The Dixie Group Announces 6.0% Loss For Third Quarter Compared To 2018

Thursday, November 7, 2019

The Dixie Group, Inc. Thursday reported financial results for the quarter ended Sept. 28. For the third quarter of 2019, the company had net sales of $95,447,000 as compared to $101,562,000 in the same period in 2018, a decrease of 6.0 percent. In the third quarter of 2019 the sales, exclusive of sales through the mass merchant channel, were down 1.5 percent relative to the third quarter of 2018. The Dixie Group has seen changes in its mass merchant sales as this channel has shifted more to hard surface flooring products, and officials said it did not repeat a large initial stocking order to this channel which occurred during this period in 2018.

For the third quarter of 2019, the company had a loss from continuing operations of $2,577,000 or $0.16 per diluted share; however, adjusting for costs associated with facility restructuring and related inventory impairments, the company had a loss of $1,452,000 for the third quarter of 2019. For the third quarter of 2018, the company reported a loss from continuing operations of $2,922,000 or $0.19 per diluted share on a higher level of sales.

Unusual expenses during the period included $1.1 million in restructuring related expenses including facility consolidations related to the relocation of its west coast distribution center, inventory write downs for Atlas white dyeable products, and severance expenses. Other unusually high expenses during the period were medical costs associated with the company's traditional preferred provider network plans. Both of these medical plans were replaced in the third and early fourth quarter of this year.

Early in the fourth quarter of 2019, the Dixie Group sold its Susan Street facility and signed a lease with options for a period of up to 20 years. The gain on the sale is approximately $25 million, or over $1.50 per share. The senior credit facility was paid down by $36 million as a result of the sale. The total debt reduction from the third quarter of 2018 through the completion of this transaction is $55 million. The total debt, after the completion of the sale of the Susan Street facility, was $86 million. The equity, after the completion of this transaction, has risen by over 50 percent. Total accessible borrowing availability, subsequent to our closing of the sale of Susan Street, was $22 million.

Commenting on the results, Daniel K. Frierson, chairman and chief executive officer, said, “Our residential carpet product sales were down 10.9 percent for the quarter as compared to the prior year. Our residential carpet sales, without our mass merchant channel, were lower for the third quarter year over year period by 5.1 percent, thus significantly stronger than our mass merchant channel.

"Our EnVision 6,6 program continues gaining traction in the market. We continue to expand this program which brings exceptional value to the customer. We have seen growth in our west coast offering through both Masland California Classics and the Dixie Home Pacific Living Quick Ship Collection. Both of these programs are serviced out of our Santa Ana, California facility, providing shorter delivery times for our west coast marketplace.

"Our residential luxury vinyl flooring and wood sales experienced a greater than 40 percent increase in sales in the third quarter of the current fiscal year as compared to the same period in the prior year. During the third quarter of 2019, we had great traction with our new TRUCOR SPC offering, including placement of over 2,000 displays in the retail community, and by the end of the quarter, TRUCOR represented a significant percentage of our total luxury vinyl sales. During the fourth quarter of 2019, we are expanding our TRUCOR line with the addition of TRUCOR Prime, a WPC construction, offered by our Dixie Home and Masland sales forces. By the end of 2019, we anticipate having over 4,800 TRUCOR and TRUCOR Prime displays in the market. During the first quarter of 2020, we are expanding our TRUCOR rigid core offering with 47 new innovative products in the SPC and WPC constructions. To further drive growth in this segment, during the fourth quarter of 2019 and the first quarter of 2020, we are making investments in talent by adding hard surface sales people in key markets. These investments in product and talent will accelerate our hard surface growth going forward.

"Our commercial carpet product sales in the third quarter were down less than 1 percent while the industry we believe was down in the low single digits as compared to the same period in the prior year. Our commercial luxury vinyl flooring sales were up over 40 percent comparing the third quarter of 2019 with the same quarter in 2018.

"Our commercial division has launched a number of new offerings for 2019 with particular emphasis on modular carpet tile offerings. We are especially excited about the launch of our Sustaina modular tile backing system. This system is a PVC and polyurethane free cushion modular carpet tile backing with very high recycled content. The product is breathable and able to be installed in environments up to 99 percent relative humidity and up to a pH of 12 when utilizing our custom formulated Sustaina 99 adhesive. The product provides the cushion backing benefits of increased under foot comfort, appearance retention and sound absorption.  We have just launched Crafted with our Sustaina backing system. This product has an 81.5 percent total recycled content, the highest available on the market today. These unique products, differentiating us in the market place and fulfilling the needs of our discerning environmentally conscious customers, will accelerate our growth.

"The sale of our Susan Street facility has restored our balance sheet, dramatically lowered our debt and increased funds available under our senior credit facility. We feel this transaction puts us on solid footing as we head into 2020 with a complete floorcovering product line for the discerning consumer in both our residential and commercial markets,” Mr. Frierson concluded.

The gross profit for the third quarter of 2019 was 22.1 percent of net sales as compared to a gross profit of 21.5 percent in the third quarter of 2018. Included in the cost of sales for the period was $82,000 in inventory write downs related to our restructuring.

Selling and administrative expenses for the third quarter of 2019 were 22.0 percent of net sales, a decrease of 0.7 percentage points from the level of 22.7 percent in the third quarter of 2018. The decrease in selling and administrative costs is primarily due to the Profit Improvement Plan initiated in the fourth quarter of 2017 as the company consolidated its two commercial management businesses.

The company had $1.125 million in expenses related to its Profit Improvement Plan during the period. The facility restructuring as a result of the Profit Improvement Plan is nearing completion. Officials anticipate approximately $600,000 in added expenses in the fourth quarter, the bulk of that from dropping additional products as it continues to rationalize its commercial white dyeable product offering.

The receivables increased $2.4 million since the beginning of the year due to normal seasonal pattern. Inventories decreased $6.7 million since the beginning of the year due to better management of inventories. For the first three quarters of 2019 the capital expenditures, including those financed through capital leases, were $3.1 million as compared to depreciation and amortization of $8.8 million. The capital expenditures for the year of 2019 are planned at a maintenance level of approximately $4 million.

Interest expense for the year to date was up due to higher interest rates from a year ago. The debt decreased $3.0 million during the quarter and $3.9 million for the year to date.

The sales excluding sales to the mass merchant channel for the first five weeks of the quarter are approximately 3.9 percent behind the same period in 2018.


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