Dixie Group Has Increase In Sales

Thursday, May 3, 2018

The Dixie Group, Inc.(NASDAQ:DXYN) on Thursday reported financial results for the quarter ended March 31, including an increase in net sales.

For the first quarter of 2018, the company had net sales of $98,858,000 as compared to $97,541,000 in 2017. For the quarter, 2018 net sales were up 1.4 percent as compared to the same time period in 2017.

The company had a loss from continuing operations of $2,884,000 or $0.18 per diluted share for the first quarter of 2018 as compared to a loss of $575,000 or $0.04 per diluted share in the first quarter of 2017.

Commenting on the results, Daniel K. Frierson, chairman and chief executive officer, said, “Our residential sales were up 7.3 percent for the quarter with the industry, we estimate, being flat as compared to the prior year. Our residential sales had solid growth with all three brands showing high single digit improvement during the quarter. Residential sales benefited from the successful launch of our Stainmaster PetProtect luxury vinyl flooring line by our Masland and Dixie Home brands.

"At our industry’s annual trade show, Surfaces, our residential group continued the focus on developing and marketing differentiated designs and styles for the high end residential market. We launched over 150 new products for 2018, including 67 carpet styles and 86 hard surface designs. We are especially excited about our new Masland Energy in store display with 20 exciting main street commercial products. This high styled main street category was developed by Masland in the mid 2000’s and we are re-invigorating this line with new products, designs and an updated selling vehicle. We are in the process of launching our Fabrica wood product line in the southeast United Sates with a selective set of dealers. We look forward to expanding this specialty wood line in the future.

"Our commercial sales in the first quarter were down over nine percent while the industry we believe was down in the mid-single digits. Our commercial broadloom sales were impacted more than our commercial modular carpet tile sales. We did benefit from the reorganization of our commercial business this past fall with lower selling and administrative expenses. 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 first quarter of 2018 was 21.8 percent of net sales as compared to a gross profit of 25.8 percent in 2017. During the first quarter of 2018, our sales and costs were negatively impacted by severe weather which affected several of our east coast facilities in January. In addition, the launch of numerous, new, difficult to manufacture residential products severely impacted the throughput of our manufacturing operations in January and February, resulting in unabsorbed fixed costs. In addition, we had higher waste and off-quality issues as a result of the intensive effort to launch these new products during the quarter. We were further impacted by the quality initiative, which began in the fourth quarter of 2017 and completed in February of 2018, to reformulate all of our dye formulas to improve color matching through our continuous dye facility. Finally, our commercial sales were slow during the quarter, therefore, we had unabsorbed fixed costs through our facilities that produce primarily commercial products due to the lower production levels required to meet the lower demand. Our financial results improved throughout the quarter returning to profitability by March.

"In 2018, we are continuing to work on achieving all of the benefits of the new capabilities we have implemented in the past year in both our commercial and residential oriented facilities as we focus on better on time execution, lower waste and higher production efficiencies. One area of particular difficulty in 2018 has been the attraction and retention of talent in our various facilities. We anticipate further cost increases relative to associate costs as we deal with a tight labor market. We implemented a price increase at the beginning of the year and have announced a second price increase for May of 2018 to offset higher labor and other operational costs.

"Selling and administrative expenses for the quarter were 23.4 percent of net sales, a decrease of 1.7 percentage points from our level of 25.1 percent in the first quarter of 2017. The decrease in our selling and administrative costs is primarily due to the Profit Improvement Plan we initiated in the fourth quarter of last year as we consolidated our two commercial management teams under the leadership of David Hobbs. We had $216,000 in expenses related to our Profit Improvement Plan during the period.

"Our receivables increased $1.4 million due to normal seasonal pattern. Inventories increased $3.3 million, again due to normal seasonal factors. We still have not achieved our desired inventory turns in our hard surface products and our west coast operations. They have improved but we anticipate it will be mid 2018 before we achieve our desired metrics. Our capital expenditures for the year of 2018 are planned at approximately $6 million.  For the first quarter our capital expenditures were $762 thousand as compared to depreciation and amortization of $3.1 million. Interest expense was up due to higher levels of debt and higher interest rates from a year ago. We had income from a vendor settlement and other insurance of $403 thousand during the period. Our debt increased $1.4 million during the first quarter.

"Our floorcovering sales for the first 4 weeks of the second quarter of 2018 are up approximately 1.4 percent relative to this same time period last year. We are well positioned to continue to be the style leader in the flooring industry and are excited about the rest of 2018.”

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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