The Dixie Group, Inc. reported financial results for the second fiscal quarter ended June 27, 2020, including a 39 percent drop in net sales.
For the second quarter of 2020, the company had net sales of $60,824,000 as compared to $100,394,000 in 2019.
In April, sales were down 54 percent from the same month in the prior year as the result of the COVID-19 pandemic and related government orders "that negatively impacted ours and our customers' ability to transact business."
Sales recovered gradually over the quarter with May sales volume down 40 percent and June net sales down 21 percent from their respective months in the prior year.
For the second quarter of 2020, the company had a loss from continuing operations of $6,979,000 or $0.46 per diluted share as compared to a loss of $1,181,000 or $0.07 per diluted share in the second quarter of 2019.
Commenting on the results, Daniel K. Frierson, Chairman and Chief Executive Officer, said, "As with most companies, the COVID-19 pandemic had a significant impact on our sales in the second quarter. Our low point in sales occurred in the second week of April and has continued to improve since that time.
"Once the extent of the COVID-19 pandemic became apparent, we implemented our continuity plan to maintain the health and safety of our associates, preserve cash, and minimize the impact on our customers. To minimize and prevent cases of COVID-19 exposure in our facilities, we have taken measures aimed at sanitation and safety, including large scale COVID-19 testing, mandatory temperature checks prior to starting work, requirements to wear masks when unable to maintain social distancing and deep cleaning and sanitation. We limited travel for our associates, implemented work from home options where appropriate, and limited physical contact with our customers. We reduced our running schedules in our facilities to below demand, to maintain order flow to our customers while simultaneously reducing inventories to align them with our lower customer demand. In order to preserve cash, we placed a large percentage of our associates either on rotating layoff or furlough.
"We implemented approximately $14 million in cost cuts for the current year. These cost cuts included deferring maintenance when possible, reduced capital expenditures, instituting select job eliminations, and temporary salary reductions. We deferred new product introductions and reduced our sample and marketing expenses for 2020. We worked with suppliers, lenders and landlords to extend payment terms in the second quarter for existing agreements. We have taken advantage of deferral of payroll related taxes under the CARES act as well as deferring payments into our defined contribution retirement plan. We have modified our senior credit facility to provide additional flexibility with regard to loan availability.
"The company's availability under its long-term credit agreement is currently $21 million. We are still assessing the long-term impacts of the COVID-19 crisis on our markets and operating practices. The recovery in our residential markets has been quicker than in our commercial markets, as is typical during periods of economic recovery. We are encouraged by the improvement we have seen in sales in recent weeks, but as a resurgence of COVID-19 cases has been seen in many parts of the country and as government authorities reassess their decisions to lift the restrictions in their jurisdictions, we are cautious as to what the remainder of the year may look like.
"Sales of our residential products were down 38 percent for the quarter with the industry, we estimate, being down closer to 30 percent as compared to the prior year. The residential business has recovered more quickly than originally anticipated when the initial impact of the COVID-19 pandemic became apparent in mid-March. Our specialty retail segment was down by 50% in April, recovered to being down 35 percent in May and was down less than 10 percent in June. By the end of June, we saw positive sales comparisons versus last year, and July has started off above prior year in sales and order entry.
"Our EnVision 6,6 program continues gaining traction in the market, and our new EnVision 6,6introductions for 2020 are off to a very good start. In less than two years, EnVision 6,6 has quickly become a strong platform for growth across all our residential divisions and provides us with the strategic diversification needed in our residential portfolio. In the home center channel, our order entry returned to pre-COVID-19 levels in mid-June. While our home center sales are lagging behind last year, we have placed new products as part of a reset which began in late June.
"The early indicators on these products are positive as we are seeing sales and orders on many of these styles within the first two weeks of the reset. We anticipate increasing sale rates in the home center channel throughout the second half of 2020.We have continued to focus on growing our luxury vinyl flooring business. Our hard surface programs are continuing to gain traction in the market. Through June, our hard surface sales were greater than 60 percent ahead of last year, and our new products for 2020 have just begun to reach retail stores.
"A new product we are especially excited about is TRUCOR Tile IGT (Integrated Grout Technology) with 12 stone and tile visuals and a locking system which provides a realistic grout visual. We are also excited to introduce TRUCOR Prime XXL. At 10" wide and 84" long, it's the widest and longest WPC on the market, in eight colors that are on trend with today's design and consumer tastes. Lastly, we are introducing two new collections to our Fabrica wood program. The Citadel collection provides good colors and visuals in a European white oak at a very attractive price point. The Provincial collection provides a number of hickory visuals in both smooth and hand scraped finishes to round out this line up. We have hired seven sales people focused exclusively on hard surfaces. This group has made a notable impact on our market penetration and sales in their respective territories.
"We expect to continue expanding our hard surface sales team going forward. We are also hiring sales resources into key growth markets on the soft surface side of our business.In the second quarter, sales of our commercial products were down 42 percent on a year over year basis while the industry we believe was down close to 30 percent for the same time periods. Our commercial hard surface sales were up over 20 percent for the period relative to a year ago."
Gross profit for the second quarter of 2020 was 20.1 percent of net sales as compared to a gross profit of 23.4 percent in 2019. Gross profit was impacted by under absorbed fixed costs due to the lower volume during the quarter. Selling and administrative expenses for the quarter were down from $21.1 million in the second quarter of 2019 to $16.5 million in the second quarter of 2020. However, due to the lower sales volume our selling and administrative costs were 27.2 percent of net sales as compared to 21 percent of sales for the second quarter of 2019. Due to the lower sales volume, net receivables decreased $6.2 million during the quarter and $5.1 million from the prior year end. Inventories decreased $8.3 million from the previous quarter due to the lower demand.
Capital expenditures for the year of 2020 were revised downward to a planned level of approximately $3.5 million. For the second quarter our capital expenditures were $1.7 million as compared to depreciation and amortization of $2.6 million. Interest expense was $1.4 million in the quarter versus $1.7 million in the same quarter of 2019. Outside of our operating lease liabilities, the total of long-term and short-term debt, decreased $11.6 million during the second quarter due to decreases in working capital primarily driven by the reduction of inventory and receivables. As required by the Fourteenth Amendment to our Senior Credit Facility, the company has applied for, and is awaiting approval on, a loan transaction with Ameristate Bank which, under the terms of the Fifteenth Amendment, must occur on or before Aug. 31.
Sales for the first five weeks of the third quarter are 14 percent behind last year, but orders and sales for the residential retail business are up mid-single digits, officials said.