The Dixie Group, Inc. (NASDAQ: DXYN) today reported financial
results for the quarter ended June 29, 2019. For the second quarter
of 2019, the Company had net sales of $100,394,000 as compared to
$106,438,000 in 2018. The Company’s second quarter net sales were
down 5.7% as compared to the same period in 2018 while the
industry, we estimate, was down similarly. For the second quarter
of 2019, the Company had a loss from continuing operations of
$1,216,000 or $0.07 per diluted share; however, adjusting for costs
associated with facility restructuring and related inventory
impairments, the Company had a non-GAAP adjusted profit of $697,000
or $0.04 per share for the second quarter. For the second quarter
of 2018, the Company reported a loss of $1,815,000 or $0.12 per
diluted share; which on a comparable non-GAAP adjusted basis was a
loss of $1,626,000 or $0.10 per share.
Unusual expenses during the period included $1.9
million in restructuring related expenses including a reserve for
post termination worker’s compensation expenses related to the
closure of our west coast facilities, facility consolidation
expenses, and inventory write downs for commercial white dyeable
products. We have incurred, through the second quarter of 2019,
approximately $17.4 million in costs to implement the Profit
Improvement Plan including write downs of related inventory,
goodwill and other assets. We estimate the total costs of the Plan
and related costs, once complete by the end of 2019, to be $18.2
million. The total cost reductions of these restructuring efforts,
once fully implemented, is approximately $18.7 million annually, as
compared to our cost structure in 2017 when we began this
process.
Commenting on the results, Daniel K. Frierson,
Chairman and Chief Executive Officer, said, “We began our Profit
Improvement Plan in late 2017. This Plan included a review of all
of our business processes though the primary focus was on the
restructuring of our commercial business. Subsequent to our
starting this plan, Invista made the decision to exit the
production of most piece dyeable yarns for the commercial market.
This decision, therefore, caused us to expand the commercial
restructuring to be a complete integration of all aspects of the
business.
As a result of this action, we have completed
the combination of our Atlas and Masland business into one
commercial business, now known as Atlas | Masland Contract. In
order to accomplish the cost reductions and combine our commercial
business, we have expensed over $17 million of restructuring
related charges to date which have been reflected in our statements
of operations since 2017.
As mentioned above, without these costs in the
second quarter, the Company was profitable. Costs related to the
plan are nearly complete and will be at a much lower level in the
future. We look forward to completing the Profit Improvement Plan
in the second half of 2019.
Our residential sales were down 2.6% for second
quarter of 2019. Residential soft surface products were down 4.1%
while we estimate our segment of the soft surface market was down
high single digits. Residential hard surface sales were up 48%
while we estimate the industry was up low double digits.
Our strongest residential sales growth was in
hard surfaces where we continued gaining traction in the luxury
vinyl flooring and engineered wood flooring segments. Our new
TRUCOR™ SPC program has begun to gain traction in the market. We
will be expanding our Fabrica wood program during the second half
of 2019. Our EnVision 6,6™ nylon program continues growing nicely.
In the third quarter of 2019, we will continue to expand our
placement of this program in the specialty retail channel. Our
EnVision 6,6™ nylon products are well styled, and feature type 6,6
nylon for durability, stain, and soil resistance which stands up to
the most demanding applications.
In April 2019, we launched Masland California
Classics. This collection of 16 styles is finished and distributed
out of our Santa Ana, California facility. In our Dixie Home line,
we are expanding the Pacific Living Quick ship program, growing our
footprint from 10 to 19 styles with new retail displays and updated
colors. Our Masland and Dixie Home customers in the western United
States will benefit from these program expansions.
Our commercial business in the second quarter
was down 13.7% while the industry we believe was up the in the low
single digits. Our commercial team has a number of new offerings
for 2019 with particular emphasis on new modular carpet tile
offerings. Our new Sustaina™ modular carpet tile backing system, a
PVC and polyurethane free backing system, was created for the
specifier who desires both the most sustainable construction and
performance in high relative humidity environments, thus allowing
quicker installation on new concrete surfaces. The Crafted
Collection will launch in the third quarter of 2019 using this new
backing system. Further, Crafted will have over 80% recycled
content with 100% recycled content in the face fiber,” Frierson
concluded.
Our gross profit for the second quarter of 2019
was 23.4% of net sales as compared to a gross profit of 23.6% in
the second quarter of 2018. Included in our cost of sales for the
period was $202 thousand in inventory write downs related to our
restructuring. We are still running high backlogs in our commercial
business as we overcome the effects of moving our commercial
tufting operations from the west coast to our Atmore, Alabama
facility. We anticipate those to be back to normal later this
summer.
Selling and administrative expenses for the
second quarter of 2019 were 21.0% of net sales, a decrease of 1.4
percentage points from our level of 22.4% in the second quarter of
2018. The decrease in our selling and administrative costs is
primarily due to the Profit Improvement Plan we initiated in the
fourth quarter of 2017 as we consolidated our two commercial
management businesses and streamlined other costs throughout the
Company. We had $1.7 million in expenses related to our Profit
Improvement Plan during the period. The bulk of the expense was
related to post termination worker’s compensation claims. We are
objecting to these post termination worker’s compensation cases
vigorously as we believe they are without merit. Other unusually
high expenses during the period were medical costs associated with
our traditional preferred provider network medical plans. One of
these medical plans is being replaced in August of this year, and
the other plan will be replaced later in 2019 with a more cost
efficient plan.
Our receivables increased $3.9 million during
the second quarter of 2019 due to our normal seasonal patterns. Our
inventories increased $343 thousand due to normal seasonal
fluctuations. Our annual capital expenditures for 2019 are planned
at a level of approximately $4 million. For the first half of 2019
our capital expenditures, including those financed through capital
leases, were $2.2 million as compared to depreciation and
amortization of $5.9 million. Interest expense was up due to higher
interest rates from a year ago. Availability under our lines of
credit was $10.1 million at the end of the period. Our debt
decreased $5.5 million during the quarter and is down $11.0 million
from a year ago at this time.
Our residential business continues to outperform
our commercial business, though we are confident that our
commercial reorganization is proving successful.
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
August 5, 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 4386915 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 4386915 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 |
Six Months Ended |
|
|
June 29, 2019 |
|
June 30, 2018 |
June 29, 2019 |
|
June 30, 2018 |
| |
|
|
|
|
|
|
| NET SALES |
$ |
100,394 |
|
|
$ |
106,438 |
|
$ |
189,001 |
|
|
$ |
205,297 |
|
|
Cost of sales |
76,901 |
|
|
81,294 |
|
146,589 |
|
|
158,573 |
|
| GROSS PROFIT |
23,493 |
|
|
25,144 |
|
42,412 |
|
|
46,724 |
|
|
Selling and administrative expenses |
21,114 |
|
|
23,802 |
|
42,774 |
|
|
46,921 |
|
|
Other operating expense, net |
80 |
|
|
1,507 |
|
108 |
|
|
1,267 |
|
|
Facility consolidation and severance expenses, net |
1,725 |
|
|
190 |
|
3,816 |
|
|
406 |
|
|
Impairment of assets |
— |
|
|
— |
|
3 |
|
|
— |
|
|
OPERATING INCOME (LOSS) |
574 |
|
|
(355 |
) |
(4,289 |
) |
|
(1,870 |
) |
|
Interest expense |
1,717 |
|
|
1,642 |
|
3,437 |
|
|
3,176 |
|
|
Other (income) expense, net |
4 |
|
|
1 |
|
(38 |
) |
|
3 |
|
|
Loss from continuing operations before taxes |
(1,147 |
) |
|
(1,998 |
) |
(7,688 |
) |
|
(5,049 |
) |
|
Income tax provision (benefit) |
34 |
|
|
(26 |
) |
134 |
|
|
(192 |
) |
| Loss from continuing
operations |
(1,181 |
) |
|
(1,972 |
) |
(7,822 |
) |
|
(4,857 |
) |
| Income (loss) from
discontinued operations, net of tax |
(35 |
) |
|
157 |
|
(66 |
) |
|
135 |
|
|
NET LOSS |
$ |
(1,216 |
) |
|
$ |
(1,815 |
) |
$ |
(7,888 |
) |
|
$ |
(4,722 |
) |
| |
|
|
|
|
|
|
| BASIC EARNINGS (LOSS) PER
SHARE: |
|
|
|
|
|
|
|
Continuing operations |
$ |
(0.07 |
) |
|
$ |
(0.13 |
) |
$ |
(0.49 |
) |
|
$ |
(0.31 |
) |
|
Discontinued operations |
(0.00 |
) |
|
0.01 |
|
(0.00 |
) |
|
0.01 |
|
|
Net loss |
$ |
(0.07 |
) |
|
$ |
(0.12 |
) |
$ |
(0.49 |
) |
|
$ |
(0.30 |
) |
| |
|
|
|
|
|
|
| DILUTED EARNINGS (LOSS) PER
SHARE: |
|
|
|
|
|
|
|
Continuing operations |
$ |
(0.07 |
) |
|
$ |
(0.13 |
) |
$ |
(0.49 |
) |
|
$ |
(0.31 |
) |
|
Discontinued operations |
(0.00 |
) |
|
0.01 |
|
(0.00 |
) |
|
0.01 |
|
|
Net loss |
$ |
(0.07 |
) |
|
$ |
(0.12 |
) |
$ |
(0.49 |
) |
|
$ |
(0.30 |
) |
| |
|
|
|
|
|
|
| Weighted-average shares
outstanding: |
|
|
|
|
|
|
|
Basic |
15,885 |
|
|
15,763 |
|
15,847 |
|
|
15,739 |
|
|
Diluted |
15,885 |
|
|
15,763 |
|
15,847 |
|
|
15,739 |
|
|
|
|
|
|
|
|
|
THE DIXIE GROUP, INC.Consolidated
Condensed Balance Sheets(in
thousands)
|
|
June 29, 2019 |
|
December 29, 2018 |
| ASSETS |
(Unaudited) |
|
|
|
| Current Assets |
|
|
|
|
Cash and cash equivalents |
$ |
20 |
|
|
$ |
18 |
|
|
Receivables, net |
47,362 |
|
|
42,542 |
|
|
Inventories, net |
104,166 |
|
|
105,195 |
|
|
Prepaids and other current assets |
6,529 |
|
|
5,204 |
|
|
Total Current Assets |
158,077 |
|
|
152,959 |
|
| |
|
|
|
| Property, Plant and Equipment,
Net |
80,451 |
|
|
84,111 |
|
| Operating Lease Right-Of-Use
Assets |
8,393 |
|
|
— |
|
| Other Assets |
17,258 |
|
|
15,708 |
|
|
TOTAL ASSETS |
$ |
264,179 |
|
|
$ |
252,778 |
|
| |
|
|
|
| LIABILITIES AND STOCKHOLDERS'
EQUITY |
|
|
|
| Current Liabilities |
|
|
|
|
Accounts payable |
$ |
27,521 |
|
|
$ |
17,779 |
|
|
Accrued expenses |
31,018 |
|
|
30,852 |
|
|
Current portion of long-term debt |
6,345 |
|
|
7,794 |
|
|
Current portion of operating lease liabilities |
1,973 |
|
|
— |
|
|
Total Current Liabilities |
66,857 |
|
|
56,425 |
|
| |
|
|
|
| Long-Term Debt |
120,805 |
|
|
120,251 |
|
| Operating Lease
Liabilities |
6,831 |
|
|
— |
|
| Other Long-Term
Liabilities |
19,296 |
|
|
17,118 |
|
| Stockholders' Equity |
50,390 |
|
|
58,984 |
|
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
$ |
264,179 |
|
|
$ |
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 Months Ended |
|
|
June 29, 2019 |
June 30, 2018 |
| Net
loss as reported |
$ |
(1,216 |
) |
$ |
(1,815 |
) |
| Inventory
write-downs related to Profit Improvement Plan |
202 |
|
— |
|
| Facility
consolidation and severance expenses, net |
1,725 |
|
190 |
|
| Tax
effect |
(14 |
) |
(1 |
) |
| Profit (loss) |
$ |
697 |
|
$ |
(1,626 |
) |
| Diluted
shares |
15,980 |
|
15,763 |
|
| Adjusted profit
(loss) per diluted share |
$ |
0.04 |
|
$ |
(0.10 |
) |
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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