Thank you, Michelle, for the introduction. Welcome to Bassett Furniture Industries Earnings Call for the second quarter of fiscal 2026, which ended May 30.

Joining me today is our Chairman and CEO, Rob Spilman. We issued our news release and Form 10-Q yesterday after the market closed, and it's available on our website.

After today's remarks, Rob and I will open up for questions. Now I'll turn things over to Rob.

All right. Thank you, Mike, and good morning, everyone.

I'll start with some insights on the second quarter, and Mike will get into more of the financial details. I'll also discuss our strategic initiatives to drive further growth at Bassett.

Operating profit on an adjusted basis improved in the second quarter on slightly lower consolidated revenue. As we moved through the quarter, positive traffic during April and May contributed to Retail written sales being up 9.5%.

Our Memorial Day promotion was especially strong with written sales up 14% and 4% more traffic than last year. We saw these trends continue into June, which is a good start for the third quarter.

Wholesale orders were up 5.2% for the second quarter, but shipments were down 2% as the increase in written sales were back-end loaded. We also generated $7.4 million of cash from operations during the period.

Our consolidated gross margins grew by 90 basis points for the quarter, primarily due to improvements in Wholesale margins on slightly lower revenue. Despite significant cost cutting in recent quarters, our SG&A has remained stubbornly high.

Part of this is the higher percentage of overall sales that Corporate Retail represents with a structurally higher amount of SG&A compared to the traditional Wholesale model. We did have some unforeseen expenses run through such as fuel surcharges that stemmed from the Iranian conflict.

In any event, we are committed to improving our operating margins and our SG&A percentage is a major part of the picture. In keeping with last quarter's announced target, we remain focused on reducing expenses by an additional $1.5 million to $2 million on an annual basis.

Although we have seen recent forecasts foretelling modestly better housing numbers in the second half of 2026, we must generate higher sales in our existing store network and the environment in which we operate today. We are not simply waiting on things to get better.

Higher average sales per store means greater leverage of our fixed costs. That is why the quarterly 9.5% written sales increase was particularly encouraging.

That said, our Retail gross margins fell by 120 basis points in the quarter, partially due to more aggressive pricing of our clearance inventory. Accordingly, we plan to raise Retail gross margins in mid-July by 200 to 250 basis points.

Our marketing organization has begun to consistently deliver greater efficiency on investment as our adjusted media mix drove more foot traffic to our stores for the first time since the COVID boom. We engaged a new agency last year, and their analytics platform is giving us a better understanding of our customer.

We have also begun to use artificial intelligence to further reach our customers on a more personalized basis. Augmenting the more precise digital strategy is our growing utilization of direct mail, which we successfully reincorporated into the mix 18 months ago.

We continue to benefit from the successful product introductions of 2025, both in upholstery and case goods. Several of these offerings have become top 5 items in their respective categories and offer a nice complement to our legacy custom programs.

At the April market in High Point, we had very positive response to our introduction of opening price point lines, both in living room and bedroom. These collections will bolster our good, better, best strategy and will be available in Bassett stores and at independent dealers in advance of the important Labor Day selling events.

Our second initiative is to generate growth from opening new Corporate and licensed Retail locations. On May 8, we opened a new 14,000 square foot store in Cincinnati, which marks a return to this important market.

Early indications of traffic and written sales are encouraging. In fact, on the Wholesale side, we sold more products in 8 weeks in Cincinnati than we did all of last year.

We will open a location of similar size and economics in Orlando in early October. Just after the quarter ended, an existing open market dealer in Nashville, Tennessee, converted an existing location into a new 12,000 square foot Bassett home furnishing store.

Currently, we have 59 corporate stores and 28 licensed stores in operation. We will also continue to evaluate opportunities to convert current licensed locations to corporate stores as owners retire and exit the business.

Third, we continue to invest in e-commerce for a fully integrated omnichannel experience. We are seeing a return on this investment as web traffic was up more than 3% in the quarter.

Written web sales were up by 40%, marking 7 of the last 8 quarters with increases exceeding 20%. Contributing to that performance was a 24% increase in average order value.

Upholstery sales saw the greatest jump aided by an updated fabric module that improves the customization process. The National Home Delivery program that we launched last fall is contributing as we reach customers where we don't have stores in all the contiguous 48 states.

Fourth, we plan to expand our overall Wholesale business through several efforts. Outside the Bassett store network, we rely on 2 dedicated distribution concepts: Bassett Design Centers (BDC) and Bassett Custom Studios (BCS), which represent well over half of our open market business.

The combined orders for the quarter rose by 1.3%, shipments fell by 4.5%. BDCs contracted by 6.3%, while the smaller footprint of the studio grew by 7.2%.

Currently, we have 94 BDC accounts and the newer studio concept is a 1,000-foot presentation of our true custom upholstery program — we opened 4 custom studios in the quarter, bringing the fleet total to 64. We are auditing the results of both our best partners and less productive locations to drive higher levels of standardization and performance across both dedicated distribution concepts.

Integrated into our initiative to grow Wholesale is our expanded focus on increasing Bassett's share of the professional interior design channel. We have the breadth of assortment, fabric line, custom capabilities and the ability to upholster customers' own material (COM) that arms us with the product currency to effectively serve this disparate but growing channel.

Our new High Point showroom location is more relevant to the design trade and will showcase all of these attributes. We will also unveil a new product collaboration with an accomplished interior designer that we will begin to market later this summer.

A natural extension of our Wholesale outreach is our 6-month old Bassett Hospitality division. Although we must be patient with our progress in gaining acceptance from this somewhat insular community, we have written some orders with entities as varied as hospitals, boutique hotels and senior living communities.

We have also recently quoted some large hospitality projects. This plan is our road map for growth and improved performance.

Our organization is energized by recent order trends, and we are focused on getting the job done. Mike, I'll turn things over to you.

Thank you, Rob. Total consolidated revenue was $83.8 million, a decrease of $500,000 or 0.7%.

This consisted of a $1.9 million or 6.3% decrease in sales to external wholesale customers, partially offset by a $1.3 million or 2.4% increase in Retail sales from our company-owned stores. Gross margin at 56.5% represented a 90 basis point increase compared to the prior year, primarily driven by higher margins in the Wholesale business and partially offset by lower margins in the Retail business.

Selling, general and administrative expenses, excluding new-store preopening costs, were 53.3% of sales, 60 basis points higher than the prior year. These preopening costs are related to our May opening in Cincinnati and include expenses related to our upcoming Retail location in Orlando.

Excluding $700,000 of proceeds from business interruption insurance recorded in Q2 2025 as a result of a cyber incident in fiscal 2024, SG&A expenses as a percentage of sales actually decreased 20 basis points compared to 2025. Operating income was $2.2 million or 2.7% of sales compared to income of $2.5 million or 3% of sales in the prior period.

Diluted earnings per share were $0.24 versus $0.22. On the Wholesale operations — net sales were $53.1 million, a 2% decrease compared to last year.

This decrease was due to 5.5% less shipments to the open market, partially offset by a 1% increase in Lane Venture shipments to Wholesale customers and a 0.8% increase in shipments to our Retail store network. We introduced the Lane Venture Outdoor brand in the Bassett Home Furnishing stores during the first quarter of 2026, and including those shipments in the total Lane Venture brand, shipments of that brand actually increased 18%.

Gross margins increased 110 basis points from the prior year period, primarily due to improved efficiencies in our domestic upholstery and wood operations, coupled with improved pricing strategies in our import wood offerings. SG&A expenses as a percentage of sales increased 90 basis points compared with the prior year period, primarily due to increased outbound freight expenses from higher fuel costs.

On Retail store operations — net sales of $55.5 million represented a $1.3 million increase over the prior year. Written sales increased 9.5%.

Gross margin at 51.2% represented a decline of 120 basis points, primarily due to lower margins on in-line goods because the full effect of the mid-January price increase was not realized for the entire quarter, coupled with lower margins on clearance goods. Total SG&A expenses, excluding new store preopening costs as a percentage of sales, decreased 50 basis points from the prior year.

Excluding $569,000 of proceeds from business interruption insurance recorded in Q2 2025, SG&A expenses as a percentage of sales decreased 150 basis points compared to 2025, primarily due to lower health insurance and workers' compensation costs and improved efficiency in the warehouse and delivery operation. During the quarter, we incurred $473,000 of new store preopening costs associated with the new stores in Cincinnati and Orlando.

These costs generally range between $200,000 to $400,000 per store depending on the overall rent cost and the period between taking physical possession and the store opening. Our liquidity remains solid with $53.9 million of cash and short-term investments.

During the quarter, we generated $7.4 million of operating cash flow, which ultimately increased our cash and short-term investments by $2.9 million. We expect total capital expenditures to be between $10 million and $12 million for 2026, considerably more than the $4.5 million spent last year.

We continue to pay our quarterly dividend and repurchase shares opportunistically — we spent $1.7 million on dividends and $500,000 on share buybacks in the quarter. Now we'll open up the line for questions.

Nice to hear the positive trends in May and June. Just curious, as you're seeing this momentum here, are you seeing this across all your product categories?

Or is the strength in sales concentrated in your core upholstery segment?

Anthony, this is Rob. I would say slightly more in Upholstery, but pretty good across the board in terms of the increase — but slightly more momentum in the Upholstery segment.

And as far as this momentum — you talked about changing some of your media partners. What would you say is the core reason for this?

And how do you think about the sustainability of these positive trends?

Well, I think we've got some new folks in here that have joined us over the last couple of years. That's an important part of the equation.

I think we are understanding our customer better. The analytics that the new agency is providing with us is making us more efficient and our investment dollars in terms of reaching the consumer.

It's really a combination of things — and we do feel that we've got some momentum in this area. Integrating AI into this is a big opportunity for us that we've just now gotten started with.

But I think our formula is just improving.

So as we look at the gross margin — you pointed out higher Wholesale margin, lower Retail margin. Given the various puts and takes relative to price increases, input costs and the fuel surcharges, how do we think about gross margins going forward?

Well, I think we are at the level we're going to be to a certain extent on the Wholesale side. The Retail side is where we have opportunity.

I referenced that we were going to increase our margins in July, and we think the pricing model can withstand that. We want to be good stewards of our balance sheet and move some of this clearance out more aggressively, which we did in the quarter and that affected our margins.

If our original input margin is slightly higher than we've been operating under recently, I think you'll see that consolidated gross margin bump up as a result of better Retail margin.

Anthony, just as you're thinking about modeling, remember that the 200 to 250 basis points pricing increase really won't show itself until the fourth quarter. Very little of that will actually hit in the third quarter.

As you know, Anthony, that's because we've got to make the furniture and then deliver.

Of course. And then lastly, Bassett is primarily a domestic manufacturer but you do have some imports.

As far as the IEEPA tariff refunds, did you see any of that? Or do you expect any in the coming months?

We have seen some so far, and we think there will be more to come. We don't know the magnitude of it entirely yet.

And then, of course, we have to work with our public accountants to figure out how this flows through. But yes, we do expect to see some of that.

We haven't received definitive qualification on exactly the extent of it.

Staying on the P&L — you mentioned on an adjusted basis SG&A down 20 basis points from last year. Are we now at a point where consolidated SG&A should be lower year-over-year on a go-forward basis?

Or are there other puts and takes I'm missing here?

Well, do remember, as Rob pointed this out, as the mix could shift with how much is Retail versus how much is Wholesale open-market. The more that's Retail, the higher the SG&A number in dollars.

However, we should be seeing the $1.5 million to $2 million cost savings really start showing in the third quarter and the fourth quarter. So with all that said, you can figure out where that's going to put in the SG&A.

So on a segment basis, I should show some leverage on both segments and then the mix will determine how that washes out on a consolidated basis. Is that a good way to look at it?

I think that's reasonable.

And then shifting to demand — the written order news is good, the Memorial Day news was really good. Maybe explain how the 4% more traffic converted to a 14% increase in sales.

What's driving that higher average ticket?

Doug, we still have a lumpy model. Some of these jobs that we do are big.

We wrote a couple of tickets over $100,000 this quarter. When you get those kinds of things, it really pops up the average ticket.

It seemed like we got some big design jobs coming through disproportionately at the end of the quarter. So that's what I would attribute that to.

And just remember, the traffic has been going down pretty consistently over the last however many years. But there's also the conversion rate that you've got to factor in there.

We're doing a better job of what we do have converting.

Can you talk a little bit about your e-commerce? They have been big numbers and they've been consistent.

Help us understand what you sell over e-commerce, specifically what kind of products? And is there a way for you to measure how much of those customers also go into your showrooms?

Well, historically at the beginning of e-commerce, it was mostly a closeout vehicle. Then we began to sell more in-line, and that was primarily wood product and non-custom wood product.

But with some of these enhancements and the navigation improvements, we have begun to sell more upholstery and more custom upholstery on the website than we have historically. That's what's been driving a disproportionate amount of the increase from a product point of view.

On the second part of the question — with our clienteling platform, we basically can track all of that. Generally speaking, our web customer is a Bassett customer that also shops in the store.

So it's really just part of a broader ecosystem.

Yes, that's exactly right. And that's exactly what we're trying to grow.

Have you made any comments about store openings after Orlando?

Well, we have talked about next year in Melville, New York. That will actually be a trade-out of a store — we're going to close in Garden City/Westbury and move east on Long Island and slightly north to Melville near the Walt Whitman Mall.

A smaller location, better store economics. That's what we've announced so far.

Will that have new store costs called out? Or will it just be sort of below the surface with one store going away, another store opening?

Unfortunately, the way this accounting works, even though in most of these cases we're not actually paying rent, we have to charge the rent when we get the keys to the empty shell. So that is kind of irritating, frankly, but that's what we have to do.

It's a noncash charge, but it does hit your earnings and you don't really get relief from that until you open the store. And then you've got to wait another 30 to 45 days to get any revenue because we've got to make the furniture and deliver it.

So it's kind of a front-end loaded bad guys that we have to absorb going into these big stores. We think they're significant enough that we call it out.

And Doug, yes, there will be new store preopening costs associated with Melville. The other piece is you don't ring the register for 1 to 2 months after you start the store.

We may have some backlog coming over from the Garden City stores, so we don't have those early losses. I also did want to point out that for Cincinnati, while it opened in May, we won't have any sales to ring the register until June, and you kind of have to build up the backlog.

So you're going to have a couple of months of losses associated with after it opens because you're building up the backlog.

So we're still going to have Cincinnati here in the third quarter?

Yes, you'll still have some drag from Cincinnati.

Okay. And just finally on the new opening price point products you launched at the spring market.

It looks like they'll be in the stores Labor Day. Is there an impact to margins from the opening price point?

Or are you able to accommodate it at segment level margins?

For the most part, we'll definitely be able to accommodate it on the Retail side. We did price it slightly sharper on the Wholesale side.

But this is not anything new for us or for the industry really. It's something that you need some unit throughput to cover your fixed expenses in these big factories, and that's what this is designed to do.

And generally speaking, when we do that and if we're successful in moving the units through, we like the answer at the end of the day.

Okay, Michelle. Thank you for giving us some of your time today, everyone, and for your interest in Bassett.

We're excited about the changes we're making and confident in our ability to deliver for customers and shareholders. We look forward to reporting again in October on the eve of the debut of our new High Point showroom on October 15 when we swing the doors for the first time.

So have a wonderful holiday weekend on the special 4th of July.