Another year, another earnings season. As the nation's public corporations queue up to reveal their first-quarter earnings news, Bassett Furniture (NASDAQ:BSET) stands near the head of the pack. Q1 2007 results are due out Thursday.

What analysts say:

  • Buy, sell, or waffle? According to Capital IQ, a grand total of one analyst follows little Bassett Furniture -- but provides neither revenue nor earnings estimates.

What management says:
No matter. Who needs analysts when the company itself tells you how it's going to do! Earlier this month, Bassett did just that, in the form of an earnings warning. Citing "lower sales levels and reduced margins," and blaming a "nationwide housing slump, higher interest rates and higher gasoline prices all serving to limit the discretionary spending of many consumers," Bassett advised investors that its Q1 results would show a 16% to 18% decline in sales versus Q1 2006. Sequentially, sales are expected to fall 5% to 6% from last quarter's dismal performance.

Combine these lower sales with fewer profits from each sale made, and it seems clear the company will show a significant decline from the $0.24 per share it earned one year ago.

What management does:
While unarguably "bad," the bad news above doesn't really qualify as "news." Rolling operating margins have been sliding at Bassett for about a year now, and the net for nearly as long. Strangely, gross margins actually appear to be trending upward -- but as you'll see in a moment, that may be due more to a shift in product mix (toward higher-margin imports) than anything else.

Margins

8/05

11/05

2/06

5/06

8/06

11/06

Gross

27.5%

29.3%

30.9%

32.1%

32.2%

31.3%

Operating

3.9%

3.9%

4.0%

3.8%

2.8%

1.6%

Net

2.5%

2.9%

2.2%

2.7%

2.3%

1.7%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
When I say "product mix," I'm referring less to the ratio of expensive-to-inexpensive items of furniture sold, and more to the mix of places of origin. Because along with its earnings warning, Bassett announced the closing of its namesake wood furniture factory in Bassett, Va., and the layoff of 15% of the company's workforce. According to management, "The company plans to source the majority of the products currently produced at this facility from overseas suppliers, to continue to produce certain custom bedroom products domestically and to discontinue providing certain slower selling items. During the last few years, like most of the U.S. furniture industry, Bassett has continued to experience a shift in demand from domestically produced wood products to imported wood products."

Sound familiar? It should. We've heard similar announcements out of firms such as Furniture Brands (NYSE:FBN), La-Z-Boy (NYSE:LZB), and Stanley (NASDAQ:STLY) in recent months. Of course, the quintessential example of what's happening to the U.S. wood furniture industry is Hooker Furniture (NASDAQ:HOFT), which no longer makes the stuff at all, having closed down its last wood furniture factory, and transitioned fully to an import model for that type of ware (Hooker still makes some upholstered wares stateside, however).

Long story short, it appears Bassett intends to follow Hooker's trail all the way to the end. Although Bassett still has two domestic factories running as of this writing, CEO Robert Spilman clearly foreshadowed the future, opining: "we also believe this is a needed step in our transformation from being primarily a domestic furniture manufacturing company to a retailer, manufacturer, and marketer of branded home furnishings. It will allow us to more fully focus on our retail and product development strategies."

How's Bassett done in past quarters? Check this hound's backstory in:

La-Z-Boy is a Motley Fool Income Investor recommendation. Stanley Furniture and Hooker Furniture are Motley Fool Hidden Gems picks. Simply click back on the links to sign up for your free 30-day trial.

Fool contributor Rich Smith does not own shares of any company named above.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.