Dixie Group Has Higher Sales, But $2.4 Million Operating Loss, For 1st Quarter

Wednesday, April 30, 2014

The Dixie Group, Inc. on Wednesday reported financial results for the first quarter ended March 29, including higher sales but an operating loss.

For the first quarter of 2014, the company had sales of $85,313,000 and income from continuing operations of $3,308,000, or $0.24 per diluted share, compared with sales of $75,440,000 and income from continuing operations of $651,000, or $0.05 per diluted share for the same quarter in 2013. The company had an operating loss of $2,469,000 for the period offset by a gain on the acquisition of Atlas Carpet Mills.

Commenting on the results, Daniel K. Frierson, chairman and chief executive officer, said, “The first quarter was a difficult quarter operationally, both due to external events as well as our internal operations not performing up to expectations. The January and February period stood in contrast to the months of March and April. Our order entry for carpet products for January and February were up 6.8% on a year-over-year basis while for March and April, excluding Atlas, our order entry was up 17.0% as compared to the prior year. Likewise, our carpet product sales for the January and February period were up 8.8% while our sales for the March and April period, excluding Atlas, were up 12.7% relative to the prior year. Our sales rate in the March and April period was more in line with our expectations, and therefore our cost structure.

“January and February were impacted by the slow startup of our upgraded Colormaster dye line, lower production levels as we brought down inventories previously built up to facilitate the dye line upgrade and severe weather affecting our facilities. We had built up our inventories to allow us to shut down the facility for the two weeks needed to replace our dryer as we expanded our capacity by approximately 75%. The slow startup of our dye line, we estimate, added approximately $445 thousand in additional costs during the period, not including the under absorption of other operations as we worked down our inventories. In addition, poor weather in January and February disrupted operations in our seven east coast facilities, many of them multiple times. This impacted our production, order entry and distribution. As a result, we estimate the unexpected closures added approximately $1.1 million in direct costs during the quarter. We did not perform as well as needed in containing cost during this volatile time and have taken actions to increase profitability through improved operational performance and tighter cost control.

“Our sales for the quarter were up 13.1% as compared with sales in the same quarter in the prior year. Without Atlas Carpet Mills our sales were up 10.9% while the market was down, we estimate, by a few percentage points. Our residential product sales for the first quarter were up 9.4% on a year over year basis, while the market was down, we believe, in the low single digits for the comparable period. Our commercial carpet sales were up 18.0% versus the first quarter of 2013. Without the acquisition of Atlas Carpet Mills, our commercial product sales were up 9.6% for the first quarter on a year-over-year comparison, while we estimate the commercial market was flat.

“The operational issues and weather related problems had a direct impact on our operating margin and SG&A expenses as percent of sales. Gross profit for the quarter was 21.1% as compared with 24.4% for the same quarter the prior year. Selling, general and administrative expenses were 23.7% of sales for the first quarter of 2014 as compared with 22.4% for the same quarter of 2013. Expenses for the quarter included an estimated $1.1 million in expenses related to adverse weather conditions throughout the country in January and February, the direct transaction costs of the Atlas acquisition and Desso Masland Hospitality Joint Venture during the quarter was approximately $455 thousand, as well as, $73 thousand in facility consolidation expenses related to the merging of the Atlas dye house operations into our existing Susan Street facility. In addition, other major ongoing projects, having a combined impact to our operating income of approximately $1.0 million in the quarter, include the upgrade of our Colormaster dyeing facility to increase our capacity, the re-branding of the Robertex wool product line as well as other previously announced marketing initiatives. Starting in May we will begin the consolidation of our distribution network, anticipated to take from the second quarter of 2014 through the second quarter of 2015 and have restructuring expenses of $2.4 million. We believe this consolidation plan will improve efficiency, speed deliveries to our customers and increase our warehouse capacity, while offsetting the added cost of the Adairsville facility with lower lease and operational expenses of our more efficient distribution network.

“We acquired Atlas Carpet Mills, one of the finest producers of sophisticated commercial soft floorcovering, on March 19, 2014. We have implemented a $1.5 million facility consolidation plan, primarily to integrate the Atlas dye house into our existing Susan Street facility. The closure of the Atlas dye house is anticipated to be completed in May. The entire consolidation plan should be complete in 2015. We have listed the Atlas dye house under assets held for sale on the balance sheet. The provisional fair value of the assets acquired was higher than the purchase price resulting in a one-time gain on the purchase of the business of approximately $8.7 million. The expensed portion of the acquisition, for legal and related transaction expenses, was slightly over $500 thousand.

“Working capital increased $12.3 million for the quarter, primarily due to assets acquired from the Atlas acquisition. Capital expenditures were $4.3 million in the period while capital assets acquired in the purchase of a business combination was $6.9 million. Depreciation and amortization was $3.0 million for the quarter. Income taxes for the quarter were $1.9 million. We ended the quarter with $132.6 million in debt and availability of $20.6 million.

“Order entry of carpet products for the second quarter-to-date are ahead of the same quarter last year by over 15%, excluding Atlas Carpet Mills. Sales of carpet products are ahead of the prior-year period by over 13%, excluding Atlas and 25% including Atlas Carpet Mills. We feel that the industry was impacted, as were we, by the bad weather in much of the country in the first quarter. However, we feel positive about the future and that the trend of a rebounding housing market and improving commercial market is ongoing.

“We have continued to invest in new products, expanded staff and new tufting technologies to prepare us for future opportunities. As always, we continue to be dedicated to supplying to our customers the finest products of the highest quality.”



Chattanooga Chamber Calendar Of Events For Oct. 23-27

TUES/24 East Brainerd Council Meeting 11:30 a.m. - 1 p.m. Car Barn:  6721 Heritage Business Court Speaker: Steven Wagner, Erlanger Children's Hospital $12.   TUES/24 Grand Re-Opening of Food City 5 - 5:30 p.m. Food City:  7804 E. Brainerd Rd .   THUR/26 Reality Check - East Ridge High School ... (click for more)

Catherine Heigel Named Chief Operating Officer For Elliott Davis

Catherine Heigel, the former director of the South Carolina Department of Health and Environmental Control, has returned to Elliott Davis, LLC as its chief operating officer.  In this role, Ms. Heigel manages the firm’s operational support functions, including legal, information technology, human resource, marketing and communications, and firm administration. In addition, ... (click for more)

Man Shot Multiple Times In Cleveland; Jesus Teague, 14, Is Arrested

On Saturday, at 6:12 a.m., Cleveland Police Department responded to 1210 Elrod Place SE in reference to a domestic disturbance.   A man sustained multiple gunshot wounds and was transported to Erlanger by Life Force. His condition is stable, at this time.   The suspect, Jesus Tyler Teague, 14, was located and was in custody as of 3:25 p.m. ... (click for more)

Travis Caslin, 42, Shot While Walking Along South Willow Street

Chattanooga Police said a man was shot on Friday night while walking along South Willow Street.   The victim was identified as Travis Caslin, 42.   At 7:37 p.m., Chattanooga Police officers were called to a local hospital after a person showed up with a gunshot wound.   Police were informed that the victim's condition was non-life threatening. ... (click for more)

October Is Breast Cancer Awareness Month: Myth And Fact Check

My husband and I recently had the privilege of participating in the American Cancer Society’s Making Strides Against Breast Cancer Walk in Chattanooga. I listened as my husband told the audience about how his mother was diagnosed with breast cancer when he was nine and how she died from the disease when he was fourteen. As a child, my husband didn’t understand what breast cancer ... (click for more)

Roy Exum: It’s All About People

The leaders of Hamilton County’s Mental Health Court held a heart-warming open house Friday afternoon and it was announced that just since February, the creation has saved the county over $3 million in incarceration costs. But to hear County Mayor Jim Coppinger or Judge Don Poole tell it, that’s not what is important. “Soon after the court started, a kind, quiet man I’ll ... (click for more)