Bassett Furniture Industries, Inc. (BSET)

Bassett Furniture is engaged in manufacturing, marketing, and retailing of branded home furnishings in the United States, Canada, and internationally. The Company operates through wholesale and retail segments. The wholesale segment contributes about 80% of the revenues. The retail segment consists of 135 stores, 26 of which are owned stores and the rest are partnership licensee stores.

In Q3’06, Net Revenues declined by 6.3%; wholesale segment declined by 8.3 %, and retail segment showed a flat trend on a year-over-year basis. Gross margins declined by 5.9% year-over-year as a result of soft retail conditions and clearance sales. New housing unit sales have also shown declining trend which is expected to continue. Due to the downturn in housing sales and increasing competition in the industry it is expected to negatively impact the company.

To counter the situation of declining revenues and margins, the company is adopting a strategy of growing company-owned stores and expects to increase number of stores to 250 to 300 by 2007. The Company also expects to shift its domestic versus imported product to contain a 50/50 mix over the next two years, which is expected to positively impact company’s operating margins then.

Despite the initiatives taken by the company, we believe that the company would underperform given the softness in the housing sales and the increasing competition.