Bassett Stock Price Movements - Mattresses or Fundamentals?

Bassett Furniture has seen significant movement in the stock price of late.  Moreover, as I have mentioned in previous posts, here and here the trend of the stock price has been pretty much one way - up almost every day (though not yesterday).  There are three good reasons for the stock price to rise, though none explain the consistency of the increase. 

One possibility that only recently crossed my radar screen is the stock performance of mattress manufacturers such as Sealy, (which sells mattresses under the Bassett name and through Bassett furniture outlets), Terpurpedic and several others.  All of them have seen strong gains in the last several weeks, in part because of speculation that strapped homeowners and recently rehired employees are choosing to make small purchases to improve their lives and that one of htese is a better mattress.  For myself, I can say that I believe a mattress is an investment in better sleep, which in turn leads to more energy and less stress - in short, a better life.  In this way, a mattress is a special piece of furniture, unlike most of the other functional stuff in the home.  A mattress helps to protect your health, and it is not worth sleeping on a bad one.

So perhaps Bassett is participating in general market moves in the mattress sector (though it hardly seems possible that Bassett's performance would be strongly influenced by only the mattress segment, I doubt it is big enough to influence overall earnings that significantly).

The real reason I believe Bassett stock has been rising is that the fundamentals of the business are coming to look much better, and this is converting the furniture business portion of the stock valuation to a positive figure and allowing the balance sheet items to receive full valuation (2 years ago it appeared that management might burn all of the investments that were not directly deployed in the business in a possibly futile attempt to keep the business afloat, rather than shut it down).

Keeping it short - I believe the true reasons for the improvement are the following:

• Strong balance sheet has been strengthened by the sale of IHFC
• Converted an accounting liability into an asset (cash)
• Provides added liquidity to restructure and invest and be opportunistic in a weak market
• Provides means to ride out an extended period of housing weakness
• Shareholder friendly management 
• Paid several special dividends
• Restored quarterly dividends
• Repurchasing shares at low valuation enhances intrinsic value per share
• Restructuring of the business seems to have positioned the business for profit at reduced volume
• Finally able to close or take over underperforming licensee stores and improve ops (company stores open more than 1yr are earning a profit as a group)
• Able to invest in capturing additional share in local markets
• Growth into new markets
• Adding locations for the first time in some time
• Positioning business for growth / upswing (assumes no recession)
• Able to invest in operations at a time when real estate and labor are relatively inexpensive, good opportunities to sign leases at low rates and lock in low rents
• Recovery in housing 
• There are some signs that housing is making a turn, or at least, that the pace of decline is slowing
• Many households have been aggressively reducing debt, positioning them to make larger purchases in the next few years and to trade up from IKEA.

So, I maintain that Bassett is well positioned to ride out the next few years and to invest in key markets that will be the drivers of growth in the years ahead, and to do so while locking in lower fixed costs, providing terrific operating leverage whenever a pickup in consumer durable spending materializes.