바셋 퍼니처(BSET) 2026 회계연도 3분기 실적 발표 콜: 매출 및 마진 개선

핵심 요약

• 2026 회계연도 3분기 연결 매출은 소매 및 도매 부문의 성장에 힘입어 전년 동기 대비 3.4% 증가한 8,280만 달러를 기록했습니다.
• 영업이익은 59만 3,000달러(매출액의 0.7%)에서 280만 달러(매출액의 3.4%)로 증가했습니다. 희석 주당순이익(EPS)은 0.09달러에서 0.24달러로 늘었습니다.
• 연결 매출총이익률은 130bp 상승한 57.5%를 기록했습니다. 도매 이익률 개선과 함께 관세 환급금 수익 100만 달러를 매출총이익에 반영한 점이 기여했습니다.
• 소매 순매출은 5,420만 달러로 4.5% 증가했으며, 소매 주문 매출은 4.4% 늘었습니다. 도매 순매출은 5,370만 달러로 5.7% 증가했으며, 레인 벤처(Lane Venture)의 총 출하량은 44% 증가했습니다.
• 전자상거래 주문 매출은 48% 증가했고, 웹사이트 배송 매출은 42% 이상 늘었으며, 온라인 평균 주문 금액은 33% 성장했습니다.
• 바셋(Bassett)은 610만 달러의 영업활동 현금흐름을 창출한 후 현금 및 단기투자자산 5,340만 달러로 이번 분기를 마감했습니다.

주요 재무 데이터

사업 및 영업 실적

내수용 천의자(upholstery) 제품이 성장을 이끌었으며, 맞춤형 천의자 및 맞춤형 모션 천의자가 도매 주문 매출 증가의 대부분을 견인했습니다. 벤치메이드(BenchMade) 다이닝 라인 역시 호조를 보였습니다.

도매 주문 금액은 내수용 천의자와 레인 벤처의 두 자릿수 성장에 힘입어 7.9% 증가했습니다. 도매 고객 대상 레인 벤처 출하량은 28% 증가했으며, 해당 아웃도어 브랜드를 바셋 홈 퍼니싱(Bassett Home Furnishings) 매장에 도입한 후 레인 벤처의 총 출하량은 44% 증가했습니다.

직영 매장의 주문 매출은 4.4% 증가했습니다. 일부 기간이 4분기에 포함된 4주간의 노동절 프로모션 전체 기간 동안 주문 매출은 9% 성장했으며 주문 매출총이익률도 개선되었습니다. 경영진은 행사 기간 동안 모든 지역에서 성장을 기록했다고 밝혔습니다.

디지털 부문 실적은 견조세를 유지했습니다. 고정식 및 모션 천의자 제품의 호조로 전자상거래 주문 매출은 48% 증가했고, 웹사이트 배송 매출은 42% 이상 늘었으며, 온라인 평균 주문 금액은 33% 증가했습니다.

바셋은 2025년 부과된 국제비상경제권한법(IEEPA) 관세를 무효화한 2026년 2월 미국 대법원의 판결에 따라 280만 달러의 관세 환급금을 받았습니다. 회사는 3분기 매출총이익에 100만 달러를 반영했으며, 추가 금액은 주로 4분기에 인식할 것으로 예상합니다. 바셋의 제품 수입 비중은 25% 미만입니다.

회사는 해당 분기 종료 후 올랜도 매장을 오픈하여 직영 소매 매장 수를 60개로 늘렸습니다. 또한 하이포인트 마켓(High Point Market)에서 4만 4,000평방피트 규모의 신규 쇼룸 공개를 준비했으며, 내년 봄에 헤더 채덕(Heather Chadduck) 컬렉션을 소매 매장에 선보일 계획입니다.

경영진 가이던스

바셋은 2026 회계연도 자본적 지출 전망치를 기존 1,000만~1,200만 달러에서 900만~1,100만 달러로 하향 조정했습니다. 4분기 자본적 지출은 200만~400만 달러 수준이 될 것으로 예상됩니다.

경영진은 연간 비용 집행률(run rate)을 150만~200만 달러 추가 절감하는 목표가 차질 없이 진행 중이라고 밝혔습니다. 3분기 실적에는 이러한 비용 절감에 따른 분기 혜택이 대부분 반영되었습니다.

2027 회계연도에 바셋은 2개 매장을 신규 오픈할 계획입니다. 이 중 1개는 기존 매장을 대체하게 되어 순증가 매장은 1개입니다.

경영진은 7월 중순 도입된 가격 책정 전략 이후 9월 소매 주문 이익률이 개선되고 있다고 밝혔습니다. 이와 관련된 인도 물량이 4분기 손익계산서에 영향을 미치기 시작할 것으로 예상되나, 경영진은 예상되는 수혜 규모를 수치화하지는 않았습니다. 도매 이익률에는 유의미한 변화가 없을 것으로 예상하고 있습니다.

리스크 및 주요 관심 분야

경영진은 소비자들이 신중한 태도를 보이고 있으며, 대형 프로젝트성 주문에 대한 견조한 수요에도 불구하고 고객들이 구매 결정까지 더 오랜 시간을 소요하고 있다고 설명했습니다. 주택 경기 침체, 높은 모기지 금리, 인플레이션 및 광범위한 불확실성은 여전히 우려 요인으로 남아 있습니다.

주력 제품에 대한 판촉 활동 강화로 인해 소매 매출총이익률이 하락했습니다. 또한 주로 연료비 상승에 따른 출고 운반비 증가로 인해 도매 영업 레버리지도 제한되었습니다.

이번 분기 재고는 특히 수입 제품과 클럽 레벨(Club Level) 모션 가구를 중심으로 감소했습니다. 경영진은 추가적인 재고 관리가 이루어질 것으로 예상하지만, 3분기만큼 큰 폭의 감소는 없을 것으로 보고 있습니다.

애널리스트 Q&A 주요 내용

경영진은 도매 판매 수량이 한 자릿수 초반의 하락률을 기록한 반면, 단가는 10% 미만 상승했다고 밝혔습니다. 소매 부문도 전반적으로 유사한 흐름을 보였습니다.

바셋은 회계연도 말에 있어 블랙프라이데이 행사의 중요성을 고려해 보다 적극적인 판촉에 나설 계획입니다. 경영진은 이번 프로모션이 이익률에 중대한 부정적 영향을 미치지는 않을 것으로 예상하고 있습니다.

회사는 매 분기 배당금을 계속 검토하고 있으나 현금 보유량이 여전히 견조하여 배당을 축소해야 하는 압박은 없다고 밝혔습니다. 또한 경영진은 통상 4분기가 바셋의 현금 창출력이 가장 뛰어난 분기라고 덧붙였습니다.

실적발표 컨퍼런스 콜 전문

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전체 실적 발표 컨퍼런스 콜 녹취록

경영진 발표

Operator

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.

John Daniel

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?

Robert Spilman

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.

John Daniel

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

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

질의응답

Anthony Lebiedzinski

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?

Robert Spilman

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

Anthony Lebiedzinski

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

Robert Spilman

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

John Daniel

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.

Anthony Lebiedzinski

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?

Robert Spilman

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

Anthony Lebiedzinski

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?

Robert Spilman

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.

John Daniel

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.

Anthony Lebiedzinski

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.

Robert Spilman

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.

Operator

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

Linda Weiser

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?

Robert Spilman

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.

John Daniel

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.

Linda Weiser

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?

Robert Spilman

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.

Linda Weiser

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?

John Daniel

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.

Linda Weiser

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?

Robert Spilman

Well, do you want to talk about the tariff?

John Daniel

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.

Robert Spilman

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.

Linda Weiser

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?

Robert Spilman

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.

John Daniel

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.

Operator

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

Robert Spilman

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.

Operator

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

Operator

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.

John Daniel

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?

Robert Spilman

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.

John Daniel

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

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

Anthony Lebiedzinski

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?

Robert Spilman

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

Anthony Lebiedzinski

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

Robert Spilman

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

John Daniel

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.

Anthony Lebiedzinski

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?

Robert Spilman

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

Anthony Lebiedzinski

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?

Robert Spilman

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.

John Daniel

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.

Anthony Lebiedzinski

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.

Robert Spilman

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.

Operator

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

Linda Weiser

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?

Robert Spilman

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.

John Daniel

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.

Linda Weiser

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?

Robert Spilman

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.

Linda Weiser

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?

John Daniel

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.

Linda Weiser

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?

Robert Spilman

Well, do you want to talk about the tariff?

John Daniel

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.

Robert Spilman

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.

Linda Weiser

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?

Robert Spilman

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.

John Daniel

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.

Operator

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

Robert Spilman

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.

Operator

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