Our industry continues to suffer from sluggish consumer demand coupled with a weak housing market and a growing consumer credit crunch. Industry conditions remain difficult and our results for the third quarter reflect that.
Robert H. Spilman Jr., President and CEO, Bassett Furniture

Bassett Furniture Industries sales for the third quarter of 2007 fell 9% compares to the third quarter of 2006. The company cited "continued soft furniture retail conditions" as the primary cause.

The Bassett Furniture retail store program had 132 stores (103 licensed and 29 Company-owned) in operation at the end of the third quarter. No stores were opened during the quarter and one store was closed. Last month, the Company unveiled a new store prototype opening a new Company-owned store in Atlanta and a remodeled store in Charlotte. The prototype was created to allow a more residential feel while highlighting Bassett's custom manufacturing capabilities. The Company expects three new licensee-owned stores to open in the next three to four months incorporating this prototype.

"Our industry continues to suffer from sluggish consumer demand coupled with a weak housing market and a growing consumer credit crunch. Industry conditions remain difficult and our results for the third quarter reflect that," said Robert H. Spilman Jr., Bassett president and chief executive officer. "Although business conditions are tough, we are excited about our recently announced retail strategies. Our dealers' reception of our new lines introduced in September have been extremely positive. We also believe that the new prototype recently introduced in Atlanta and Charlotte will reinforce both our commitment to elevating the visual appeal of our stores while highlighting our custom furniture capabilities."

Net sales for the wholesale segment were $58.5 million for the third quarter of 2007, 13% below the $67.2 million level attained in the third quarter of 2006. This shortfall is partially offset by $1.0 million of reported revenue due to a change in the company's invoicing practices with respect to freight charges for wholesale shipments to retailers. During July, the Company began invoicing these customers on a fully landed basis such that the dealer invoice price includes the freight charge for delivery. For the first nine months of 2007, approximately 73% of wholesale shipments were to Bassett stores compared to 70% for the first nine months of 2006. Additionally, approximately 47% of wholesale shipments in the first nine months were imported products compared to 44% for the first nine months of 2006. Gross margins for the wholesale segment were 24.4% for the third quarter of 2007 as compared to 23.2% for 2006. As expected, gross margins have been favorably impacted by an increased mix of higher margin imported product. In addition, margins have been negatively impacted by the wind-down costs and inventory markdowns associated with the closure of the Bassett plant and lower volumes in the Company's two domestic production facilities. The Company expects improved wholesale operating results in the fourth quarter of 2007 from a full quarter of improved product mix coupled with aggressive cost control. With the continued difficult furniture retail environment, the Company will continue to assess and adjust its wholesale cost structure to match associated demand.

Bassett's 29 corporate stores continued to experience soft conditions at retail with sales of $21.1 million in the third quarter of 2007 as compared to $20.1 million in the third quarter of 2006 with sales increases primarily resulting from additional Company-owned stores. Comparable store sales (sales for stores open for longer than one year) for Company-owned stores increased 2% for the year as compared to 2006. Gross margins for the quarter increased by over five percentage points due to improved pricing and promotional strategies, coupled with less clearance sales activity as compared to 2006. The Company believes that the combination of new product introductions, store prototype retrofits, better hiring and training of design consultants and continued improved marketing efforts will lead to the further improvement of retail operating results.