BASSETT FURNITURE INDUSTRIES, INCORPORATED (Amounts in thousands except share and per share data)
Our fiscal year, which ends on the last Saturday of November, periodically results in a 53-week year instead of the normal 52 weeks. The current fiscal year endingNovember 30, 2019 is a 53-week year, with the additional week being included in our first fiscal quarter. Accordingly, the information presented below includes 53 weeks of operations for the year endedNovember 30, 2019 as compared to 52 weeks included in the years endedNovember 24, 2018 andNovember 25, 2017 . Overview Bassett is a leading retailer, manufacturer and marketer of branded home furnishings. Our products are sold primarily through a network of Company-owned and licensee-owned branded stores under the Bassett Home Furnishings ("BHF") name, with additional distribution through other wholesale channels including multi-line furniture stores. We were founded in 1902 and incorporated under the laws ofVirginia in 1930. Our rich 117-year history has instilled the principles of quality, value, and integrity in everything we do, while simultaneously providing us with the expertise to respond to ever-changing consumer tastes and meet the demands of a global economy. With 103 BHF stores atNovember 30, 2019 , we have leveraged our strong brand name in furniture into a network of Company-owned and licensed stores that focus on providing consumers with a friendly environment for buying furniture and accessories. Our store program is designed to provide a single source home furnishings retail store that provides a unique combination of stylish, quality furniture and accessories with a high level of customer service. In order to reach markets that cannot be effectively served by our retail store network, we also distribute our products through other wholesale channels including multi-line furniture stores, many of which feature Bassett galleries or design centers. We use a network of over 30 independent sales representatives who have stated geographical territories. These sales representatives are compensated based on a standard commission rate. We believe this blended strategy provides us the greatest ability to effectively distribute our products throughoutthe United States and ultimately gain market share. The BHF stores feature custom order furniture, free in-home design visits ("home makeovers") and coordinated decorating accessories. Our philosophy is based on building strong long-term relationships with each customer. Sales people are referred to as "Design Consultants " and are trained to evaluate customer needs and provide comprehensive solutions for their home decor. Until a rigorous training and design certification program is completed,Design Consultants are not authorized to perform in-home design services for our customers. We have factories inNewton, North Carolina andGrand Prairie, Texas that manufacture custom upholstered furniture, a factory inMartinsville, Virginia that primarily assembles and finishes our custom casual dining offerings and a factory inBassett, Virginia that assembles and finishes our "Bench Made" line of custom, solid hardwood furniture. In late 2019, we also began operating a facility inHaleyville, Alabama that will provide Bassett with the capability to manufacture custom aluminum outdoor furniture primarily under the Lane Venture brand. Our manufacturing team takes great pride in the breadth of its options, the precision of its craftsmanship, and the speed of its process, with custom pieces often manufactured within two weeks of taking the order in our stores. Our logistics team then promptly ships the product to one of our home delivery hubs or to a location specified by our licensees. In addition to the furniture that we manufacture domestically, we source most of our formal bedroom and dining room furniture (casegoods) and certain leather upholstery offerings from several foreign plants, primarily inVietnam ,Thailand andChina . Over 75% of the products we currently sell are manufactured inthe United States . We also ownZenith Freight Lines, LLC ("Zenith") which provides logistical services to Bassett along with other furniture manufacturers and retailers. Zenith delivers best-of-class shipping and logistical support services that are uniquely tailored to the needs of Bassett and the furniture industry. Approximately 60% of Zenith's revenue is generated from services provided to non-Bassett customers. OnDecember 21, 2017 , we purchased certain assets and assumed certain liabilities ofLane Venture fromHeritage Home Group, LLC for$15,556 in cash.Lane Venture is a manufacturer and distributor of premium outdoor furniture and is now being operated as a component of our wholesale segment. This acquisition marked our entry into the market for outdoor furniture and we believe thatLane Venture has provided a foundation for us to become a significant participant in this category. Our strategy is to distribute this brand outside of our BHF store network only. See Note 3 to our consolidated financial statements for additional details regarding this acquisition. With the knowledge we have gained through operatingLane Venture , we have developed a new separate brand that will only be marketed through the BHF store network. This will allow Bassett branded product to move from inside the home to outside the home to capitalize the growing trend of outdoor living. Bassett Outdoor is currently marketed in a limited number of stores with a broader distribution planned late in the first quarter of 2020. AtNovember 30, 2019 , our BHF store network included 70 Company-owned stores and 33 licensee-owned stores. During fiscal 2019, we opened new stores inCoral Gables, Florida ,Columbus, Ohio ,Tucson, Arizona ,Estero, Florida ,Sarasota, Florida andPrinceton, New Jersey . During fiscal 2019 we closed one underperforming store inGulfport, Mississippi and repositioned our store inFriendswood, Texas and another store inPalm Beach, Florida . In addition, a new licensee store was opened inBoise, Idaho . A new 23,000 square foot licensee store was opened in December of 2019 inThornton, Colorado . 13 -------------------------------------------------------------------------------- We have completed a three-year store expansion program that has seen us grow to more than 100 stores throughout the country. We currently have no Company-owned or licensee-owned store openings planned. Our strategy is to assess the current fleet of stores and improve the overall operations and profitability of the Corporate Retail segment. We will continue to assess the economic and competitive environment in various markets and may consider future expansion should attractive opportunities arise. As with any retail 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 to$400 per store depending on the overall rent costs for the location and the period between the time when we take physical possession of the store space and the time of the store opening. Generally, rent payments during a buildout period between delivery of possession and opening of a new store are deferred and therefore straight-line rent expense recognized during that time does not require cash. Inherent in our retail business model, we also incur losses in the two to three months of operation following a new store opening. Like other furniture retailers, we do not recognize a sale until the furniture is delivered to our customer. Because our retail business model does not involve maintaining a stock of retail inventory that would result in quick delivery and because of the custom nature of many of our furniture offerings, delivery to our customers usually occurs about 30 days after an order is placed. We generally require a deposit at the time of order and collect the remaining balance when the furniture is delivered, at which time the sale is recognized. Coupled with the previously discussed store pre-opening costs, total start-up losses can range from$400 to$600 per store. Today's customers expect their digital experiences and communications to be personalized, highly-relevant and catered to match their specific needs and preferences. We have established a centralized customer care center that is using customer relationship management (CRM) software to track each customer's path from initial engagement through point of sale and ultimately to their post-delivery experience. We will continue to invest in our digital effort to improve our customers' journey from the time they begin on our website to the final step of delivering the goods to their homes. We view the combination of website traffic and store traffic in a holistic fashion where our customer generally experiences our brand on our website before visiting a store. While store traffic has been decreasing over the last few years, traffic to our website increased this year with web visits up 15% for the year endedNovember 30, 2019 as compared to the prior year period. We plan to invest more in new digital outreach strategies on a store market by market basis to drive more traffic to the website. Our pure e-commerce sales (ordering directly from the website) have historically been immaterial. We plan to invest in our website in 2020 to improve the navigation and the ordering capabilities to increase web sales. Much of our current product offerings highlight the breadth and depth of our custom furniture capabilities which are difficult to show and sell online. We plan to expand our merchandising strategies to include more product that can be more easily purchased online with or without a store visit. While we work to increase web sales, we will not compromise on our in-store experience or the quality of our in-home makeover capabilities. 14 --------------------------------------------------------------------------------
Analysis of Operations
Net sales revenue, cost of furniture and accessories sold, selling, general and
administrative ("SG&A") expense, new store pre-opening costs, other charges, and
income from operations were as follows for the years ended November 30, 2019 ,
November 24, 2018 and November 25, 2017 :
Change from Prior Year
2019 vs 2018 2018 vs 2017
2019* 2018 2017 Dollars Percent Dollars Percent
Sales Revenue:
Furniture and
accessories $ 403,865 89.3 % $ 402,469 88.1 % $ 398,097 88.0 % $ 1,396 0.3 % $ 4,372 1.1 %
Logistics 48,222 10.7 % 54,386 11.9 % 54,406 12.0 % (6,164 ) -11.3 % (20 ) 0.0 % Total net sales revenue 452,087 100.0 % 456,855 100.0 %
452,503 100.0 % (4,768 ) -1.0 % 4,352 1.0 %
Cost of furniture and accessories sold 179,244 39.6 % 179,581 39.3 % 177,579 39.2 % (337 ) -0.2 % 2,002 1.1 % SG&A 264,280 58.5 % 260,339 57.0 % 245,493 54.3 % 3,941 1.5 % 14,846 6.0 % New store pre-opening costs 1,117 0.2 % 2,081 0.5 % 2,413 0.6 % (964 ) -46.3 % (332 ) -13.8 % Other charges 8,041 1.8 % 770 0.2 % - 0.0 % 7,271 994.3 % 770 NM Income (loss) from operations$ (595 ) -0.1 %$ 14,084 3.1 %$ 27,018 6.0 %$ (14,679 ) -104.2 %$ (12,934 ) -47.9 %
*53 weeks for fiscal 2019 as compared with 52 weeks for fiscal 2018 and 2017.
Our consolidated net sales by segment were as follows:
Change from Prior Year
2019 vs 2018 2018 vs 2017
2019 2018 2017 Dollars Percent Dollars Percent
Net Sales
Wholesale $ 261,105 $ 255,958 $ 249,193 $ 5,147 2.0 % $ 6,765 2.7 %
Retail 268,693 268,883 268,264 (190 ) -0.1 % 619 0.2 %
Logistical services 80,074 82,866 83,030 (2,792 ) -3.4 % (164 ) -0.2 %
Inter-company eliminations:
Furniture and accessories (125,933 ) (122,372 ) (119,360 ) (3,561 ) 2.9 % (3,012 ) 2.5 %
Logistical services (31,852 ) (28,480 ) (28,624 ) (3,372 ) 11.8 % 144 -0.5 %
Consolidated $ 452,087 $ 456,855 $ 452,503 $ (4,768 ) -1.0 % $ 4,352 1.0 %
Refer to the segment information which follows for a discussion of the significant factors and trends affecting our results of operations for fiscal 2019 and 2018 as compared with the prior year periods.
Certain other items affecting comparability between periods are discussed below in "Other Items Affecting Net Income".
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--------------------------------------------------------------------------------Segment Information
We have strategically aligned our business into three reportable segments as described below:
Wholesale. The wholesale home furnishings segment is involved principally in the design, manufacture, sourcing, sale and distribution of furniture products to a network of Bassett stores (licensee-owned stores and Company-owned stores) and independent furniture retailers. Our wholesale segment includes our wood and upholstery operations as well as all corporate selling, general and administrative expenses, including those corporate expenses related to both Company- and licensee-owned stores. We eliminate the sales between our wholesale and retail segments as well as the imbedded profit in the retail inventory for the consolidated presentation in our financial statements. Our wholesale segment also includes our holdings of short-term investments and retail real estate previously leased as licensee stores. The earnings and costs associated with these assets are included in other loss, net, in our consolidated statements of operations. Retail - Company-owned stores. Our retail segment consists of Company-owned stores and includes the revenues, expenses, assets and liabilities (including real estate) and capital expenditures directly related to these stores and the Company-owned distribution network utilized to deliver products to our retail customers. Logistical services. With our acquisition of Zenith onFebruary 2, 2015 , we created the logistical services operating segment which reflects the operations of Zenith. In addition to providing shipping and warehousing services for the Company, the revenue from which is eliminated upon consolidation, Zenith also provides similar services to other customers, primarily in the furniture industry. Revenue from the performance of these services to other customers is included in logistics revenue in our consolidated statement of operations. Zenith's operating costs are included in selling, general and administrative expenses. During the fourth quarter of fiscal 2018, we substantially completed transferring operational control of home delivery services for BHF stores from Zenith to our retail segment, including the transfer of the assets and many of the employees used in providing that service. Accordingly, the revenues for the logistical services segment for all periods presented have been restated to no longer include the intercompany revenues and related costs for those services. Concurrently with the transfer of home delivery operations to retail, Zenith also ceased providing such services to third party customers. Revenues from Zenith's home delivery services formerly provided to third party customers and the associated costs thereof continue to be reported in the logistical services segment. The impact upon segment operating income (loss) from the restatement was not material. Zenith continues to provide other intercompany shipping and warehousing services to Bassett which are eliminated in consolidation. 16 -------------------------------------------------------------------------------- The following tables illustrate the effects of various intercompany eliminations on income (loss) from operations in the consolidation of our segment results: Year Ended November 30, 2019 Wholesale Retail Logistics Eliminations Consolidated Sales revenue: Furniture & accessories$ 261,105 $ 268,693 $ -$ (125,933 ) (1)$ 403,865 Logistics - - 80,074 (31,852 ) (2) 48,222 Total sales revenue 261,105 268,693 80,074 (157,785 ) 452,087 Cost of furniture and accessories sold 173,350 131,528 - (125,634 ) (3) 179,244 SG&A expense 76,299 143,057 78,219 (33,295 ) (4) 264,280 New store pre-opening costs - 1,117 - - 1,117 Income (loss) from operations (5)$ 11,456 $ (7,009 ) $ 1,855 $ 1,144 $ 7,446 Year Ended November 24, 2018 Wholesale Retail Logistics Eliminations Consolidated Sales revenue: Furniture & accessories$ 255,958 $ 268,883 $ -$ (122,372 ) (1)$ 402,469 Logistics - - 82,866 (28,480 ) (2) 54,386 Total sales revenue 255,958 268,883 82,866 (150,852 ) 456,855 Cost of furniture and accessories sold 171,272 130,591 - (122,282 ) (3) 179,581 SG&A expense 72,412 136,523 81,468 (30,064 ) (4) 260,339 New store pre-opening costs - 2,081 - - 2,081 Income (loss) from operations (5)$ 12,274 $ (312 ) $ 1,398 $ 1,494 $ 14,854 Year Ended November 25, 2017 Wholesale Retail Logistics Eliminations Consolidated Sales revenue: Furniture & accessories$ 249,193 $ 268,264 $ -$ (119,360 ) (1)$ 398,097 Logistics - - 83,030 (28,624 ) (2) 54,406 Total sales revenue 249,193 268,264 83,030 (147,984 ) 452,503 Cost of furniture and accessories sold 164,028 132,463 - (118,912 ) (3) 177,579 SG&A expense 66,044 129,898 80,068 (30,517 ) (4) 245,493 New store pre-opening costs - 2,413 - - 2,413 Income from operations$ 19,121 $ 3,490 $ 2,962 $ 1,445 $ 27,018 (1) Represents the elimination of sales from our wholesale segment to our
Company-owned BHF stores. (2) Represents the elimination of logistical services billed to our wholesale
segment.
(3) Represents the elimination of purchases by our Company-owned BHF stores from
our wholesale segment, as well as the change for the period in the elimination
of intercompany profit in ending retail inventory. (4) Represents the elimination of rent paid by our retail stores occupying
Company-owned real estate and logistical services expense incurred from Zenith
by our wholesale segment.
Year Ended
November 30, November 24, November 25,
2019 2018 2017
Intercompany logistical services
(28,624 )
Intercompany rents (1,443 ) (1,584 ) (1,893 )
Total SG&A expense elimination $ (33,295 ) $ (30,064 ) $ (30,517 ) (5) Excludes the effects of goodwill and asset impairment charges, cost of early
retirement program, litigation costs and lease exit costs which are not
allocated to our segments.
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The following table reconciles income from operations as shown above for our
consolidated segment results with income (loss) from operations as reported in
accordance with GAAP:
2019 2018 2017
Consolidated segment income from
operations excluding special charges $ 7,446 $ 14,854 $ 27,018
Less:
Asset impairment charges 4,431 469 -
Goodwill impairment charge 1,926 - -
Early retirement program 835 - -
Litigation expense 700 - -
Lease exit costs 149 301 -
Income (loss) from operations as
reported $ (595 ) $ 14,084 $ 27,018
Asset Impairment Charges
During fiscal 2019 the loss from operations included
During fiscal 2018 income from operations included
With regard to these seven locations, we are evaluating their ongoing viability which may result in the decision to close certain of these stores in the future.
Goodwill Impairment Charge During fiscal 2019 our annual evaluation of the carrying value of our recorded goodwill resulted in the recognition of a$1,926 non-cash charge for the impairment of goodwill associated with our retail reporting unit (see Note 8 to our Consolidated Financial Statements). Early Retirement Program During the first quarter of fiscal 2019, we offered a voluntary early retirement package to certain eligible employees of the Company. Twenty-three employees accepted the offer, which expired onFebruary 28, 2019 . These employees are to receive pay equal to one-half their current salary plus benefits over a period of one year from the final day of each individual's active employment. Accordingly, we recognized a charge of$835 during the year endedNovember 30, 2019 . Litigation Expense During fiscal 2019 we accrued$700 for the estimated costs to resolve certain wage and hour violation claims that have been asserted against the Company. While the ultimate cost of resolving these claims may be substantially higher, the amount accrued represents our estimate of the most likely outcome of a mediated settlement. Lease Exit Costs During fiscal 2019 we recognized a$149 charge for lease exit costs incurred in connection with the repositioning of a Company-owned retail store inPalm Beach, Florida to a new location within the same market.
During fiscal 2018 we recognized a
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--------------------------------------------------------------------------------Wholesale Segment Net sales, gross profit, SG&A expense and operating income for our Wholesale Segment were as follows for the years endedNovember 30, 2019 ,November 24, 2018 andNovember 25, 2017 : Change from Prior Year 2019 vs 2018 2018 vs 2017 2019* 2018 2017 Dollars Percent Dollars Percent Net sales$ 261,105 100.0 %$ 255,958 100.0 %$ 249,193 100.0 %$ 5,147 2.0 %$ 6,765 2.7 % Gross profit 87,755 33.6 % 84,686 33.1 % 85,165 34.2 % 3,069 3.6 % (479 ) -0.6 % SG&A 76,299 29.2 % 72,412 28.3 % 66,044 26.5 % 3,887 5.4 % 6,368 9.6 %
Income from operations
$ 19,121 7.7 %$ (818 ) -6.7 %$ (6,847 ) -35.8 % Wholesale shipments by category for the last three fiscal years are summarized below: Change from Prior Year 2019 vs 2018 2018 vs 2017 2019* 2018 2017 Dollars Percent Dollars Percent
19,220 7.4 % 21,589 8.4 % 22,528 9.0 % (2,369 ) -11.0 % (939 ) -4.2 % Bassett Custom Wood
46,082 17.6 % 46,074 18.0 % 43,793 17.6 % 8 0.0 % 2,281 5.2 %
Bassett Casegoods 40,920 15.7 % 42,875 16.8 % 42,874 17.2 % (1,955 ) -4.6 % 1 0.0 %
Accessories 2,468 0.9 % 4,099 1.6 % 3,632 1.5 % (1,631 ) -39.8 % 467 12.9 %
Total $ 261,105 100.0 % $ 255,958 100.0 % $ 249,193 100.0 % $ 5,147 2.0 % $ 6,765 2.7 %
*53 weeks for fiscal 2019 as compared with 52 weeks for fiscal 2018 and 2017.
Fiscal 2019 as Compared to Fiscal 2018
On an average weekly basis (normalizing for 53 weeks compared to 52 weeks), net sales for 2019 were essentially flat at$256,178 . A$3,206 increase in outdoor furniture shipments was primarily offset by a$2,707 decrease in juvenile furniture shipments as we exited this furniture line during 2019. In addition, the wholesale segment ceased selling accessories to the BHF network beginning at the start of the third quarter of 2019. Both the corporate- and licensee-owned stores now purchase accessories directly from third-party accessory providers. This resulted in a$1,678 decrease in the sale of accessories. Gross margin for the wholesale segment was 33.6% for fiscal 2019 as compared to 33.1% for the prior year. This increase was primarily driven by higher margins in domestic custom upholstery operations as price increases implemented during the third quarter of 2018 offset the increased raw material costs experienced late in 2017 and early 2018. Margins in the imported wood operations increased due to lower realized container freight costs and improved margins on the sales of discontinued product, partially offset by the$390 inventory valuation charge associated with our exit from the juvenile line of business. The increase in SG&A as a percentage of sales was primarily driven by higher marketing and other brand development costs and increased over-the-road freight and warehousing costs.
Fiscal 2018 as Compared to Fiscal 2017
The increase in net sales was driven by the addition of$9,546 of revenue forLane Venture , acquired during the first quarter of 2018, along with a 1.8% increase in furniture shipments to the open market (outside the BHF network and excluding shipments fromLane Venture ), partially offset by a 2.8% decrease in furniture shipments to the BHF network as compared to the prior year period. A much smaller component of our wholesale revenues, shipments of wholesale accessories, increased 12.9% over the prior year period. Gross margins for the wholesale segment were 33.1% for fiscal 2018 compared to 34.2% for the prior year. This decrease was primarily driven by lower margins in theBassett Custom Upholstery operations, excludingLane Venture , due to higher materials costs coupled with lower absorption of fixed costs due to lower volumes. InJune 2018 , we implemented targeted price increases to ourCustom Upholstery line to mitigate the effects of the cost increases and began seeing the benefit on margins inJuly 2018 . Wholesale SG&A increased as a percentage of sales over the prior year period primarily driven by planned higher digital marketing and other brand development costs, partially offset by decreased incentive compensation. In addition, we incurred$256 of one-time acquisition costs along with other startup costs associated with the Lane Venture operation. 19 --------------------------------------------------------------------------------
Wholesale Backlog The dollar value of our wholesale backlog, representing orders received but not yet delivered to dealers and Company stores as ofNovember 30, 2019 ,November 24, 2018 , andNovember 25, 2017 was as follows: 2019 2018 2017 Year end wholesale backlog$ 19,953 $ 25,810 $ 22,239
Retail Segment - Company Owned Stores
Net sales, gross profit, SG&A expense, new store pre-opening costs and operating income for our Retail Segment were as follows for the years endedNovember 30, 2019 ,November 24, 2018 andNovember 25, 2017 : Change from Prior Year 2019 vs 2018 2018 vs 2017 2019 vs 2018 2018 vs 2017 2019* 2018 2018 2017 Dollars Percent Dollars Percent Net sales$ 268,693 100.0 %$ 268,883 100.0 % $
268,883 100.0 %
137,165 51.0 % 138,292 51.4 % 138,292 51.4 % 135,801 50.6 % (1,127 ) -0.8 %
2,491 1.8 %
SG&A expense 143,057 53.2 % 136,523 50.8 % 136,523 50.8 % 129,898 48.4 % 6,534 4.8 %
6,625 5.1 %
New store
pre-opening costs 1,117 0.4 % 2,081 0.8 % 2,081 0.8 % 2,413 0.9 % (964 ) -46.3 %
(332 ) -13.8 %
Income (loss) from
operations $ (7,009 ) -2.6 % $ (312 ) -0.1 % $ (312 ) -0.1 % $ 3,490 1.3 % $ (6,697 ) 2146.5 % $ (3,802 ) -108.9 %
The following tables present operating results on a comparable store basis for
each comparative set of periods. Table A compares the results of the 56 stores
that were open and operating for all of 2019 and 2018. Table B compares the
results of the 53 stores that were open and operating for all of 2018 and 2017.
Comparable Store Results:
Change from Prior Year
Table A: 2019 vs 2018 (56 Stores) Table B: 2018 vs 2017 (53 Stores) 2019 vs 2018 2018 vs 2017
2019* 2018 2018 2017 Dollars Percent Dollars Percent
Net sales $ 234,401 100.0 % $ 252,353 100.0 % $
235,868 100.0 %
$ (3,765 ) -1.6 % Gross profit 119,786 51.1 % 130,102 51.6 %
121,399 51.5 % 122,710 51.2 % (10,316 ) -7.9 %
(1,311 ) -1.1 %
SG&A expense 120,755 51.5 % 124,396 49.3 % 115,094 48.8 % 115,161 48.1 % (3,641 ) -2.9 %
(67 ) -0.1 %
Income (loss) from
operations $ (969 ) -0.4 % $ 5,706 2.3 % $ 6,305 2.7 % $ 7,549 3.2 % $ (6,675 ) -117.0 % $ (1,244 ) -16.5 %
The following tables present operating results for all other stores which were
not comparable year-over-year. Each table includes the results of stores that
either opened or closed at some point during the 24 months of each comparative
set of periods.
All Other (Non-Comparable) Store Results:
Change from Prior Year
2019 vs 2018 All Other Stores 2018 vs 2017 All Other Stores 2019 vs 2018 2018 vs 2017
2019* 2018 2018 2017 Dollars Percent Dollars Percent
Net sales $ 34,292 100.0 % $ 16,530 100.0 % $ 33,015 100.0 % $ 28,631 100.0 % $ 17,762 107.5 % $ 4,384 15.3 %
Gross profit 17,379 50.7 % 8,190 49.5 % 16,893 51.2 % 13,091 45.7 % 9,189 112.2 %
3,802 29.0 % SG&A expense 22,302 65.0 % 12,127 73.4 %
21,429 64.9 % 14,737 51.5 % 10,175 83.9 %
6,692 45.4 % New store pre-opening costs 1,117 3.3 % 2,081 12.6 % 2,081 6.3 % 2,413 8.4 % (964 ) -46.3 % (332 ) -13.8 % Loss from operations$ (6,040 ) -17.6 %$ (6,018 ) -36.4 % $
(6,617 ) -20.0 %
*53 weeks for fiscal 2019 as compared with 52 weeks for fiscal 2018 and 2017.
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--------------------------------------------------------------------------------Fiscal 2019 as Compared to Fiscal 2018
The decrease in net sales for the 70 Company-owned BHF stores was driven by a 7.1% decrease for the 56 comparable stores from fiscal 2018, offset by a$17,762 increase in non-comparable store sales as we have opened 13 stores over the last 24 months. On an average weekly basis (normalizing for the extra week in fiscal 2019), comparable store sales decreased 8.9%. While we do not recognize sales until goods are delivered to the consumer, management tracks written sales (the retail dollar value of sales orders taken, rather than delivered) as a key store performance indicator. Written sales for comparable stores decreased by 7.5% for fiscal 2019 as compared to fiscal 2018. On an average weekly basis, comparable store written sales decreased 9.3%. The decrease in comparable store gross margins was primarily due to increased wholesale costs as a result of tariffs on Chinese products instituted in late 2018 along with higher costs of freight, both of which were passed on in a wholesale price increase inJanuary 2019 . Although most of our goods are domestically made, and most of our other goods are imported from countries outside ofChina , the tariffs have had a significant impact on the cost of a portion of the fabric that we use in our upholstered furniture manufactured inthe United States . We implemented a price increase late in the second quarter to mitigate these cost increases. Gross margins were also impacted by increased clearance activity primarily in the first quarter of 2019 due to the launch of the new custom upholstery program and the selloff of existing floor samples and other clearance product as a result of the repositioning of two stores in theHouston market late in 2018. The increase in SG&A expenses for comparable stores as a percentage of sales to 51.5% was primarily due to a de-leveraging of fixed costs from lower sales volumes, inefficiencies in the warehouse and home delivery operation and higher financing costs as more of our retail customers chose to finance their purchases through our third-party credit provider. These increases were partially offset by various fixed cost decreases primarily implemented in the second half of the year that resulted from changes to our cost structure. The$22 increase in the operating loss from non-comparable stores for fiscal 2019 includes new store pre-opening costs of$1,117 compared to$2,081 for the prior year. We incur losses in the first two to three months of operation following a store opening as sales are not recognized in the income statement until the furniture is delivered to its customers resulting in operating expenses without the normal sales volume. Because we do not maintain a stock of retail inventory that would result in quick delivery, and because of the custom nature of the furniture offerings, such deliveries are generally not made until after 30 days from when the furniture is ordered by the customer. Coupled with the pre-opening costs, total start-up losses typically amount to$400 to$600 per store. During fiscal 2019 we incurred$1,392 of post-opening losses associated with six new stores opened during fiscal 2019 compared to$1,601 of post-opening losses incurred during fiscal 2018 associated with other locations. Each addition to our Company-owned store network results in incremental fixed overhead costs, primarily associated with local store personnel, occupancy costs and warehousing expenses. The incremental SG&A expenses associated with each new store will be ongoing.
Fiscal 2018 as Compared to Fiscal 2017
The increase in net sales for the 65 Company-owned stores over the prior year
was comprised of a
While we do not recognize sales until goods are delivered to the consumer, management tracks written sales (the retail dollar value of sales orders taken, rather than delivered) as a key store performance indicator. Written sales for comparable stores decreased by 3.6% for fiscal 2018 as compared to prior year. The increase in comparable store gross margins to 51.5% for fiscal 2018 from 51.2% in the prior year period is primarily due to improved pricing strategies and product mix. SG&A expenses as a percentage of sales for comparable stores increased slightly from 2017 due to decreased leverage of fixed costs on lower sales volume and increased advertising expenses. We incur losses in the first two to three months of operation following a store opening as sales are not recognized in the income statement until the furniture is delivered to its customers resulting in operating expenses without the normal sales volume. Because we do not maintain a stock of retail inventory that would result in quick delivery, and because of the custom nature of the furniture offerings, such deliveries are generally not made until after 30 days from when the furniture is ordered by the customer. Coupled with the pre-opening costs, total start-up losses typically amount to$400 to$600 per store. During fiscal 2018 we incurred$1,601 of post-opening losses associated with the seven new stores and clearance center opened during 2018 and late 2017 compared with$969 of post-opening losses during fiscal 2017. Included in the 2017 Non-Comparable store loss was a$1,220 gain on the sale of our retail store location inLas Vegas, Nevada . Each addition to our Company-owned store network results in incremental fixed overhead costs, primarily associated with local store personnel, occupancy costs and warehousing expenses. The incremental SG&A expenses associated with each new store will be ongoing. 21
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Retail Comparable Store Sales Trends
The following table provides year-over-year comparable store sales trends for the last three fiscal years:
2019 2018 2017
As reported:
Delivered -7.1 % -1.6 % 1.9 %
Written -7.5 % -3.6 % 1.8 %
Average weekly basis:
Delivered -8.9 % -1.6 % 1.9 %
Written -9.3 % -3.6 % 1.8 %
Retail Backlog
The dollar value of our retail backlog, representing orders received but not yet
delivered to customers as of November 30, 2019 , November 24, 2018 , and November
25, 2017 , was as follows:
2019 2018 2017
Year end retail backlog $ 31,146 $ 35,493 $ 35,684
Retail backlog per open store $ 445 $ 546 $ 595
Logistical Services Segment
Revenues, operating expenses and income from operations for our logistical
services segment were as follows for the years ended
Change from Prior Year
2019 vs 2018 2018 vs 2017
2019* 2018 2017 Dollars Percent Dollars Percent
Logistics revenue $ 80,074 100.0 % $ 82,866 100.0 % $ 83,030 100.0 % $ (2,792 ) -3.4 % $ (164 ) -0.2 %
Operating expenses 78,219 97.7 % 81,468 98.3 % 80,068 96.4 % (3,249 ) -4.0 % 1,400 1.7 %
Income from operations $ 1,855 2.3 % $ 1,398 1.7 % $ 2,962 3.6 % $ 457 32.7 % $ (1,564 ) -52.8 %
*53 weeks for fiscal 2019 as compared with 52 weeks for fiscal 2018 and 2017.
Fiscal 2019 as Compared to Fiscal 2018
On an average weekly basis (normalizing for the extra week fiscal 2019), revenues for Zenith decreased$4,303 or 5.2%. This decrease was primarily due to the discontinuation of home delivery services to third-party customers, partially offset by revenue increases in third-party warehousing operations. The decrease in Zenith's operating expenses as a percent of sales was primarily due to reduced expenses due to the elimination of the home delivery operation, partially offset by increased employee health care and workers compensation costs due to unfavorable claims experience. Operating costs for fiscal 2019 and 2018 include non-cash depreciation and amortization charges of$4,019 and$4,068 , respectively.
Fiscal 2018 as Compared to Fiscal 2017
Zenith's revenues were comparable year over year. Increased operating costs as a percentage of revenue were primarily due to significantly higher fuel costs coupled with the increasing cost of hiring and retaining over-the-road drivers. Operating costs for fiscal 2018 and 2017 include non-cash depreciation and amortization charges of$4,068 and$4,309 , respectively. 22 --------------------------------------------------------------------------------
Other Items Affecting Net Income (Loss)
Other items affecting net income (loss) for fiscal 2019, 2018 and 2017 are as
follows:
2019 2018 2017
Gain on sales of investments (1) $ - $ - $ 4,221
Interest income (2) 568 431 230
Interest expense (3) (6 ) (57 ) (234 )
Retail real estate impairment charge
(4) - - (1,084 )
Net periodic pension costs (5) (883 ) (986 ) (1,049 )
Cost of company-owned life insurance
(6) (39 ) (598 ) (517 )
Income from the Continued Dumping &
Subsidy Offset Act (7) - 7 94
Other investment income (8) 57 52 88
Other (842 ) (727 ) (891 )
Total other income (loss), net $ (1,145 ) $ (1,878 ) $ 858
(1) See Note 9 to the Consolidated Financial Statements for information related
to gains realized from the sale of two investments during fiscal 2017.
(2) Consists of interest income arising from our short-term investments. See
Note 4 to the Consolidated Financial Statements for additional information
regarding our investments in certificates of deposit.
(3) Our interest expense in fiscal 2019 and 2018 declined significantly from
fiscal 2017 as all remaining debt incurred with the 2015 acquisition of
Zenith was repaid during fiscal 2018 and the remaining balances on the
mortgages of two retail store locations were repaid in fiscal 2019. See Note
10 to the Consolidated Financial Statements for additional information
regarding our debt.
(4) See Note 2 to the Consolidated Financial Statements for information related
to impairment of retail real estate during fiscal 2017.
(5) Represents the portion of net periodic pension costs not included in income
from operations. See Note 11 to the Consolidated Financial Statements for
additional information related to our defined benefit pension plans.
(6) Cost for fiscal 2019 and 2018 is net of life insurance proceeds of
(7) These amounts represent distributions received from
Protection ("Customs") under the Continued Dumping and Subsidy Offset Act of
2000 ("CDSOA"). These distributions primarily represent amounts previously
withheld by Customs pending the resolution of certain claims filed by other
manufactures which were dismissed in 2014. The distributions received from
Customs have gradually diminished in the years subsequent to the dismissal
and are no longer expected to be significant beyond 2018.
(8) Primarily reflects gains arising from the partial liquidation of our
previously impaired investment in the
which was fully impaired during fiscal 2012.
Provision for Income taxes
On December 22, 2017 , The Tax Cuts and Jobs Act (the "Act") was signed into law.
The Act reduced the federal statutory corporate income tax rate from 35% to 21%
effective January 1, 2018 for all corporate taxpayers, while most other
provisions of the Act took effect for fiscal years beginning on or after January
1, 2018 . Therefore, we computed our income tax expense for fiscal 2018 using a
blended federal statutory rate of 22.2%. The 21% federal statutory rate, as well
as certain other provisions of the Act including the elimination of the domestic
manufacturing deduction and new limitations on certain business deductions, were
applied to our 2019 fiscal year.
We recorded an income tax provision of $188 , $3,988 and $9,948 in fiscal 2019,
2018 and 2017, respectively. Our effective tax rate of (10.8%) for 2019 differs
from the federal statutory rate of 21.0% primarily due to the $1,926 Goodwill
impairment charge which is not deductible for tax purposes. Other items
affecting the rate include the effects of state income taxes and certain other
non-deductible expense. For fiscal 2018, our effective tax rate of 32.7% differs
from the federal blended statutory rate of 22.2% primarily due to a discrete
charge of $1,331 arising from the re-measurement of our deferred tax assets.
Other items impacting our effective tax rate for fiscal 2018 include the effects
of state income taxes and various permanent differences including the favorable
impacts of excess tax benefits on stock-based compensation of $223 and the
Section 199: Domestic Production Activities Deduction of $866 . For fiscal 2017,
our effective tax rate was 34.5% and differs from the statutory rate of 35.0%
primarily due to the effects of state income taxes and various permanent
differences including the favorable impact of the Section 199 manufacturing
deduction. See Note 14 to the Consolidated Financial Statements for additional
information regarding our income tax provision (benefit), as well as our net
deferred tax assets and other matters.
We have net deferred tax assets of $5,744 as of November 30, 2019 , which, upon
utilization, are expected to reduce our cash outlays for income taxes in future
years. It will require approximately $22,000 of future taxable income to utilize
our net deferred tax assets.
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Liquidity and Capital Resources
We are committed to maintaining a strong balance sheet in order to weather difficult industry conditions, to allow us to take advantage of opportunities as market conditions improve, and to execute our long-term retail strategies.
Cash Flows Cash provided by operations for fiscal 2019 was$9,809 compared to$29,907 for fiscal 2018, a decrease of$20,098 . This decrease is primarily due to increased investment in inventory due to opening new stores, other changes in working capital due in part to the timing impact of the additional week in the current fiscal year and lower comparable store sales on an average weekly basis resulting in reduced cash flows. Our overall cash position decreased by$13,781 during fiscal 2019. In addition to the cash provided by operations, we had a net use of$11,173 of cash in investing activities, primarily consisting of capital expenditures associated with retail store expansion and relocations partially offset by the maturity of$5,207 of our investment in CDs. Net cash used in financing activities was$12,417 , including dividend payments of$5,133 and stock repurchases of$7,345 under our existing share repurchase plan, of which$10,639 remains authorized atNovember 30, 2019 . With cash and cash equivalents and short-term investments totaling$37,123 on hand atNovember 30, 2019 , expected future operating cash flows, expected reduced capital expenditures from fewer store openings and the availability under our credit line noted below, we believe we have sufficient liquidity to fund operations for the foreseeable future. Debt and Other Obligations Our credit facility with our bank provides for a line of credit of up to$25,000 . This credit facility is unsecured and contains covenants requiring us to maintain certain key financial ratios. We are in compliance with all covenants under the agreement and expect to remain in compliance for the foreseeable future. The credit facility will mature inDecember 2021 . AtNovember 30, 2019 , we had$2,673 outstanding under standby letters of credit against our line, leaving availability under our credit line of$22,327 . In addition, we have outstanding standby letters of credit with another bank totaling$325 . We lease land and buildings that are used in the operation of our Company-owned retail stores as well as in the operation of certain of our licensee-owned stores, and we lease land and buildings at various locations throughout the continentalUnited States for warehousing and distribution hubs used in our logistical services segment. We also lease tractors, trailers and local delivery trucks used in our logistical services segment. We had obligations of$184,704 atNovember 30, 2019 for future minimum lease payments under non-cancelable operating leases having remaining terms in excess of one year. We also have guaranteed certain lease obligations of licensee operators. Remaining terms under these lease guarantees range from approximately one to three years. We were contingently liable under licensee lease obligation guarantees in the amount of$1,776 atNovember 30, 2019 . See Note 16 to our consolidated financial statements for additional details regarding our leases and lease guarantees.
Dividends and Share Repurchases
During fiscal 2019, we declared and paid four quarterly dividends totaling$5,133 , or$0.50 per share. During fiscal 2019, we repurchased 513,649 shares of our stock for$7,345 under our share repurchase program. The weighted-average effect of these share repurchases on both our basic and diluted earnings (loss) per share was not significant. The approximate dollar value that may yet be purchased pursuant to our stock repurchase program as ofNovember 30, 2019 was$10,639 . Capital Expenditures We currently anticipate that total capital expenditures for fiscal 2020 will be approximately$10 to$12 million which will be used primarily for additional tractors for our logistical services segment, additional investments in technology and various remodels or updates to the existing store fleet. Our capital expenditure and working capital requirements in the foreseeable future may change depending on many factors, including but not limited to the overall performance of the new stores, our rate of growth, our operating results and any adjustments in our operating plan needed in response to industry conditions, competition or unexpected events. We believe that our existing cash, together with cash from operations, will be sufficient to meet our capital expenditure and working capital requirements for the foreseeable future. 24 --------------------------------------------------------------------------------
Fair Value Measurements We account for items measured at fair value in accordance with ASC Topic 820, Fair Value Measurements and Disclosures. ASC 820's valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect our market assumptions. ASC 820 classifies these inputs into the following hierarchy:
Level 1 Inputs- Quoted prices for identical instruments in active markets.
Level 2 Inputs- Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3 Inputs- Instruments with primarily unobservable value drivers.
We believe that the carrying amounts of our current assets and current
liabilities approximate fair value due to the short-term nature of these items.
The recurring estimate of the fair value of our mortgages and notes payable for
disclosure purposes (see Note 10 to the Consolidated Financial Statements)
involves Level 3 inputs. Our primary non-recurring fair value estimates,
typically involving the valuation of business acquisitions (see Note 3 to the
Consolidated Financial Statements), goodwill impairments (see Note 8 to the
Consolidated Financial Statements) and asset impairments (see Note 15 to the
Consolidated Financial Statements) have utilized Level 3 inputs.
25
--------------------------------------------------------------------------------Contractual Obligations and Commitments
We enter into contractual obligations and commercial commitments in the ordinary
course of business (See Note 16 to the Consolidated Financial Statements for a
further discussion of these obligations). The following table summarizes our
contractual payment obligations and other commercial commitments and the fiscal
year in which they are expected to be paid.
2020 2021 2022 2023 2024 Thereafter Total
Post employment
benefit obligations
(1) $ 921 $ 918 $ 1,123 $ 1,052 $ 1,007 $ 7,730 $ 12,751
Contractual
advertising 810 - - - - - 810
Letters of credit 2,998 - - - - - 2,998Operating leases (2) 37,031 32,478 27,929 22,913
16,835 47,518 184,704
Lease guarantees (3) 347 347 347 353 382 - 1,776
Other obligations &
commitments 200 200 100 100 100 150 850
Purchase obligations
(4) - - - - -
Total $ 42,307 $ 33,943 $ 29,499 $ 24,418 $ 18,324 $ 55,398 $ 203,889
(1) Does not reflect a reduction for the impact of any company owned life
insurance proceeds to be received. Currently, we have life insurance
policies with net death benefits of
obligations. See Note 11 to the Consolidated Financial Statements for more
information.
(2) Does not reflect a reduction for the impact of sublease income to bereceived. See Note 16 to the Consolidated Financial Statements for more
information.
(3) Lease guarantees relate to payments we would only be required to make in the
event of default on the part of the guaranteed parties.
(4) The Company is not a party to any long-term supply contracts with respect to
the purchase of raw materials or finished goods. At the end of fiscal year
2018, we had approximately $18,732 in open purchase orders, primarily for
imported inventories, which are in the ordinary course of business.
Off-Balance Sheet Arrangements
We utilize stand-by letters of credit in the procurement of certain goods in the normal course of business. We lease land and buildings that are primarily used in the operation of BHF stores and Zenith distribution facilities. We have guaranteed certain lease obligations of licensee operators as part of our retail strategy. See Contractual Obligations and Commitments table above and Note 16 to the Consolidated Financial Statements, included in Item 8 of this Annual Report on Form 10-K, for further discussion of operating leases and lease guarantees, including descriptions of the terms of such commitments and methods used to mitigate risks associated with these arrangements. Contingencies We are involved in various claims and litigation as well as environmental matters, which arise in the normal course of business. Although the final outcome of these legal and environmental matters cannot be determined, based on the facts presently known, it is our opinion that the final resolution of these matters will not have a material adverse effect on our financial position or future results of operations.
Critical Accounting Policies and Estimates
Our consolidated financial statements have been prepared in conformity with accounting principles generally accepted inthe United States of America ("GAAP") which requires that certain estimates and assumptions be made that affect the amounts and disclosures reported in those financial statements and the related accompanying notes. Actual results could differ from these estimates and assumptions. We use our best judgment in valuing these estimates and may, as warranted, solicit external advice. Estimates are based on current facts and circumstances, prior experience and other assumptions believed to be reasonable. The following critical accounting policies, some of which are impacted significantly by judgments, assumptions and estimates, affect our consolidated financial statements. Revenue Recognition - We adopted ASU 2014-09, Revenue from Contracts with Customers (ASC Topic 606 or "ASC 606") effective as ofNovember 25, 2018 , the beginning of our 2019 fiscal year. ASC 606 requires a company to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration the company expects to receive in exchange for those goods or services. For our wholesale and retail segments, revenue is recognized when the risks and rewards of ownership and title to the product have transferred to the buyer. 26
-------------------------------------------------------------------------------- At wholesale, transfer occurs and revenue is recognized upon the shipment of goods to independent dealers and licensee-owned BHF stores. We offer payment terms varying from 30 to 60 days for wholesale customers. Estimates for returns and allowances have been recorded as a reduction of revenue based on our historical return patterns. The contracts with our licensee store owners do not provide for any royalty or license fee to be paid to us. At retail, transfer occurs and revenue is recognized upon delivery of goods to the customer. We typically collect a significant portion of the purchase price as a customer deposit upon order, with the balance typically collected upon delivery. These deposits are carried on our balance sheet as a current liability until delivery is fulfilled and amounted to$25,341 and$27,157 as ofNovember 30, 2019 andNovember 24, 2018 , respectively. Substantially all of the customer deposits held atNovember 24, 2018 related to performance obligations satisfied during fiscal 2019 and have therefore been recognized in revenue for the year endedNovember 30, 2019 . Estimates for returns and allowances have been recorded as a reduction of revenue based on our historical return patterns. We also sell furniture protection plans to our retail customers on behalf of a third party which is responsible for the performance obligations under the plans. Revenue from the sale of these plans is recognized upon delivery of the goods net of amounts payable to the third party service provider. For our logistical services segment, line-haul freight revenue is recognized as services are performed and are billed to the customer upon the completion of delivery to the destination. Because the customer receives the benefits of these services as the freight is in transit from point of origin to destination, we recognize revenue using a percentage of completion method based on our estimate of the amount of time freight has been in transit as of the reporting date compared with our estimate of the total required time for the deliveries. We recognize an asset for the amount of line-haul revenue earned but not yet billed which is included in other current assets. The balance of this asset was$441 atNovember 30, 2019 and$512 at the beginning of fiscal 2019 upon adoption of ASC 606. Warehousing services revenue is based upon warehouse space occupied by a customer's goods and inventory movements in and out of a warehouse and is recognized as such services are provided and billed to the customer concurrently in the same period. All invoices for logistical services are due 30 days from invoice date. Allowance for Doubtful Accounts - We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. Our accounts receivable reserves were$815 and$754 atNovember 30, 2019 andNovember 24, 2018 , respectively, representing 3.7% and 3.8% of our gross accounts receivable balances at those dates, respectively. The allowance for doubtful accounts is based on a review of specifically identified customer accounts in addition to an overall aging analysis. We evaluate the collectibility of our receivables from our licensees and other customers on a quarterly basis based on factors such as their financial condition, our collateral position, potential future plans with licensees and other similar factors. Our allowance for doubtful accounts represents our best estimate of potential losses on our accounts and notes receivable and is adjusted accordingly based on historical experience, current developments and present economic conditions and trends. Although actual losses have not differed materially from our previous estimates, future losses could differ from our current estimates. Unforeseen events such as a licensee or customer bankruptcy filing could have a material impact on our results of operations. Inventories - Inventories are stated at the lower of cost or market. Cost is determined for domestic furniture inventories, excluding outdoor furniture products, using the last-in, first-out method. The cost of imported inventories and domestic outdoor furniture products is determined on a first-in, first-out basis. We estimate an inventory reserve for excess quantities and obsolete items based on specific identification and historical write-offs, taking into account future demand and market conditions. Our reserves for excess and obsolete inventory were$2,362 and$1,766 atNovember 30, 2019 andNovember 24, 2018 , respectively, representing 3.4% and 2.7%, respectively, of our inventories on a last-in, first-out basis. If actual demand or market conditions in the future are less favorable than those estimated, additional inventory write-downs may be required.Goodwill -Goodwill represents the excess of the fair value of consideration given over the fair value of the tangible assets and liabilities and identifiable intangible assets of businesses acquired. The acquisition of assets and liabilities and the resulting goodwill is allocated to the respective reporting unit: Wood, Upholstery, Retail or Logistical Services. We review goodwill at the reporting unit level annually for impairment or more frequently if events or circumstances indicate that assets might be impaired. In accordance with ASC Topic 350, Intangibles -Goodwill & Other, we first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the quantitative goodwill impairment test described in ASC Topic 350 (as amended by Accounting Standards Update No. 2017-04, Intangibles -Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which we adopted for our annual evaluation of goodwill performed as ofSeptember 1, 2019 ). The more likely than not threshold is defined as having a likelihood of more than 50 percent. If, after assessing the totality of events or circumstances, we determine that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the quantitative impairment test is unnecessary and our goodwill is considered to be unimpaired. However, if based on our qualitative assessment we conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we will proceed with performing the quantitative evaluation process. Based on our qualitative assessment as described above, we concluded that, given declines in our income from operations, primarily resulting from operating losses incurred in our retail reporting unit, as well as in our stock price since the previous analysis in fiscal 2018, it was necessary to perform the quantitative evaluation in the current year. 27
-------------------------------------------------------------------------------- The quantitative evaluation compares the carrying value of each reporting unit that has goodwill with the estimated fair value of the respective reporting unit. Should the carrying value of a reporting unit be in excess of the estimated fair value of that reporting unit, a goodwill impairment charge will be recognized in the amount by which the reporting unit's carrying amount exceeds its fair value, but not to exceed the total goodwill assigned to the reporting unit. The determination of the fair value of our reporting units is based on a combination of a market approach, that considers benchmark company market multiples, an income approach, that utilizes discounted cash flows for each reporting unit and other Level 3 inputs, and, in the case of our retail reporting unit, a cost approach that utilizes estimates of net asset value. The cash flows used to determine fair value are dependent on a number of significant management assumptions such as our expectations of future performance and the expected future economic environment, which are partly based upon our historical experience. Our estimates are subject to change given the inherent uncertainty in predicting future results. Additionally, the discount rate and the terminal growth rate are based on our judgment of the rates that would be utilized by a hypothetical market participant. As part of the goodwill impairment testing, we also consider our market capitalization in assessing the reasonableness of the combined fair values estimated for our reporting units. While we believe such assumptions and estimates are reasonable, the actual results may differ materially from the projected amounts. As a result of our annual goodwill impairment test performed as ofSeptember 1, 2019 , we recognized an impairment of$1,926 on the goodwill assigned to our retail reporting unit, and concluded that the remaining$14,117 of goodwill assigned to our other reporting units was not impaired. The fair values of the other reporting units with material amounts of goodwill substantially exceeded their carrying values as ofSeptember 1, 2019 . Other Intangible Assets - Intangible assets acquired in a business combination and determined to have an indefinite useful life are not amortized but are tested for impairment annually or between annual tests when an impairment indicator exists. The recoverability of indefinite-lived intangible assets is assessed by comparison of the carrying value of the asset to its estimated fair value. If we determine that the carrying value of the asset exceeds its estimated fair value, an impairment loss equal to the excess would be recorded. AtNovember 30, 2019 , our indefinite-lived intangible assets other than goodwill consist of trade names acquired in the acquisitions of Zenith andLane Venture and have a carrying value of$9,338 . Definite-lived intangible assets are amortized over their respective estimated useful lives and reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. We estimate the useful lives of our intangible assets and ratably amortize the value over the estimated useful lives of those assets. If the estimates of the useful lives should change, we will amortize the remaining book value over the remaining useful lives or, if an asset is deemed to be impaired, a write-down of the value of the asset may be required at such time. AtNovember 30, 2019 our definite-lived intangible assets consist of customer relationships and customized technology applications acquired in the acquisition of Zenith and customer relationships acquired in the acquisition ofLane Venture with a total carrying value of$2,721 . Impairment of Long-Lived Assets - We periodically evaluate whether events or circumstances have occurred that indicate long-lived assets may not be recoverable or that the remaining useful life may warrant revision. When such events or circumstances are present, we assess the recoverability of long-lived assets by determining whether the carrying value will be recovered through the expected undiscounted future cash flows resulting from the use of the asset. In the event the sum of the expected undiscounted future cash flows is less than the carrying value of the asset, an impairment loss equal to the excess of the asset's carrying value over its fair value is recorded. When analyzing our real estate properties for potential impairment, we consider such qualitative factors as our experience in leasing and selling real estate properties as well as specific site and local market characteristics. Upon the closure of a Bassett Home Furnishings store, we generally write off all tenant improvements which are only suitable for use in such a store.
Recent Accounting Pronouncements
See Note 2 to our Consolidated Financial Statements regarding the impact or potential impact of recent accounting pronouncements upon our financial position and results of operations.
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