The Dixie Group Reports $9.2 Million Net Loss In 2020 And Decrease Of Debt

Thursday, March 4, 2021

The Dixie Group, Inc. on Thursday reported financial results for the year ended Dec. 26, 2020. Despite the unprecedented challenges faced in the COVID-19 pandemic affected year of 2020, it was able to improve operations, and further strengthen its balance sheet to better position the company as it entered 2021 with momentum and optimism, said officials. 

For the year 2020, net sales for the company were $315,939,000 as compared to $374,582,000 in the year 2019. The net loss on the year 2020 was $9,208,000 compared to a net income of $15,271,000 in the previous year. The decline in sales and the loss in 2020 were primarily driven by the impact of the COVID-19 pandemic. Net income in 2019 was the result of the sale of the facility in Santa Ana, Ca. which generated a $25 million gain in the fourth quarter of 2019. On a non-GAAP adjusted basis, the company had a net loss of $2.8 million in 2020 and a net loss of $3.9 million in 2019.

The company reduced debt by $10 million in 2020 bringing the total debt reduction to $60 million over the last 30 months.

The Dixie Group entered into a new $75 million line of credit and two long term loans totaling $25 million. These transactions, along with cost reductions and operating efficiencies in 2020, allowed the company to end the year with borrowing availability of $43.3 million under the new Senior Revolving Credit Facility.

Operational improvements and cost reductions generated higher gross profit margins. The gross profit margin for the year ended Dec. 26, 2020 was 24.2 percent compared with 23.0 percent in the year ended Dec. 28, 2019.

For the year 2020, net sales for the company were $315,939,000 as compared to $374,582,000 in the year 2019. The net loss on the year 2020 was $9,208,000 compared to a net income of $15,271,000 in the previous year. The decline in sales and the loss in 2020 were primarily driven by the impact of the COVID-19 pandemic. Net income in 2019 was the result of the sale of the facility in Santa Ana, Ca. which generated a $25 million gain in the fourth quarter of 2019. On a non-GAAP adjusted basis, the company had a net loss of $2.8 million in 2020 and a net loss of $3.9 million in 2019.

Commenting on the results, Daniel K. Frierson, chairman and chief executive officer, said, "Twenty-twenty was a year of unprecedented circumstances and a once-in-a-century event - the COVID-19 pandemic. Not knowing where the COVID-19 pandemic would lead, 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 generate cash and 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 eliminated or deferred planned spending of $14 million in 2020. These cost cuts included deferring maintenance when possible, reduced capital expenditures, instituting select job eliminations, and temporary salary reductions.

"Our management team worked together to implement our continuity plan which has resulted in improved operating results. During the year, we were able to decrease selling and administration costs through headcount reductions and lower spending. Operationally, we have experienced significant improvement in quality, waste reduction and cost. At the same time, we were able to maintain superior customer service and outperformed many of our competitors in this area.

"In addition to the cost and operational improvements, we were able to strengthen our balance sheet through strategic financing initiatives. In the fourth quarter, we entered into a new $75 million, five year, Senior Revolving Credit Facility, and also closed on two additional long term, fixed rate, asset backed loans in the total amount of $25 million. We reduced debt by $10 million in the last twelve months and $60 million over the last two and a half years, and now have borrowing availability in the mid-$40 million range.

"While we are still assessing the long term impacts of the COVID-19 crisis on our markets and operating practices, we are encouraged by the improvement in sales. The abrupt decline of over 50 percent in sales in April was certainly a shock to our system, but we have been pleased with the recovery in the residential market. Low interest rates helped drive strong trends in new home construction and existing home sales helped to improve business conditions for our residential segment through the second half of the year, as many flooring retailers emerged from the COVID-19 downturn, and an increasing number of consumers began home improvement projects.

"The third quarter showed positive growth versus prior year, driven by strong sales in the specialty retail channel, and the fourth quarter was a very strong quarter in all segments of the residential business. Our soft surface segment grew throughout the second half of 2020, driven by our EnVision 6,6 program as well as aggressive promotional activity. We are continuing our diversification strategy by significantly expanding our EnVision 6,6 offering with over 20 new styles across all brands. This growing collection of beautiful styles with exceptional durability at competitive price points has become our primary growth platform in carpet.

"In September, our soft surface mass merchant program returned to growth with new products and an expansion of our roll bar program making an impact. We are very excited about a new tufting technology, TECHnique, which is being showcased in our Masland and Fabrica lines with six new qualities. TECHnique delivers a woven visual with a crisp clean finish and products that are more work of art than floor covering. We are also going to increase our focus on the wool and decorative segment in an effort to jump start growth in this category. Residential order entry and sales have continued to improve since the second quarter and ended the year very strong with orders and shipments up 15 percent for the 4th quarter.

"We have continued to focus on growing our luxury vinyl flooring business. Our hard surface programs grew significantly for the year, with the TRUCOR and Fabrica Wood programs pacing well ahead of the hard surface market. We continued to invest in product innovation with our TRUCOR PRIME XL/XXL, the widest, longest rigid core plank on the market, and TRUCOR Tile IGT (Integrated Grout Technology), a tile visual with the grout line engineered into the locking system.

"We also invested in talent, with the addition of eight sales people dedicated to hard surfaces in key markets across the country, and we will be adding more dedicated hard surface sales people in 2021. We will continue expanding our product offering to further penetrate this market segment.

"Our latest innovation, TRUCOR 3DP, utilizes digital printing technology to deliver sharp, realistic visuals with virtually no pattern repeat. We will launch TRUCOR 3DP in wood plank and stone visuals in the second quarter of 2021. We will also expand our TRUCOR PRIME XL/XXL program with 12 new visuals. In our Fabrica Wood program, we have developed a new display system to accommodate an expansion of this program with new colors, board sizes, and price points. We expect to double our Fabrica Wood placements in the market in 2021.

"Our commercial business and the commercial market continues to be adversely impacted by COVID-19. Sales for the year were down more than 35 percent from the previous year. We are beginning to see some improvement, but we believe the recovery will be longer coming and not as dynamic as the residential market recovery. Our commercial business is excited about one of the most unique innovations in our modular carpet tile offering. Sustaina is now the 'standard' for backing on orders. The Sustaina modular tile backing 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.

"The COVID-19 pandemic in 2020 presented challenges in ways The Dixie Group has not experienced in its history of over 100 years. We responded first with regard to the safety of our employees, and second to protect the operations and financial strength of our company while continuing to service our customers. We are proud to have emerged as a stronger company. We are proud of our history and heritage, and we are excited about starting the next 100 years as a company," Mr. Frierson concluded.

Through cost cutting efforts and operational improvements The Dixie Group was able to improve its gross profit margin to 24.2 percent in 2020 as compared to 23.0 percent in 2019. Selling and general administrative expenses were reduced by $8.1 million in 2020 as compared to 2019 but were higher as a percent of net sales, 24.0 percent as compared to 22.4 percent. The higher percentage was partially the result of continuing to fully pay portions of the workforce in order to retain employees despite the lower volume.

The receivables were slightly higher as compared to the end of the year in 2019. The $578,000 increase in net receivables was primarily due to stronger sales in the final month of 2020 as compared to 2019. Through operational efficiencies, the company was able to decrease net inventories by $10.1 million during the year. Accounts payable and accrued expenses increased by $3.5 million year over year due primarily to the timing of accruals for raw material purchases at 2020 year end. The capital expenditures for the full year of 2020 were $3.1 million and are planned for 2021 at approximately $5.0 million. Interest expense was $5.8 million for the year of 2020. Ther debt decreased by $10.2 million during the year. The lowering and restructuring of debt is expected to reduce interest expense in 2021. The borrowing availability under the line of credit at the senior lending facility at the end of the year was $43.3 million.

The floorcovering sales for the first nine weeks of the quarter are down low single digits versus the same period in 2020, but orders are up mid-single digits. The residential sales and orders are up double digits and commercial orders, on a weekly basis, are better than the second, third and fourth quarters of last year.


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