Like many other retailers, we have seen a softening in consumer traffic as higher interest rates and higher gasoline prices are obviously having an impact on the discretionary spending of many consumers.
Robert H. Spilman Jr., President and CEO, Bassett

"Bassett Furniture Industries' third quarter earnings will be negatively impacted by lower sales levels and slightly reduced margins, compared to the year ago period," the company said in a statement issued Friday."

Third quarter sales for the three month period ended August 26, 2006, are expected to be approximately seven percent below third quarter 2005 levels. Bassett says the shortfall is primarily due to soft retail conditions especially in the past two months which have impacted both retail sales and wholesale shipments.

"Like many other retailers, we have seen a softening in consumer traffic as higher interest rates and higher gasoline prices are obviously having an impact on the discretionary spending of many consumers," said Robert H. Spilman Jr., Bassett's president and chief executive officer. "We have several marketing and merchandising initiatives underway which we believe will positively impact Bassett's sales performance in future months."

Basset's initiatives include the following:

-- Consumer Catalog - Bassett launched its first-ever catalog targeted directly at consumers. Last week, the 84-page book was shipped to 1.2 million households in 21 markets across the United States. The primary purpose of the catalog is to drive consumers to the stores, with secondary goals of improving the Company's overall brand image, brand preference and website traffic. Consumers will be able to log on to Bassett's website, bassettfurniture.com, to view the catalog and to request a hard copy through the mail.

-- Commitment to Quick Delivery - The Company announced this month to its Bassett Furniture Direct store network a new shipping and selling plan to deliver its most popular stock products to consumers within 10 days and certain made to order products in 30 days.

-- New Product Introductions - New products focusing on bedroom and upholstery groups in the Company's core middle-price point category will be introduced during the High Point Furniture Market in October.

-- New Store Prototype - A new prototype for the Bassett store will roll out in the spring of 2007. Key elements of the new prototype will be incorporated into existing stores late this year and throughout 2007.

Bassett said some of these changes will negatively impacting retail segment gross margins in the short-term as many of the stores have been selling selected products at clearance prices in order to prepare for the arrival of new products and featured catalog products. The Company-owned stores have also been discounting more aggressively in response to the slower pace of traffic in the stores.

Bassett's effort to merge the 25 corporate stores from five independent operating units into a centrally managed operation continues. As previously discussed, changes being made to drive more traffic, improve staffing, standardize pricing and streamline operations are taking longer than anticipated to implement. These changes have also resulted in short term challenges but are expected to lead to improvement in the long-term.

The Company plans to release third quarter earnings on September 26, 2006.