accessibility to some components, maybe even aluminum, a lot of aluminum goes through that part of the world. Just what's the outlook for accessibility to your materials in the near future?

Yes, Doug, the only thing that really goes through that area in the Hormoz there is product from India and for us, and we -- we really haven't had a noticeable issue on this, and we haven't seen container prices spike. I think that's just because of overall tepid demand across our industry and other consumer goods since all this stuff has started. But at the moment, haven't seen an accessibility issue.

Okay. Fair enough. Then switching over to the retail margins. Segment margin is down about $1 million. Second quarter, I guess, we benefit from better pricing, but we still have new store openings. Can you give us a feel for just directionally where we're going. Are we going to continue to have some losses on the retail side until the back half of the year, maybe even in the fourth quarter when those stores come online and start producing sales and profits? How does that look?

That's probably accurate. I think we can do better than we did this quarter with the better margins, and that will help quite a bit. But we've only baked in 1 of the store opening costs so far, and now we're going to have 2 coming this quarter. And then in our model, we don't have things on the shelf. The -- we -- have 80% of the time, we have to go make the furniture when they buy it, and so that takes another 4 weeks or 5 weeks to turn into revenue. So yes, we'll be dealing with that at the rest of the year, but we're certainly not budgeting to have margins that we just had in the first quarter.

Right. And just to clarify what Rob said. So what happens store opens, we'll have a couple of few months of losses, as Rob said, kind of filling that pipeline before we get to a steady state. So that's just the nature of the beast, the way our model is.

Got it. And have you talked about the potential for any tariff refunds with the Supreme Court decision? How did that decision impact the tariff landscape for 2026?

I would say we don't know. We've had some conversations on that, but I don't have anything definitive to answer that question, Doug.

Then you mentioned weather and just help me understand. I get that the weekend is bad timing, and you had 2 weekends in a row, you were impacted. But are those actually lost sales or just deferred sales?

We certainly hope they're deferred, but they seem to be lost. And I've talked to a couple of guys on our Board who have been in retail, and we were kind of grind and the fear about that. But yes, I mean, look, December is our weakest month of the year for written business, people don't buy a lot of Bassett Furniture or other precure in the month of December around the holidays. So January becomes a very important month in February as well. That really starts the year off, and we're going to -- we need it.

And so we started the year off pretty well until we got this. So we did mention that we had a nice increase in February. I can't really say that it was making up for what happened in those last 2 weeks of January. It's hard to point to that. But I mean, it's hearts and also hurt our deliveries quite a bit in the quarter. So I -- they feel like they're lost. I hope they're deferred, but they feel like they're lost.

Okay. Fair enough.

A little bit more give that a little bit more color. So for that first 7 weeks, we were up retail written mid-single digits, low to mid-single digits. And then after that 2-week period, for that 9-week period, we went from up low to mid-single digits to down almost double digits for that 9-week period. So that 2-week period that we had the weather pretty dramatic on retail written sales and wholesale orders.

No, that was impactful locating. Just 1 more to me. On the e-commerce sales, they're up 28%, continues to be a strong channel for you. What -- how much is e-commerce representing your sales? And is this something you would consider breaking out separately when you report in the future?

We haven't done that in the past, and we we'd have to think about doing it. It's still a small number, but we've had, I think, 6 quarters now -- 5 or 6 of nice double-digit growth in this. And so we're we're excited about it, and we continue to work on all the little nuances to improve the navigation of the site. But we haven't to date elected to break that out.

And that I'm showing no further questions at this time. I would now like to turn the conference back to Rob for closing remarks.

Well, thank you for attending today, and I hope everybody has a good holiday weekend, and we will talk to you again in late June. Thank you very much.

And this concludes today's program. Thank you for participating. You may now disconnect. Have a good day.

Good day, and thank you for standing by. Welcome to the Bassett Furniture Fourth Quarter 2025 Earnings Conference Call [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mike Daniel, CFO. Please go ahead.

Thank you, [ Didi ], for the introduction. Welcome to the Bassett Furniture Industries Earnings Call for the Fourth Quarter of Fiscal 2025, which ended November 29, 2025. Joining me today is our Chairman and CEO, Rob Spilman. We issued our earnings release for the fourth quarter yesterday after the market closed, and it's available on our website. We plan to file our Form 10-K with the Securities and Exchange Commission in the next couple of days.

After today's remarks, Rob and I will open up for questions. We will also post a transcript of this call on Bassett's Investor Relations website following the call. During this call, certain statements we make may be considered forward-looking statements and inherently involve risks and uncertainties that could cause actual results to differ materially from management's present view.

These statements are made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. The company cannot guarantee the accuracy of any forecast or estimate nor does it undertake any obligation to update such forward-looking statements. Other filings with the SEC describing risks related to our business are available on our corporate website under the Investors tab. Now I'll turn things over to Rob. Rob?

Okay. Good morning, everyone. Thank you, Mike. The reality is that the market has not changed much from what we saw throughout the first 3 quarters of fiscal 2025. Housing sales is very slow, and this, of course, impacts our business. So we're pleased that given this environment and with our fourth quarter close on November 29, the day after Black Friday, we increased sales and profits. Last year at this time, we noted that our 2024 restructuring plan was mostly complete.

But I want to point out that the restructuring mindset and the focus of running a leaner, smarter business is as much on the front burner today as it was then. We're still at it, taking costs out, driving operating efficiencies, integrating technology, emphasizing product newness, innovation and design, along with adapting to a changing marketplace. We managed through the tariffs and Bassett's flexible sourcing model is central to our company's ability to be resilient.

We are hopeful that the tariff situation has stabilized, but we will react again if that changes. Bassett finished the year with a solid fourth quarter, increasing consolidated revenue 5.1%. And excluding the impact of last year's Noa Home closure, consolidated revenues were up 6.4%. Wholesale sales were up 8.3%. Retail sales were strong as well, increasing 7.9%. Two years ago, we invested in a fresh approach to Bassett Casegoods, and those investments have begun to pay off for us.

Our wood business needed to be reinvented, and we're pleased with the progress we've made. Sales of these offerings were up over 50% in the quarter. The Copenhagen line has been in retail locations for a year now and is a top seller across all product categories. Our HomeWork line of desk and related office products has successfully repositioned us in the home office category. On the domestic front, our U.S.-made HideAway Solid Dining program, solid wood dining was a good start. In upholstery, sales of true custom leather that we launched in 2023 continues to exceed expectations and sales of that program were up 19% in the quarter.

We are also selling better fabrics, and we have consolidated our grading system to simplify the special order transaction and to offer more obvious values on better fabrics. The reception to our new styles at the High Point Market indicates that club-level motion is poised for further growth in 2026 and we are also excited about the innovation behind our Z4 Sleeper program that makes for easy opening with this European hardware.

Our Bassett Outdoor line is being absorbed into the Lane Venture outdoor collection, which we have owned for 8 years, resulting in the Lane Venture brand being offered in the Bassett Home Furnishing stores starting this month. Lane Venture has very strong brand recognition in outdoor. This will be a more efficient operating model for us with fewer assets to support and will generate better inventory turns. We tweaked our marketing activities in the quarter, again supplementing digital with print and spot TV.

We provide assets to our licensed stores and many took the opportunity to run local TV ads to drive traffic in their markets. We were encouraged by the ROI we saw on our direct mail pieces in the third and fourth quarter, and this is important to our strategy for 2026. We're moving from 1 catalog to 2 this year to supplement our digital plans. During the past year, our teams worked hard on enhancing the consumer-facing e-commerce site and e-commerce sales were up 14% in the quarter.

Conversion rates continue to rise double digits. For the full year, e-commerce sales were up 27%. We will continue to add stores in 2026 with Cincinnati opening in the second quarter and Orlando opening in the third quarter. Both are new markets for us. We will also locate -- relocate our existing Long Island store in Westbury to Melville, New York in September. Things are certainly changing in the open market furniture world outside of the Bassett store network.

The retirement of independent furniture store operators is a nationwide generational trend that has picked up steam in the post-pandemic world. We have several strategies in place to adapt and continue to grow our wholesale channels. We are adding new elements to both of our dedicated distribution concepts. The 3,000 to 5,000 square foot Bassett Design Center is our largest channel outside of retail. Sales were up 5% in the BDCs in the quarter.

Our Bassett Custom Studio, the 1,000 square foot footprint specializing in true custom upholstery were up 21% in the quarter. We now have 57 Bassett Custom Studio partners. Another important element of our strategy is accelerating our pursuit of America's robust interior design community. We have implemented new programs to address the needs of the design trade, and this is a priority for 2026.

In a similar vein, we have launched a new division, Bassett Hospitality to grow sales we've been building in the boutique hotel, country club and senior living channels. Under experienced leadership, we're building a portfolio of table stakes assets to address this business properly. Bassett closed the fiscal year with a strong balance sheet. Mike will get into the financial details on the quarter. Our fiscal 2026 is well underway. We believe the tariff situation has stabilized, and we've adjusted prices to account for the impact. We will reassess if that changes.

Industry data points to ongoing challenges with housing and mortgage rates. So we must control what we can, holding a leaner organization and business model to position us well in this environment. Our team is smaller. We reduced headcount by 11% last year, and we recently reduced headcount again by 4%. We made meaningful progress in 2025 on positioning Bassett to weather a marketplace where discretionary demand has moderated. Innovation change and operating discipline remains critical to our future. After 124 years of history, our future is dependent on these changes, flexibility and new ideas. Now I'll turn things over to Mike.

Thank you, Rob. In my commentary, the comparisons I'll discuss will be the fourth quarter of fiscal 2025 compared to the fourth quarter of fiscal 2024, unless otherwise noted. As Rob previously noted, total consolidated revenue increased $4.4 million or 5.1%. Excluding sales from Noa Home, which closed late in 2024, consolidated revenues increased 6.4%. Gross margin at 56.3% represented a 30 basis point decrease when compared to the prior year, primarily driven by lower retail margins, partially offset by higher margins in the wholesale business.

Selling, general and administrative expenses were 53.2% of sales, 60 basis points lower than the prior year, reflecting benefits from last year's restructuring program, ongoing cost optimization activities and greater leverage of fixed costs due to higher sales levels. Operating income was $2.3 million or 2.6% of sales as compared to income of $900,000 in the prior year. Excluding impairments and other restructuring-related costs, operating income would have been $2.8 million or 3.2% of sales in 2025 compared to $2.3 million or 2.8% of sales in 2024.

Diluted earnings per share were $0.18 in 2025 versus $0.38 in the prior quarter -- prior year quarter. The prior year's earnings included a $2.6 million tax benefit associated with our cumulative investment in Noa Home. Excluding that benefit, diluted earnings per share for 2024 would have been $0.08. Again, as Rob pointed out, net sales for the wholesale business increased $4.4 million or 8.3% over the prior year, consisting of a 14% increase in shipments to our retail store network, a 3.4% increase in shipments to the open market partially offset by a 13% decrease in shipments for Lane Venture.

The decrease for Lane Venture was primarily due to timing of receipt of imported goods to fulfill orders as the order rate for the quarter actually increased by 34%. Gross margin increased 60 basis points over the prior year. This increase was driven by improved pricing strategies in both the upholstery and wood operations, coupled with greater leverage of fixed costs from higher sales levels, partially offset by an unfavorable warranty and returns adjustment.

SG&A expenses as a percent of sales decreased 50 basis points, primarily due to greater leverage of fixed costs from higher sales levels. Wholesale backlog was $19.5 million as compared to $21.8 million on November 30, 2024. Now moving on to our retail store operations. Net sales increased $4.2 million or 7.9%. To support sales and to wait until there was greater clarity on tariffs, our retail prices were not adjusted for the cost increases until January 1, 2026.

Primarily due to this, the gross margin declined 150 basis points. SG&A expenses as a percent of sales decreased 180 basis points due to several factors, efficiency gains in warehouse and delivery operations, overall lower operating costs due to benefits from the cost reductions implemented during the restructuring and greater leverage of fixed costs due to higher sales levels.

Retail backlog was $34.4 million compared to $37.1 million at November 30, 2024. Our liquidity position remains solid with $59.2 million of cash and short-term investments and no debt. We generated $7.8 million in operating cash flow during the quarter, and our cash and short-term investments increased $4.6 million. For the year, we generated $13.5 million in operating cash flow and $2 million of free cash flow, demonstrating our ability to manage cash during a tough business cycle for home furnishings.

As Rob mentioned, we plan to open 3 new stores during the year, which will result in additional capital expenditures. We're forecasting $8 million to $12 million of CapEx for 2026, considerably more than the $4.5 million spent this year. We continue to pay our quarterly dividend and repurchase shares opportunistically. We spent $1.7 million on dividends and $600,000 on share buybacks in the fourth quarter. We remain committed to delivering shareholder returns through dividends and when appropriate, share buybacks and our Board recently approved a regular $0.20 dividend to be paid February 27. Now we'll open up the line for questions. [ Didi ], please provide instructions to do so.

[Operator Instructions] And our first question comes from Anthony Lebiedzinski of Sidoti.

Certainly, great to see you guys maintaining a very strong balance sheet even with all this volatility. So I guess my first question, just as far as Q4, can you comment on pricing versus unit volumes, how you saw that in the quarter?

Are you referring to the tariffs...

Yes, mostly just tariffs. I mean, obviously, with all the changes that we've seen, you guys did take some pricing actions. So just wondering if you guys can comment on that. It doesn't have to be overly specific, but just kind of directionally kind of where the pricing....

Back in the spring, when they had Liberation Day, we increased prices initially on that and passed that through retail. Then we had some subsequent tariffs and these things have jumped around a lot. But as Mike alluded to in his comments, we made the decision to hold our retail prices in the fourth quarter, which did impact our retail gross margins. And we basically had a surcharge on top of the wholesale -- the regular wholesale price, we had a tariff surcharge.

And then recently here a couple of weeks ago, we rolled the surcharge into a wholesale price and then adjusted that at retail. So basically, we aid the surcharge in our retail division during the quarter, and that's now been run through. Hopefully, this thing will settle down and we know what we're dealing with, although, of course, as you may have seen, India's tariffs are coming down. So -- and we do have some nice products from India. So it's been tough to manage, and it's been tough to communicate exactly where we are to our customers through all this. But hopefully, we're going to see some kind of stabilization.

And Anthony, when you get down to price versus number of pieces, we don't get too caught up in the number of pieces. We're really tracking the top line cash. But I would say on the wholesale side, when you say we're up 4% in sales dollars. No, it was up 8% in sales dollars. I think the price increase was not 8% given all. So I would say from a unit standpoint, we probably were up a tad.

Okay. That's great. And then can you guys comment on the written retail sales that you saw in the quarter? Any sort of comment on demand trends so far in early fiscal '26?

Well, we -- we started off the quarter strong with written sales. They did temper somewhat as the quarter went on. We did have another strong Black Friday. But at the end of the day, we had a nice written quarter. And this year, we have started off -- well, we started off the first 7 weeks because our quarter was 5 weeks in December and then, of course, first 2 weeks of January. So that first 7 weeks were solid. We were pleased with that.

I must say, however, that these last 2 weeks with this weather situation has been a real kick in the hands, so to speak. We had to close 40 stores with the ice weekend. And we've closed several -- last weekend with the snow weekend. So this has been highly disruptive to everything. And so here we are in February and President's Day loom. So these next 4 weeks will really tell that the tale of the quarter. And we felt quite good until we couldn't open the store. So we'll see what happens, but that's my flavor on that.

And let me give you another little piece of data that typically we have in the 10-Q and since we don't have a specific thing on the quarter this time, our written sales were up 4% for the quarter.

Got it. And then, obviously, hopefully, for the President's Day weekend, the weather is kind of more normal. And then as far as the Bassett Design Studios and Design Centers, so I know you guys gave some color commentary on that, which sounds like those are doing well. As we look forward here to the balance of fiscal '26, do you guys expect to open more of those locations? How should we think about that?

We do. And we are in -- the studio is a smaller concept, 1,000 square feet, really specializing in our custom upholstery, true custom program. That we should get more action out of that as the design center is a bigger commitment on floor space and inventory. And those don't come along as often as we have been able to open the newer concept.

But yes, we -- that's very much a focus for us. And what we're really focusing on, too, is the productivity of those concepts, all the metrics that they use. And of course, that's how you keep a solid network. So -- but we do -- offhand, I can't tell you exactly how many, but that's something that we talk about constantly around here.

Got you. Okay. And then my last question here. So I know you guys talked about opening new stores this year. Longer term, how do you guys think about the retail store network? Just would love to get some color on that subject.

When you -- when you say how do we think about it, you mean in terms of size of it or how many stores or that kind of thing?

Yes, exactly. It's just -- so what's your kind of long-term goal as far as the number of stores, if you have a goal that you can share with us? Or just any sort of additional color as to how you guys think about the growth of the business in the next 3 to 5 years, which I would imagine would entail opening more stores, but maybe I just wanted if you guys could provide some additional details on that.

Sure. Well, we certainly look at the geography of the country and what kind of revenue is derived from each area. We know that when we open a store, we do more business in that area and if we don't have a store. So that's number one. However, I would say the post-COVID models for rents and for construction costs, we just had an interesting meeting on that yesterday. The environment has changed. It's more expensive to do these stores today. So what we do, we've got a formula, and we overlay that formula with the geography.

We do try to leverage areas where we are currently operated in -- operate in to take advantage of warehousing and that kind of thing if we can add and leverage our investment in the geographic area. So -- but this pace of, call it, 2 to 4 stores a year is one that we foresee us continuing on. And in addition to that, of course, all these efforts in the open market and now the design trade and the new Bassett Hospitality division, all of these things are -- and Lane Venture are all part of the mix for us to grow the top line.

And our next question comes from Doug Lane of Water Tower Research.

Looking at the retail business in 2026 here, you mentioned you raised prices January 1. So will that be enough to get retail margins -- gross margins on the retail side up year-over-year? Or are there other factors that might continue to hold retail margins back a little bit?

Well, Doug, really, if you look back in probably a 5-year run, we've had a nice run up in our retail margins. And then, of course, this quarter, we went the other way for the reasons that Mike enumerated with beating the surcharge and all that. But I think we're about where we're going to be. We could increase slightly.

And I mean, we've already seen the first couple of weeks with adjusting the prices that the margins have come up some. But we also want to make sure that we keep our inventory clean, and we're running this week of an inventory reduction sale as we speak. So all of those factors play in. So we've been running 52%, 53%, 54% in that range for some time. And I think that's where we see ourselves for the immediate future.

No, that makes sense. And help me understand how the new stores impact the P&L on the retail side. Is it enough to cause any kind of lumpiness in either sales growth or gross margin in any particular quarter? Or is it just pretty much seamless?

Well, and I'll take this one. From a gross margin standpoint, really no effect on the gross margin per se. Where you see the impact is on the SG&A side, where, unfortunately, with the way we have to record rent expense, we record rent expense basically when we take control of the building, which could be 2, 3 months before we open. So we're hitting a rent expense at that point.

Then when we open, we don't ring the register for a sale until the product gets delivered. So there's occupancy cost and other SG&A that's going on for a 2- to 3-month period before you get that backlog up to a normal level. So from a P&L perspective, SG&A is a hit. And I think if I remember right, what we used to say in the Qs and the Ks, it was somewhere preopening cost is what we really refer that -- referred to it as was somewhere in the $400,000 to $500,000 range for a new store opening.

Okay. Got it. It still sounds like the macro environment is challenging and yet you're growing wholesale and retail 8%. So congratulations on that. So obviously, you're gaining share from somebody. How would you describe where you're taking market share from in the current environment?

Well, I just would attribute it to some of the new products that we brought out. And maybe -- well, definitely, I would say in a couple of cases, we've needed to really improve our assortment. It's hard for me to really pinpoint who we took it from because there are so many guys doing this in this business.

But it's really in our Bassett Casegoods, particularly this quarter, consumers responded to what we had to offer, and that's really made a difference. So one thing about our business, and this is for everybody, if you get something that's hot that people like, it can affect your sales nicely. And of course, the opposite is also true. But that's really what I attribute our -- and we've been out in the stores here in the last few weeks and the people are excited about these new products. So that's really what's happening.

And Doug, I would add one thing Rob pointed out in his comments is kind of the phenomenon of what's happening with the independent retailer. More and more of the generational businesses are going away. And at least on the retail side, it does provide some additional help to our sales. So I'd throw that in there, too.

No, that makes sense. Lastly, on share repurchase. Is there any -- is there -- what is the attitude on share repurchase? Is it still opportunistic? Or do you think that 2026 might be a little bit more aggressive than 2025? Just maybe if you could help me think about how you guys think about share repurchases.

Well, Mike, this word opportunistic is certainly what drives our decision process on that. We also -- in quiet periods, we are prohibited from buying in the open market unless we put some kind of accommodating plan in to allow us to buy at a certain level. And so we -- before we close each quarter, we look at those 30 to 40 days that follow the quarter and say, well, if it reaches a certain level, if it goes down to a certain level, we'll buy. But we are not I would say, pretty much stay the course of where we are on the share repurchase is what we're thinking right now.

And the other piece to that, Doug, is we're constantly looking at our cash level and the cash generation during the period to make sure that we can, if you want to say, afford to make those purchases.

I'm showing no further questions at this time. I'd like to turn it back to Rob Spilman for closing remarks.

Well, as we said, everyone, we have a similar environment here in 2026 that we experienced in 2025, but we are hard at running a smarter business and growing the top line at Bassett in the various ways that we have described. And that's what we're going to continue to do. I would say thank you for your participation today, and have a great day. Thank you.

This concludes today's conference call. Thank you for participating, and you may now disconnect.

Good day, and welcome to the Bassett Furniture Industries Third Quarter 2025 Earnings Call. [Operator Instructions]. As a reminder, this call may be recorded.

I would now like to turn the call over to Mike Daniel, CFO. Please go ahead.

Thank you, Michelle, for the introduction. Welcome to Bassett Furniture's Earnings Call for the Third Quarter of Fiscal 2025 ended August 30, 2025. Joining me today is our Chairman and CEO, Rob Spilman. We issued our news release and filed our Form 10-Q yesterday after the market closed and is available on our website. After today's remarks, we will open up the call for a Q&A session. We will also post a transcript of the call on Bassett's investor website following the call.

During today's call, certain statements we make may be considered forward-looking and inherently involve risks and uncertainties that could cause actual results to differ materially from management's present view. These statements are made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. The company cannot agree to or cannot guarantee the accuracy of any forecast or estimate nor does it undertake any obligation to update such forward-looking statements. For more information, including important cautionary notes, please see the company's annual report on Form 10-K for the fiscal year ended November 30, 2024. Other filings with the SEC describing risks related to our business are available on our corporate website under the Investor tab.

Now I'll turn things over to Rob. Rob?

Okay. Thank you, Mike. Good morning, everyone, and thank you for joining us today. I'm pleased for the third quarter despite the continuing challenges -- challenging environment in the industry, Bassett reported increases in revenue, operating income and gross margin. We also continue to look for ways to lower operating expenses, which continues the work that began in the summer of 2024 last year. We plan that this year would remain impacted by the slow housing market, and that is very much the reality. We remain nimble in managing our business and are focused on driving innovation into our product lines, becoming more aggressive in our marketing initiatives, leveraging technology and adjusting to the challenges affecting the industry in general. In short, we've adjusted to the new normal of furniture demand.

We're pleased with our progress so far this fiscal year as we strive to be resilient in this environment. Mortgage rates have come down slightly from last quarter, and we've all seen the recent news about rate decreases. While it's moving -- slowly moving in the right direction for the housing market, we don't expect our industry to feel a more robust change until we can point to a sustained pickup in home sales. Many consumers are still cautious about making significant investments in home furnishings, and they remain concerned about the price of houses and the lack of inventory. We're recognized as one of the premier quality brands for furniture, and we concentrate on creating custom design solutions for our customers that align with their personal style.

The decisions and the investment we've made in creating new lines, refreshing existing products, expanding e-commerce capabilities and modifying our marketing activities are making a difference in our results. That said, we cannot -- while we can't control these areas, we have been adjusting to the impact that tariffs have on our supply chain in some respects on consumer confidence in general. We have a competitive advantage with approximately 80% of our wholesale shipments manufactured or assembled in our U.S. factories. However, we are still being impacted by tariffs, particularly from Vietnam and India on imported fabrics, plywood, componentry and finished goods, and we pass along those surcharges for these materials during the third quarter.

We made the difficult decision to raise retail prices slightly in July to cover the tariff impact. Our teams continue to intently monitor the gossip and the reality about tariff activity daily, and I'm sure this will be the #1 topic at the upcoming High Point furniture market later this month. Now let's move on to a discussion about our third quarter results. And let me remind you that the third quarter is generally our weakest reporting period of the year. We grew consolidated sales 5.9% with August the strongest month for orders in the quarter. Excluding sales from Noa Home, which closed in late 2024 as part of our restructuring plan, consolidated revenues increased 7.3%.

Ongoing operating efficiencies produced $600,000 of consolidated operating profit due primarily to the wholesale business compared to a loss of $6.4 million this time last year. Recall that in last year's third quarter, we had a cyber incident that suspended our manufacturing financial system for 7 days, resulting in negative impacts on operating income, gross margin and expenses. Gross margin this quarter improved 320 basis points due to better wholesale margins, slightly offset by a decrease in retail margins at company-owned stores as well as the comparison of last year's impact of wages paid during the cyber shutdown.

Orders from our combined network of corporate and licensed stores grew by 5.9%, driven by a 9.8% increase in company-owned retail stores. Wholesale sales to the open market were up approximately 1%. True custom upholstery offers more than 450 fabrics and 40 leathers and drove the majority of our wholesale improvement. We had a double-digit increase in case goods, which offset a slight decrease in our domestic custom wood lines. We continue to be pleased with the response to our new whole home product collections. Copenhagen is doing well across the board. The Newbury line has arrived in stores and based on initial feedback, we believe it has great potential.

Our U.S. manufactured Benchmade Hideaway dining line is also off to a good start in both retail and wholesale. Outdoor sales were up 18%. Written retail sales increased by 2.4% in the quarter. I mentioned that retail gross margins were down slightly, and this was due to lower margins for both in-line and clearance goods. We continue to be aggressive this year on moving through discontinued as is inventory. Ongoing operating expense efficiencies implemented this year, coupled with higher sales, delivered a decrease of 590 basis points on SG&A expenses as a percentage of retail sales. We were able to do more with less in the quarter, and we must continue to challenge ourselves to improve. We're integrating new ideas and changes into our marketing mix without adding to our budget. We shifted slightly away from digital in the third quarter and produced a high-quality 52-page catalog and several smaller mailers for our fall promotions.

We featured true custom motion and Benchmade. Customers are coming in at retail with the mailers and the response has been very positive. We also added spot TV placements in key markets with new professional quality ads. The stores in these markets outperformed those without the TV campaign. We will continue to test and learn from these approaches and use those that are delivering the highest return on investment. The marketing changes have enhanced our omnichannel experience as more of our target customers are integrated with their experience -- their online experience and our in-person visits. We are now lapping the double-digit e-commerce sales growth numbers from last year. Sales are still up now with single-digit increases.

Website traffic declined slightly in the third quarter, but conversion rates continue to rise and were up 18%, driven by improvements in our website experience to our shoppers. We remain pleased with the progress of our Bassett Custom Studio program and now have 57 locations open. Orders were up in Bassett Custom Studio 35% in Q3 and growth is coming from new and existing stores. Shipments were up 38%. We will be focused on emphasizing the value of Custom Studio and High Point and are optimistic that we will bring on additional locations to the program. This plan leverages our core competency of providing custom upholstery over a broader range of the United States.

We reopened our Concord, North Carolina corporate store in the last few weeks, which has been closed since April for remodeling. We are also in the architectural planning phase of 2 new Bassett stores set to open in 2026. Our Board of Directors approved our regular quarterly cash dividend of $0.20 per share, and our balance sheet remains strong.

Now I'll turn things back over to Mike for more details on our financial results.

Thanks, Rob. In my commentary, the comparisons I'll discuss will be the third quarter of fiscal 2025 compared to the third quarter of fiscal 2024, unless otherwise noted. As Rob previously noted, total consolidated revenue increased $4.5 million or 5.9%. Excluding sales from Noa Home, which closed late in 2024, consolidated revenues increased 7.3%. Gross margin at 56.2% represented a 320 basis point improvement over the prior year, driven by improved wholesale margins, partially offset by slightly lower retail margins. Selling, general and administrative expenses were 55.4% of sales, 440 basis points lower than the prior year, reflecting the benefits from last year's restructuring plan, ongoing cost optimization activities and greater leverage of fixed costs due to higher sales levels.

Operating income was $600,000 or 0.7% of sales as compared to a prior year loss of $6.4 million, which included a $1.2 million loss on the abandonment of a logistical services contract. Diluted earnings per share were $0.09 versus a loss of $0.52 in the last year quarter. So let me cover a little more detail on our wholesale operations. Net sales increased $3 million or 6.2% over the prior year, consisting of a 9.2% increase in shipments to our retail store network, approximate 1% increase in shipments to the open market and a 9.6% increase in Lane Venture shipments.

Gross margins increased 440 basis points over the prior year. Excluding $600,000 of unproductive labor costs incurred during the temporary shutdown for the cyber incident last year, gross margins would have increased by 310 basis points. This margin increase was driven by improved pricing strategies in both the upholstery and wood operations, coupled with greater leverage of fixed costs from higher sales levels. SG&A expenses as a percentage of sales decreased 210 basis points, primarily due to the benefit of cost reductions implemented during the second half of fiscal 2024, again, greater leverage of fixed costs from higher sales. Wholesale backlog was $16.6 million compared to $21.8 million on November 30, 2024, and $18.5 million at August 31, 2024.

Now moving on to the retail store operations. Net sales increased $4.6 million or 9.8%. Gross margin declined 40 basis points due to the lower margins on both in-line and clearance goods. As Rob said, we've been more aggressive in cycling through the as is inventory and also coupled with increased promotional activity. SG&A expenses as a percentage of sales decreased 590 basis points due to several factors: improved efficiency gains in warehouse and delivery operations, lower advertising and marketing expenditures, overall lower operating costs due to benefits from the cost reductions implemented during the restructuring and, of course, greater leverage of fixed costs due to higher sales levels.

Retail backlog was $32.2 million compared to $37.1 million at November 30, 2024, and $33.3 million at August 31, 2024. Our liquidity position remains solid, although we generated an operating cash flow deficit for the quarter and ultimately reduced our cash and short-term investments by $5.2 million. We ended the quarter with $54.6 million of cash and short-term investments and no outstanding debt.

As Rob mentioned, our third quarter is typically the slowest quarter for business and consequently, our lowest cash generation period. We have reduced our projected range of annual capital investment in our business to between $5 million to $7 million as previously planned build-outs of the 2 new stores Rob previously mentioned have been pushed to early fiscal 2026. Our prior CapEx range was between $7 million and $9 million. We continue to pay our quarterly dividend and repurchase shares optimistically. We spent $1.7 million on dividends and $400,000 on share buybacks in the quarter. We remain committed to delivering shareholder returns through dividends and when appropriate, share buybacks.

Now we'll open up the line for questions. Michelle, please provide instructions on how to do so.

[Operator Instructions] Our first question comes from Anthony Lebiedzinski with Sidoti.

Certainly nice to see the improvement in sales and profitability in the quarter. So Rob, I think you said that August was your strongest month for delivered sales. Did you see the same case with your written sales as well? And also maybe if you could just comment on as far as what the trends you saw during the Labor Day holiday season? And any sort of commentary on quarter-to-date trends would be very helpful.

That didn't take long to ask that question. We were predicting that was coming. So August was the best month of the 3. We had good order momentum, both at wholesale and retail. And I would say that, that trend has continued so far through the Labor Day period and into September. Now by any means, I wouldn't say we're happy with our level of sales, and we're fighting hammer and tong like everyone else for every order we can get our hands on. I wouldn't say the environment is really a lot different. But frankly, it is -- the last couple of months have been a little better than we've been slogging through for -- since the end of the COVID boom.

That's great to hear. And then just in terms of dealing with the tariffs, so you mentioned the increased pricing. Just wondering if you could comment on the extent of the pricing as well as what you've seen as far as unit volumes, whether you've seen a notable change in response to the higher pricing that you put in?

Well, we -- our primary areas of the world that are affected by this are Vietnam and India. And of course, Vietnam has 20% and India has the eye-popping 50% tariff. And so we have levy surcharges on those products from those countries, and we've had to increase those as they finally figured out what they were going to do on both of those countries. Hopefully, that's -- well, who knows what's going to happen. But that's basically what we're doing. So we still have a surcharge on our imported goods.

We -- what's really going to be interesting is 2 weeks down in High Point and how everybody is feeling about this and what everybody else is doing because obviously, we're not the only ones talking about this, and it's going to be the big topic down there. But I think on the new things, what we will do is roll the surcharge into the price of the goods and just not have a surcharge on those. That's what we're thinking about anyway. And then we'll address the rest of the line at the end of the year. But for the short term, right now, we have the tariff surcharges.

Understood. Okay. And then the gross margin was certainly impressive in terms of the year-over-year expansion. So I certainly understand that the environment is still choppy and difficult. But as revenue does eventually come back in a more consistent basis, hopefully sooner rather than later, how should we think about further upside to your gross margins?

We were talking about this the other day. Honestly, I don't think you're going to see it improve dramatically. I mean that 55%, 56% range is kind of where we think we're going to be. We're going to have to leverage that with expenses and more sales. I'm not saying we can't improve slightly, but I think that's kind of where we're going to be.

Got you. Okay. And then my last question before I pass it on to others. So you talked about the success with your new product introductions, which is great to hear. How does your pipeline look like for additional new products going forward?

Well, look, we've introduced a lot of stuff this year, particularly on these whole home collections, which we haven't done in a while, and we brought 3 of them out. They're expensive. That's part of our cash flow deficit for the quarter. You see the inventory has gone up on those things. And some of those things just kind of came in at the end of the quarter, we really hadn't been able to ship them out. We've now shipped them out. So we're going to have a little more focused introduction strategy this market, although we still have plenty of new things. But we're going to absorb what we've just done. The good news on that, of course, is -- we're pleased with what's happening so far with that stuff. So -- but we've got a lot of new exciting things, and we're looking forward to showing to you in 2 weeks, Anthony.

Our next question comes from Doug Lane with Water Tower Research.

Just a housekeeping issue. I noticed -- I noticed that in your segment reporting, you moved some dollars last year out of custom upholstery into custom wood and case goods. And I just wanted to find out maybe what the thought process was there.

Frankly, that was fixing an immaterial error.

Okay. Fair enough. And just -- you've never done that before, so they just kind of stuck out. Getting back to the margins, I think the impressive gain in the margins, particularly in the wholesale gross margins is really this quarter and all year. What has been driving that improvement in the wholesale gross margin and yet you're still cautious on the future outlook for gross margins?

Well, we've narrowed our focus on our line, and we're selling more of slightly fewer things in some cases, and we're getting some efficiencies that way. We -- the upholstery operation is running extremely well, and that's really been a major contributor. And we've really looked at our pricing strategies, which are hard to do when you've got all these tariffs going on. But I'd say a combination of those things. I just I don't want to publicly state that we can drive a lot past where we are right now because we're pleased with where we've ended up so far with all this. And so that's why I exhibit a little caution on my answer to Anthony's question.

Not only that, Rob, where we are in the tariff rollout and the tariff changes and how that gets rolled into the cost and how that's perceived. I think there's still uncertainty around how the consumer -- ultimately, the consumer is going to react to the higher prices that are coming through on everybody's goods.

That's a good point. And there's just been an incredible amount of stuff going on this year for everybody. And we have half a sentence in there about fabrics, but fabric is a major deal for us. Half of our fabrics were from China. And we've had to discontinue a lot of our fabric line and reintroduce other things. And of course, that's expensive to make all the swatches and get all that stuff out there and go through the inventory that you're having to drop. And so it's been a real chaotic thing. It's kind of hard to really comment on the future as accurately as we hope to until this tariff thing blows over, if it ever was. I don't know where we're going. But I hope that answered your question.

No, that's all fair. And it certainly has been chaotic and uncertain out there. And while we're on the subject, have you quantified what you expect the net tariff impact to be to your financials this year?

I'm not sure that I can. I can tell you that, I guess, the philosophy has been -- and we're still a little bit wrestling with the philosophy about how we price the goods, are we going to price it so that with the tariff in there, we get the same margin or we get the same margin dollars. So I'd say to ultimately say what we think it's going to be, I don't think we can answer it. But that's kind of what we're wrestling with there a little bit.

And there are so many little nuances to this, as I've just alluded to the fabrics, but the metal, the mechanisms, the componentry, the plywood, a lot -- I mean, it's you really -- to really give an accurate answer to your question, you're going to have to dig through a lot of raw materials, finished goods, different kinds of materials, different country, different tariffs. It's hard to kind of an unprecedented period. And I'm not saying that we have totally realized the effect of all of this. But so far, we're navigating it relatively well.

No, and it changes every week, it seems. But on the flip side, with 80% of your manufacturing in the U.S., do you see an opportunity for market share gains here?

We hope so. It depends on the category to a certain extent. I'm going to have a much better answer to that question in 2 weeks from now than I have right now. I -- we have had a couple of instances that I can point to where the guys have said, "Hey, we got this because we're domestic. But I wouldn't say it's a land slide. But it does give us pause to think that we may benefit from this in some perverse way that the other guys won't. But there's still a lot of domestic upholstery out there, and that's the biggest portion of our business. And so and the tariff, maybe it will help the upholstery business in general. It's certainly -- there's plenty of it made in America right within a 10-mile radius of our factories down in North Carolina.

Okay. Fair enough. And just one last thing. I know your balance sheet is strong and your free cash flow is improving nicely, but still doesn't cover the dividend. When do you think the free cash flow will be able to cover the dividend in the future?

Well, it has in the past. And it's -- I think it will again soon. But this quarter was a little unusual in the inventory and just the periodic slowness of the third quarter, which we which we experienced.

And I would say, Doug, the fourth quarter is typically our -- it's the strongest quarter, both for business and for cash generation. not saying that we -- exactly what we'll do. But typically, the fourth quarter is the best quarter, and we generate usually really good cash flow.

There are no further questions at this time. I'd like to turn the call back over to Rob Spilman for closing remarks.

All right. Thank you. And again, we've got to remain agile in the environment. The fluctuating tariff rules have made the day-to-day running of the business challenging. We are, as the question alluded to, somewhat insulated by our domestic manufacturing platform, but today's furniture industry is truly a global enterprise. Nevertheless, we are pleased to have posted growth in the quarter. Our new product lines are selling, and we look forward to unveiling new ideas to the marketplace in High Point, North Carolina in 2 weeks. Thank you today for your time and for your interest in Bassett Furniture. All right.

Thank you for your participation. You may now disconnect. Everyone, have a great day.