The Dixie Group, Inc. (NASDAQ:DXYN) on Wednesday reported financial results for the first quarter of 2015 ended March 28, including a net loss of $2.38 million.
For the first quarter of 2015, the Company had sales of $95,855,000 and a loss from continuing operations of $2,380,000 or $0.15 per diluted share compared with net sales of $85,082,000 and income from continuing operations of $4,820,000 or $0.36 per diluted share for the same period in 2014.
Commenting on the results, Daniel K. Frierson, chairman and chief executive officer, said, “The first quarter is always the more challenging period of the year. Our sales of $95.9 million represent a 12.7 percent increase over the same quarter last year. However, excluding Atlas Carpet Mills, our carpet sales growth for the quarter was five percent as compared with the prior year quarter. Sales a year ago only included Atlas Carpet Mills from the period of March 20 to March 29, 2014. Our sales increase for residential products was up 1.1 percent , and we estimate industry growth to be similar. Sales of residential products started slowly and built throughout the quarter in what appears to be a sluggish start to the year. The increase in commercial product sales was 52 percent compared with the same period last year. Without Atlas, the commercial product sales increase was 15.7 percent on a year-over-year basis as compared with industry growth, we estimate, in the high single digits.
“We have completed the majority of the structural changes in our facilities. Our higher cost of sales for the quarter resulted primarily from higher training, quality, and waste costs associated with our restructuring. Now that the majority of the structural movements within the facilities is completed, we are going through extensive and ongoing training as our associates settle into new roles. Improvements in operations continued throughout the quarter, and we anticipate further operational improvements going forward. We anticipate we will see the positive benefits of the restructuring plan to expand capacity and re-align our facility operational flows in the second half of 2015. Other items affecting the quarter included higher medical costs, currency losses and continued higher sampling costs. We have implemented both rate increases and medical plan design changes to offset these higher medical costs. We have increased prices to offset currency changes and believe that the change in currencies has now stabilized. We still anticipate sampling costs to decline in 2016 and return to historical levels.
“Gross profit for the quarter was 24.3 percent of net sales as compared with 21.3 percent the same quarter in the prior year. This improvement was partially due to our experiencing less weather disruptions compared with the prior year. Our selling and administrative expenses were 25.8 percent of net sales for the quarter as compared with 23.6 percent for the same quarter of 2014. We had high sampling costs in both our residential and commercial businesses. The planned launch of new products for Atlas Carpet Mills was delayed in 2014, so we have a very robust line of new products being introduced in 2015. Other operating expenses of $490 thousand included unusual currency exchange losses during the period relative to the Canadian dollar. Restructuring expenses during the period were $775,000 as compared with $73,000 a year ago. A recap of our restructuring plans is included at the end of this report. Remaining restructuring projects include the movement of our rug operations out of a rented facility, the completion of our Atmore commercial distribution center and the completion of the remaining dye equipment upgrade in our West Coast Susan Street facility to accommodate the unique dye needs of our Atlas Carpet Mills acquisition of last year. We have seen some decreases in raw material costs, though we have also had wage increases and higher medical expenses than anticipated. Due to the volatility of raw material costs, it is difficult at this time to predict future raw material input costs. The operating loss was $2.7 million for the quarter as compared to a loss of $2.2 million for the first quarter of 2014.
“Current assets increased $9.4 million during the quarter, primarily due to higher levels of inventory and trade receivables. Current liabilities increased $8.8 million during the quarter, mostly due to higher accounts payable. Capital equipment acquisitions, including those funded by cash, financings and capital leases were $5.7 million. Depreciation and amortization was $3.6 million for the quarter. For 2015, we anticipate capital expenditures of $13.5 million and depreciation and amortization of $14.5 million. We removed our Saraland plant from the asset base of our long-term revolving credit line facility and financed it with a 10-year fixed rate mortgage to take advantage of lower long-term interest rates. We ended the quarter with $133 million in debt and availability of $32.8 million.
“The first quarter started off very slow in January with sales building throughout the period. As a result, we ran large unfavorable fixed cost variances early in the quarter. We have had significant improvements each month, but still have not completed all of the training nor implemented all of the improvements needed to get back to the historical quality and waste levels we had prior to the restructuring. We still anticipate most of these actions to be completed by mid-year 2015. We are intent on increasing profitability through improved operations and tighter cost controls as we substantially complete the ongoing restructuring in the first half of 2015.
“Sales for the first four weeks of the second quarter are ahead of the same quarter last year by over six percent. Mortgage rates are still low by historical standards, unemployment is under control and wage increases are pointing to a healthier economy. This points to continued growth as the housing market continues to rebound from historically low levels. Further, the remodeling market should be helped by rising home prices as the supply of housing stock has dwindled with the improving economy. These factors should lead to continued opportunities in the residential market. Particular opportunities are in the growth of our wool business, further increases in our Stainmaster PetProtect products as well as utilization of our latest investments in both ColorPoint and iTuft tufting technologies for beautiful patterns in the upper-end residential market. The commercial market continues to be strong. We continue to experience growth in our modular tile offerings in both the Masland Contract and Atlas markets. Further, we are pleased with the activity we are seeing in Masland Hospitality as we leverage our investment in Burtco and its unique position in custom computerized yarn placement tufting technology. We want to thank our associates for their dedication during this challenging period of operational transition and look forward to reaping the benefits of their efforts. As always, we continue to be dedicated to supplying our customers with the finest products of the highest quality.”