The Dixie Group, Inc. (NASDAQ: DXYN) today
reported financial results for the first fiscal quarter ended March
30, 2019. For the first quarter of 2019, the Company had net sales
of $88,606,000 as compared to $98,858,000 in 2018. For Q1, 2019 net
sales were down 10.4% as compared to 2018. For the first quarter of
2019, the Company had a loss from continuing operations of
$6,641,000 or $0.42 per diluted share as compared to a loss of
$2,884,000 or $0.18 per diluted share in the first quarter of 2018.
On a non-GAAP basis our loss was $4,545,000 for the period.
Commenting on the results, Daniel K. Frierson,
Chairman and Chief Executive Officer, said, “Our residential
product sales were down 5.5% for the quarter with the industry, we
estimate, being down mid to high single digits as compared to the
prior year. The early part of the quarter was impacted by poor
weather conditions in the northern half of the United States as
well as a lack of retail traffic which we believe was due to
uncertainties relative to the economic environment and
international trade issues. We did see a significant pickup in
order activity starting in late first quarter, and for the first
four weeks of April our orders in 2019 exceeded our sales as
compared to 2018 for the residential business. Residential order
activity in the second quarter is also benefiting from the earlier
introduction of new products relative to product introductions in
2018. Of note is our new EnVision 6,6™ collection. This new
program is an extension of our Dixie Home product line with nicely
styled products at moderate price points to reach a wider range of
consumers. These products are made with type 6,6 nylon to ensure
the highest quality and performance standards. For 2019, we are
building on the momentum we gained by tripling our residential hard
surface business in 2018 with the launch of TruCor, our new solid
polymer core or “SPC” luxury vinyl flooring line. This latest
addition to our rigid core luxury vinyl flooring offering is
designed to create an extremely durable and waterproof luxury vinyl
flooring product. To facilitate this growth, we are expanding our
distribution of hard surface products to our west coast
distribution center to complement our east coast service
center.
Our commercial business in the first quarter was
down over 20% on a year over year basis while the industry we
believe was flat for the same time periods. Our commercial
broadloom sales were most heavily impacted while our commercial
modular carpet tile sales were flat for the comparative periods. We
did benefit from the reorganization of our commercial business this
past fall with lower selling and administrative expenses.
The exclusive supplier of yarns to our Atlas
contract operation has decided to dramatically reduce the supply of
white dyeable yarns, which have been the major source of
differentiation and supported the majority of our Atlas product
line. The Atlas business model had been to make piece dyeable
products on a build to order model. The change in piece dyed yarn
availability along with other product trends in the market place
has caused us to change our business model. We have responded by
merging our two commercial businesses; first by consolidating the
marketing, product development, and support functions followed by
consolidating our sales team and manufacturing operations. That
consolidation is now complete. We are still in the process of
introducing new products to replace those being phased out and will
continue this transition for several years.
Our commercial sales during the period were
impacted by the completion of our moving equipment from our
commercial west coast tufting center into our Atmore, Alabama
facility. We have completed all of the movement of the equipment,
but have not yet caught up completely on our orders from the
transition. We anticipate returning to a more normal order
backlog in the second quarter,” Frierson concluded.
Our gross profit for the first quarter of 2019
was 21.4% of net sales as compared to a gross profit of 21.8% in
2018. Our gross profit was impacted by several major issues during
the quarter. Our medical costs were over $1.1 million higher than
the same time period in the previous year. We are in the process of
implementing changes to reduce the impact to our margins. As noted
earlier, we ran excessive costs as we ran significant overtime to
process the backlog of orders created by moving our commercial
tufting equipment from our west coast commercial tufting operation
into our Atmore commercial tufting operation. Finally, we had
higher waste as a result of the intensive effort to launch the new
products earlier this year. We implemented a price increase in the
residential business and select products in the commercial business
during the first quarter to offset higher operational expenses.
Selling and administrative expenses for the
quarter were down from $23.1 million to $21.7 million. However, due
to the lower sales volume our selling and administrative costs were
24.4% of net sales as compared to 23.4% of sales for the first
quarter of 2018.
We had $2.1 million in expenses related to our
Profit Improvement Plan during the period. We have continued to add
additional projects to our Plan, including plans to further cut
administrative staff and eliminate in the third quarter of 2019 our
Commerce, California distribution center, better utilizing our
Santa Ana, California facility and outside resources. Combined
savings, on an annualized basis, are now $18.6 million as compared
to the beginning of 2018.
Our receivables increased $962 thousand during
the quarter due to normal seasonal patterns. Inventories decreased
$1.4 million as we continue to bring our inventories down with
better production planning practices. Our capital expenditures for
the year of 2019 are planned at a level of approximately $6
million. For the first quarter our capital expenditures were $1.0
million as compared to depreciation and amortization of $3.1
million. Interest expense, at $1.7 million, was up due to higher
levels of debt and higher interest rates from a year ago. In
accordance with the new lease accounting standard, we added to the
balance sheet both a right of use asset of $9.0 million and an
operating lease obligation of $9.4 million. Outside of our
operating lease liabilities, the total of our long term debt,
including the short term portion, increased $4.6 million during the
first quarter due to normal seasonal increases in working
capital.
Our residential sales for the first four weeks
of April are 1.7% behind last year at this time. Our commercial
backlog has increased $2.1 million or 12% since the beginning of
the second quarter. Orders for the Company for the first four weeks
of the second quarter are now above sales for the same time period
a year ago.
A listen-only Internet simulcast and replay of
Dixie's conference call may be accessed with appropriate software
at the Company's website at www.thedixiegroup.com/investor/. The
simulcast will begin at approximately 11:00 a.m. Eastern Time on
May 3, 2019. A replay will be available approximately two hours
later and will continue for approximately 30 days. If internet
access is unavailable, a telephonic conference will be available by
dialing 877-355-1003 and entering 9856906 at least ten minutes
before the appointed time. A seven day telephonic replay will be
available two hours after the call ends by dialing 855-859-2056 and
entering 9856906 when prompted for the access code.
The Dixie Group (www.thedixiegroup.com) is a
leading marketer and manufacturer of carpet and rugs to higher-end
residential and commercial customers through the Fabrica
International, Masland Carpets, Dixie Home, Atlas | Masland
Contract and Dixie International brands.
This press release contains forward-looking
statements. Forward-looking statements are based on estimates,
projections, beliefs and assumptions of management and the Company
at the time of such statements and are not guarantees of
performance. Forward-looking statements are subject to risk factors
and uncertainties that could cause actual results to differ
materially from those indicated in such forward-looking statements.
Such factors include the levels of demand for the products produced
by the Company. Other factors that could affect the Company's
results include, but are not limited to, availability of raw
material and transportation costs related to petroleum prices, the
cost and availability of capital, integration of acquisitions,
ability to attract, develop and retain qualified personnel and
general economic and competitive conditions related to the
Company's business. Issues related to the availability and price of
energy may adversely affect the Company's operations. Additional
information regarding these and other risk factors and
uncertainties may be found in the Company's filings with the
Securities and Exchange Commission. The Company disclaims any
obligation to update or revise any forward-looking statements based
on the occurrence of future events, the receipt of new information,
or otherwise.
THE DIXIE GROUP, INC.Consolidated
Condensed Statements of Operations(unaudited; in
thousands, except earnings per share)
|
Three Months Ended |
|
March 30, 2019 |
|
March 31, 2018 |
|
|
|
|
NET SALES |
$ |
88,606 |
|
|
$ |
98,858 |
|
Cost of sales |
69,687 |
|
|
77,278 |
|
GROSS PROFIT |
18,919 |
|
|
21,580 |
|
Selling
and administrative expenses |
21,660 |
|
|
23,120 |
|
Other
operating (income) expense, net |
26 |
|
|
(241 |
) |
Facility
consolidation and severance expenses, net |
2,091 |
|
|
216 |
|
Impairment of assets |
5 |
|
|
— |
|
OPERATING LOSS |
(4,863 |
) |
|
(1,515 |
) |
Interest
expense |
1,720 |
|
|
1,533 |
|
Other
(income) expense, net |
(42 |
) |
|
2 |
|
Loss from continuing operations before taxes |
(6,541 |
) |
|
(3,050 |
) |
Income tax provision (benefit) |
100 |
|
|
(166 |
) |
Loss from continuing
operations |
(6,641 |
) |
|
(2,884 |
) |
Loss from discontinued
operations, net of tax |
(31 |
) |
|
(23 |
) |
NET LOSS |
$ |
(6,672 |
) |
|
$ |
(2,907 |
) |
|
|
|
|
BASIC EARNINGS (LOSS)
PER SHARE: |
|
|
|
Continuing operations |
$ |
(0.42 |
) |
|
$ |
(0.18 |
) |
Discontinued operations |
(0.00 |
) |
|
(0.00 |
) |
Net loss |
$ |
(0.42 |
) |
|
$ |
(0.18 |
) |
|
|
|
|
DILUTED EARNINGS (LOSS)
PER SHARE: |
|
|
|
Continuing operations |
$ |
(0.42 |
) |
|
$ |
(0.18 |
) |
Discontinued operations |
(0.00 |
) |
|
(0.00 |
) |
Net loss |
$ |
(0.42 |
) |
|
$ |
(0.18 |
) |
|
|
|
|
Weighted-average shares
outstanding: |
|
|
|
Basic |
15,809 |
|
|
15,715 |
|
Diluted |
15,809 |
|
|
15,715 |
|
|
|
|
|
THE DIXIE GROUP, INC.Consolidated
Condensed Balance Sheets(in
thousands)
|
March 30, 2019 |
|
December 29, 2018 |
ASSETS |
(Unaudited) |
|
|
Current Assets |
|
|
|
Cash and cash
equivalents |
$ |
12 |
|
|
$ |
18 |
|
Receivables, net |
43,504 |
|
|
42,542 |
|
Inventories, net |
103,823 |
|
|
105,195 |
|
Prepaids and other current assets |
6,412 |
|
|
5,204 |
|
Total
Current Assets |
153,751 |
|
|
152,959 |
|
|
|
|
|
Property, Plant and
Equipment, Net |
82,061 |
|
|
84,111 |
|
Operating Lease
Right-Of-Use Assets |
8,982 |
|
|
— |
|
Other Assets |
17,506 |
|
|
15,708 |
|
TOTAL ASSETS |
$ |
262,300 |
|
|
$ |
252,778 |
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS' EQUITY |
|
|
|
Current
Liabilities |
|
|
|
Accounts
payable |
$ |
19,580 |
|
|
$ |
17,779 |
|
Accrued
expenses |
29,577 |
|
|
30,852 |
|
Current
portion of long-term debt |
6,966 |
|
|
7,794 |
|
Current portion of operating lease liabilities |
2,115 |
|
|
— |
|
Total
Current Liabilities |
58,238 |
|
|
56,425 |
|
|
|
|
|
Long-Term Debt |
125,716 |
|
|
120,251 |
|
Operating Lease
Liabilities |
7,255 |
|
|
— |
|
Other Long-Term
Liabilities |
18,995 |
|
|
17,118 |
|
Stockholders'
Equity |
52,096 |
|
|
58,984 |
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
$ |
262,300 |
|
|
$ |
252,778 |
|
Use of Non-GAAP Financial
Information:(in thousands)
The Company believes that non-GAAP performance
measures, which management uses in evaluating the Company's
business, may provide users of the Company's financial information
with additional meaningful bases for comparing the Company's
current results and prior period results, as these measures reflect
factors that are unique to one period relative to the comparable
period. However, the non-GAAP performance measures should be viewed
in addition to, not as an alternative for, the Company's reported
results under accounting principles generally accepted in the
United States. In considering our supplemental financial measures,
investors should bear in mind that other companies that report or
describe similarly titled financial measures may calculate them
differently. Accordingly, investors should exercise appropriate
caution in comparing our supplemental financial measures to
similarly titled financial measures reported by other
companies.
Non-GAAP Summary
|
Three MonthsEnded |
|
Three MonthsEnded |
|
March 30,2019 |
|
March 31,2018 |
Net loss as
reported |
$ |
(6,672 |
) |
|
$ |
(2,907 |
) |
Income from discontinued operations |
(31 |
) |
(23 |
) |
Loss from
continuing operations |
(6,641 |
) |
(2,884 |
) |
Profit
Improvement Plans |
2,091 |
|
216 |
|
Impairment
of assets |
5 |
|
— |
|
Loss from
continuing operations |
$ |
(4,545 |
) |
|
$ |
(2,668 |
) |
Diluted
shares |
15,809 |
|
15,851 |
|
Adjusted
loss per diluted share |
$ |
(0.29 |
) |
|
$ |
(0.17 |
) |
|
|
|
Further non-GAAP reconciliation data are available at
www.thedixiegroup.com under the Investor Relations section.
CONTACT:Jon FaulknerChief
Financial Officer706-876-5814jon.faulkner@dixiegroup.com
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