Dixie Group Sales Up, But Reports Loss For 2017

Thursday, March 1, 2018

The Dixie Group, Inc.(NASDAQ:DXYN) reported sales up, but a loss for the year ended December 30, 2017.

For 2017, the company had net sales of $412,462,000 as compared to $397,453,000 in 2016. On a comparable 52-week basis, 2017 net sales were up 5.2% as compared to 2016. For 2017, the Company had a loss from continuing operations of $9,322,000 or $0.

59 per diluted share. Adjusting for the impact of the Tax Cuts and Jobs Act of 2017 (the "Tax Act"), the loss from continuing operations was $0.07 per diluted share as compared to a loss from continuing operations of $0.33 per diluted share in 2016.

The loss from continuing operations for 2017 was $1,153,000 before the impact of the Tax Act was taken into account as compared to a loss from continuing operations of $5,207,000 in 2016. The impact of the Tax Act was $8,169,000. The two primary effects of the Tax Act were to reprice the Company's deferred tax assets by $1.8 million for the new lower corporate tax rates and increase the valuation allowances for its deferred tax assets by $6.4 million due to the revised treatment of net operating losses.

Commenting on the results, Daniel K. Frierson, chairman and chief executive officer, said, “Our residential sales, adjusting for the difference in weeks between 2017 and 2016, were up 9.3% for the year with the industry, we estimate, being up only in the low single digits. Our residential sales benefited from our response to the market space being vacated by Royalty Carpet Mills on the west coast. We responded to the Royalty shut down by introducing our Pacific Living Collection as well as adding numerous new dealers on the west coast. The impact of these efforts were an over 20% increase in sales for our west coast regions for the second half of 2017 as compared to the same period the prior year.  A major initiative for the residential business was the successful launch of our Stainmaster® PetProtect™ luxury vinyl flooring line by our Masland and Dixie Home brands. This hard surface initiative was quite successful as we placed over 1,300 displays and achieved a momentum in the marketplace that we see continuing into 2018.

"Our commercial sales, adjusting for the 53-week 2016 period versus the 52 week period in 2017, were up slightly while the industry, we believe, was down in the low single digits. We announced the reorganization of our commercial business in October of 2017. The changes necessary to implement this organizational re-alignment are essentially complete. The savings from this Profit Improvement initiative are anticipated to be in excess of $3 millionfor 2018. Our commercial team, led by David Hobbs, has a number of new offerings for 2018 with particular emphasis on new modular carpet tile offerings.

"Our gross profit for the year was 24.5% for 2017, an improvement from our 24.0% gross profit margin in 2016.  While improved, our gross profit was impacted by several major initiatives. We completed our physical restructuring earlier in the year, setting the stage for a more productive manufacturing environment. The startup costs for all our major manufacturing initiatives, including adding yarn processing to our Atmore plant, installing a new EVA pre-coat line for our modular tile business in south Alabama, completing our Colormaster beck dye and skein dye consolidation and starting up the Porterville yarn operation was in excess of $2 million.

"Despite this difficult year from a profitability perspective, we have put in place the foundation of operational capabilities that should benefit us in the future.  In 2018, we are continuing to work on achieving all of the benefits of these new capabilities as we focus on better on-time execution, lower waste and higher production efficiencies from these changes. One area of particular difficulty in 2017 has been the attraction and retention of associates in our various facilities. We anticipate further cost increases relative to associate-related costs as we deal with a tight labor market.  We implemented a price increase at the beginning of 2018 to offset higher labor and other operational costs. Our capital expenditures for 2018 are planned at a maintenance level of approximately $6 million as compared to the $13.6 million we spent in capital asset acquisitions in 2017.

"Selling and administrative expenses for the year were 23.3% of net sales, a decrease of 1.1 percentage points from our level of 24.4% in 2016.  We will continue our hard surface initiatives with adding an engineered hardwood line to our Fabrica sales offering in 2018. We have completed the initial launch of our luxury vinyl flooring offerings through our Masland Contract Calibré commercial line of products and our Masland and Dixie Home residential Stainmaster® PetProtect™ product lines in 2017. Now that the initial investment in our luxury vinyl flooring product lines is complete, we anticipate a positive profit impact from these new hard surface offerings in 2018.

"Our floorcovering sales for the first 8 weeks of the quarter were flat compared to this period in 2017. Our residential sales are positive relative to 2017 while our commercial sales are behind from this same period last year. We are well positioned to continue to be the style leader in the flooring industry,” Frierson concluded.

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 Carpet Mills, Masland Contract, Masland Hospitality and Dixie International brands.

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