"December order and shipment levels have been soft and business conditions for our Company and our industry remain challenging. We are cautiously optimistic as we enter the new year"
Robert H. Spilman Jr., President and CEO

Bassett Furniture Industries Inc. (BSET) announced the results for its fourth quarter and fiscal year ended November 29, 2003.

The Company reported net income for the quarter of $3.2 million or $.28 per diluted share compared to $1.7 million or $.14 per diluted share in the fourth quarter of 2002. The improvement in earnings compared to the first three quarters of 2003 resulted from a combination of increased sales (due to opening more Bassett Furniture Direct (BFD) stores), productivity gains in both wood and upholstery operations, and the success of inventory reduction programs late in the year. Manufactured inventory levels were reduced by $4 million in the fourth quarter and $10 million for the year, which in turn lowered related reserves resulting in approximately $1 million of additional gross profit in the fourth quarter.

Fourth quarter gross profit and selling, general and administrative expenses were impacted by the consolidation of LRG Furniture, LLC (LRG), which is discussed in detail below. Gross margin for the quarter improved by nearly 6 percentage points compared with the fourth quarter of 2002. Approximately 60 percent of this improvement was due to the consolidation of LRG retail margins and nearly 40 percent, or 2.2 percentage points, resulted from the manufacturing productivity improvements and successful inventory reduction efforts noted above. The $4.1 million increase in selling, general, and administrative expenses during the quarter was due entirely to the consolidation of LRG's selling expenses into the Bassett results. Other income was higher for both the fourth quarter and the year due primarily to better results from the Company's investment portfolio in 2003.

Sales for the fourth quarter of 2003 were $82.9 million, up 4 percent from the fourth quarter of 2002. This increase reflects the consolidation of LRG's retail sales. Sales for fiscal year 2003 were $316.9 million compared with $323.5 million for 2002. This decline was primarily attributable to a $17 million sales decrease with JCPenney, partially offset by the consolidation of LRG's retail sales. Overall economic conditions and an extra week (53 weeks vs. 52 weeks) in fiscal 2002 also contributed to the 2003 sales decrease.

The Company reported a net loss of $.5 million or ($.04) per diluted share for the fiscal year 2003 after recognizing the cumulative effect of an accounting change discussed in detail below. The net loss in fiscal 2003 also included a previously announced $3.2 million charge related to closing its Dublin, Ga., facility in the first quarter. Fiscal 2003 net income (before the $4.9 million cumulative effect of an accounting change) was $4.4 million or $.38 per diluted share compared to $6.7 million of net income in fiscal 2002 or $.57 per diluted share.

"Although we are not pleased with our overall earnings results for 2003, we are encouraged with the progress we demonstrated in the fourth quarter, the cash flow that we generated during the year, and the backlog of prospects we developed in 2003 who will open new Bassett Furniture Direct stores in 2004," said Robert H. Spilman Jr., president and chief executive officer. "We expect 2004 to be a record year for opening BFD's and remain committed to our goal of 150 BFD stores by the end of 2005."

The Bassett Furniture Direct(R) retail store program continues to grow with 100 BFD stores currently in operation. Licensees opened 19 stores in 2003 and the Company expects licensees to open 20 to 25 new stores in fiscal 2004, spread evenly over the year. Sales to BFD stores were 53 percent of wholesale sales in 2003 and are planned to approximate 63 percent of total Bassett wholesale sales in 2004.

The Company's primary focus continues to be expanding and improving its BFD store program. "We will intensify our efforts in these areas in 2004 while we take the necessary actions to continue to deliver value to our retail customers and further improve our operating earnings," said Mr. Spilman. Towards this effort, the Company is further consolidating upholstery production from a smaller facility in Hiddenite, N.C., to its primary upholstery facility in Newton, N.C. The Company expects to incur a restructuring charge in the range of $.6 million to $1 million in the first quarter of 2004 related to these and related actions. After this consolidation is complete, the Company will have reduced the number of its manufacturing facilities from 13 in early 2001 to seven in early 2004, significantly lowering its overall fixed cost structure.

"December order and shipment levels have been soft and business conditions for our Company and our industry remain challenging," added Mr. Spilman. "We are cautiously optimistic as we enter the new year, hard at work on new products which we will introduce in April and on our plans to strengthen our presence on the West Coast, including new stores in 2004, and a new distribution center and a small upholstery operation in 2005 to support this growth."

Other opportunities and issues that will confront the Company in the first half of 2004 include realizing the proceeds of the sale of its former California manufacturing facility and completing the complex analysis of FIN 46 for its other equity investees. The Company has not determined whether any other affiliated entities will need to be consolidated based on this interpretation.