|Shares Out. (in M):||10||P/E||0||0|
|Market Cap (in $M):||211||P/FCF||0||0|
|Net Debt (in $M):||-64||EBIT||0||0|
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Bassett is a vertically integrated furniture manufacturer. We believe current macro tailwinds for housing and furniture demand will persist providing sustainable demand for Bassett’s products. The Company continues to take market share in its wholesale segment driving sales and consolidated operating margins. As an added bonus, Bassett’s Retail division should maintain profitability for the foreseeable future due to changes in its expense base, closure of underperforming stores, and more effective initiatives to drive traffic.
On 8/17/21 the Company issued a press release updating the market about multiple supply chain bottlenecks, raw material inflation, and COVID’s impact on its international supply chain (Vietnam partners shut down through middle of September). The main bottleneck is caused by shipping and warehouse logistics rather than production. Bassett slowed down manufacturing to enable their logistics division, Zenith, an opportunity to catch up. Wholesale orders slowed to a 2% increase over July 2020 (29% increase over July 2019), and shipments increased 11% over July 2020 (declined 1% over July 2019).
Bassett currently sits on $63.5 million in cash (~30% of its market cap) with no debt. Ex-cash valuations are nice to talk about but unrealistic because Bassett will always have a significant cash balance. This is fair, however, Bassett turned on their buyback increasing the authorization back to $20 million (10% of market cap) while simultaneously raising their regular dividend to $0.14 per quarter.
Assuming bottlenecks ease, our base case calls for $525 million in revenue and, depending on your margin outlook, EBIT could be anywhere from $26 million (5% margin) to $42 million (8% margin). The biggest risk to our investment is supply chain issues persisting and/or worsening, compressing margins and limiting revenue growth.
We believe patient investors will be rewarded as time passes and supply chain issues ease. Meanwhile, Bassett will continue to take market share in the wholesale market. To sum it up, good things happen when you combine macro tailwinds, market share gains, and low valuations with buybacks.
What We Expect
Sustainable demand driven by housing
Market share gains in independent wholesale channels
Massive optionality – Figure out retail
Capital Investment and Return of Capital
Forecast and Valuation
What is this Chemistry?
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