Bassett Furniture Industries (NASDAQ:BSET) closed out the year with an improved fourth quarter, but the Virginia-based furniture maker isn't quite out of the woods yet.

Sales increased a modest 4.2% over last year's fourth quarter, but investors may be more enthusiastic about the 68% increase in income from operations, which contributed to a 100% rise in net earnings per share. The company attributed the sales increase to the opening of more Bassett Furniture Direct stores (referred to in communications by the truly unfortunate acronym, BFD.)

Taking a look back, management can only be glad that 2003 is over. The company underwent a major restructuring, sales dipped 2%, and net EPS dropped by a third from 2002 -- just to be wiped out by a big accounting charge. When all was said and done, Bassett ended the year with a loss of $0.04 per share.

Moving forward, the key for Bassett will be to leverage its popular brand name with success at its growing network of 100 BFD stores. Bassett plans to license another couple dozen of these colorful, modern, and value-oriented showrooms over the next year. The company hopes that BFD will account for over 63% of sales by year's end.

If Bassett can execute on its plan, it should help insulate the firm from more unpredictable sales swings that come with the competitive battle to supply outside retailers. Another ace in the hole for Bassett could be a recent decision by the U.S. Department of Commerce to investigate charges of dumping against Chinese furniture manufacturers. Bassett is a supporter of the petition, along with other major players such as Motley Fool Hidden Gems' pick Hooker Furniture (NASDAQ:HOFT), La-Z-Boy (NYSE:LZB), and Stanley Furniture (NASDAQ:STLY).

Despite the difficulties this year, investors may want to keep an eye on the company. Bassett emerged from a tough 2003 with a pile of cash, no debt, and good cash generation from both operations and investments. Bassett could turn the corner in 2004, especially if it can deliver on its expanding direct showroom business.

Discuss Bassett's competition in our furniture-focused Fool discussion groups: Hooker Furniture, La-Z-Boy, Stanley Furniture.

A typical Fool, Seth Jayson and wife Jennifer furnish their home with hand-me-down goods. They have nothing against new stuff, but they're saving up for a mud house in Spain. Reach Seth at