Bassett Furniture (NASDAQ:BSET) investors have been a long-suffering bunch, so perhaps I should just let sleeping dogs lie and allow them to bask in the pleasure of the 6.6% stock price gain they received on Friday. They've certainly earned it. Alas, their company hasn't earned it, and that's the story that needs telling today.

Good news first
 Sales for the quarter came in two flavors, wholesale and retail. Combined, total sales slipped 9% in comparison to last year's third quarter. Separately, though, the picture gets more complicated:

  • Wholesale: Sales continued to sag, declining 13% year over year, but management said gross margin improved 120 basis points to 24.4% as the company shifted production away from domestic factories and toward importing from overseas. Management promised further improvement in Q4.
  • Retail: Here, the company actually posted some modest growth. Sales were up 4.8%, thanks in part to 2% same-store sales growth. Gross margin, said management, "increased by over five percentage points due to improved pricing and promotional strategies."

Now the bad news
What I found most interesting in the press release was how management provided precise gross margin figures for its wholesale segment, but gave a suspiciously vague number for retail. "Increased by over five percentage points" from what to what, I want to know. Unfortunately, Bassett didn't give the raw numbers from which to calculate the answer to that question. But I think I know why.

Examining the operating profit section of the report, which Bassett did provide in full, we see that things aren't quite as rosy as Bassett painted them. Unlike rivals like Ethan Allen (NYSE:ETH) or Furniture Brands (NYSE:FBN), which are earning an operating profit, Bassett's still coughing up losses. You see, the improved gross margin in wholesale didn't translate into improved operating profit. To the contrary, its operating margin amounted to just 0.9% in Q3, a 270-basis-point decline from last year's number. Meanwhile, within the mysterious retail segment, "improvement" proved a relative term. Operating margins "improved" -- in that they became less negative than before. Last year's negative 19.1% operating margin evolved into a negative 13.8% operating margin last quarter.

Put it all together, and the two divisions combined to lose the firm $1.7 million, pretax. And Bassett owed its $0.06-per-share profit neither to the performance of its wholesale division, nor to improvement in retail. Rather, the entirety of the quarter's profit came from a $2.4 million tax benefit. Way to play alive, Bassett. Nice trick.

Unlike Bassett, some furniture makers are turning in real improvement. Read about the goings-on at Ethan Allen, Hooker Furniture (NASDAQ:HOFT), and Steelcase (NYSE:SCS) in: