The Dixie Group Reports Results Net Loss For Second Quarter Of 2022

Monday, August 15, 2022

The Dixie Group, Inc. reported financial results for the quarter ended June 25. For the second quarter of 2022, the company had net sales from continuing operations of $83,698,000 and a net loss of $4,487,000 or $0.29 per diluted share. In the second quarter of 2021, as adjusted to reflect the commercial business as discontinued operations, net sales from continuing operations were $89,982,000 with a net income of $3,349,000 or $0.21 per diluted share. Net sales from continuing operations for the six month period ending June 25, were $161,273,000, a decrease of .9 percent from the net sales of $162,729,000 in the same period of the previous year. The net loss for the six month period ended June 25 was $7,844,000 or $0.51 per diluted share compared to a net income of $1,321,000 or $0.08 per diluted share in the six month period ended June 26, 2021.

Commenting on the quarter, Daniel K. Frierson, chairman and chief executive officer, said, "We are excited to announce our formation of a joint venture to begin production of luxury vinyl flooring within our manufacturing plant in Atmore, Al. This domestic production will enable us to better serve our customers and more quickly respond to market changes.

"During the second quarter of 2022, our net sales decreased 7.0 percent compared with the same period of the prior year. This was primarily attributable to a $7 million year over year loss of sales volume with our largest mass merchant retail customer. Our sales with this customer ended in the first quarter of 2022 as the result of their change in strategy to focus on lower price point products. This loss in sales in the mass merchant business contributed to the lower sales volume in our Dixie Home brand which was offset by growth in our Fabrica, Masland and TRUCOR brands.

"Similar to the first quarter of this year, the gross margins in the second quarter of 2022 were negatively impacted by two major items. First, our cost of goods sold reflected the impact of unprecedented price increases from our primary raw material supplier, coupled with their decision to exit the business. We have identified other suppliers to replace this volume and bring our costs down in line with the market. This conversion was substantially complete at the end of the second quarter, and we expect to work through most of the remaining balance of the higher cost inventory within the third quarter. Second, margins from our sales of hard surface goods reflected the negative impact from dramatic increases in ocean freight costs. Fortunately, beginning with the end of the first quarter, these freight costs have continued to decline but remain substantially above prior year levels.

"During the second quarter, we began executing the launch of our new decorative segment programs, 1866 by Masland and Décorby Fabrica. A key growth initiative for the company, this launch includes 30 new styles, a brand refresh, and updated merchandising. The new styles began hitting retail stores late in the second quarter, and more products will become available during the third quarter.

"Through the second quarter, we continued to see growth in our hard surface segment. Key growth drivers were our domestically sourced SPC collection, our oversized WPC planks, and our SPC Tile programs. We have several new innovations hitting the market during the second half of the year, including TRUCOR TYMBR XL, an oversized laminate product with excellent water resistance and an AC6 scratch resistance rating. We will also launch TRUCOR Pinnacle, a new standard in oversized WPC planks at 12" wide by 90" long. And we have the TRUCOR Boardwalk collection, an SPC offering featuring clean visuals, lighter colors inspired by coastal living, and a new pillowed edge bevel. In our hardwood segment, we have 18 new SKUs in our Fabrica Fine Hardwood line including Ash species in 9.5 inch and 7 inch widths. We are also launching a new Dixie Home engineered hardwood collection with White Oak and Hickory SKUs in beautiful colors at middle of the road price points," Mr. Frierson concluded.

The gross profit as a percentage of net sales was 19.2 percent in the second quarter of 2022 compared to a gross margin of 25.1 percent in the same period of the prior year. Substantially higher costs from primary raw material supplier, driven by their decision to exit the business, along with increased costs as a result of inflation and higher freight costs contributed to the lower margins. Selling and administrative costs were 22.5 percent of net sales in the second quarter of 2022 compared to 18.8 percent in the second quarter of 2021. The higher selling and administrative expenses were primarily related to increased investments in samples, professional fees in finance and information systems and higher overall costs as a result of inflation.

The company's receivables decreased $4.3 million from the prior year ended Dec. 25, 2021. The decrease in receivables was primarily related to the loss of sales to primary mass merchant customer in the second quarter of 2022. Inventories increased by $4.2 million at June 25, as compared to the prior year end balance. This increase was primarily driven by higher costs due to inflationary pressure. Accounts payable and accrued expenses decreased $2.3 million from the prior year end balance driven by the timing of inventory purchases. Capital expenditures for the second quarter were $2.6 million bringing year to date June 25 capital expenditure amount to $3.0 million. Total capital expenditures are planned for 2022 at a maintenance level of approximately $5.0 million. Interest expense was $1.1 million for the second quarter of 2022 compared to $1.2 million in the second quarter of 2021. The total debt increased by $4.5 million during the quarter partially driven by rising costs and decreases to accounts payable and accrued expenses. Availability at the end of the quarter was $32.6 million under the line of credit with senior credit facility.

On Aug. 15, The Dixie Group announced board authorization to repurchase up to $3 million of the company's stock. It is anticipated that a portion of such purchases would be under a plan to be entered into pursuant to Rule 10b-5-1 of the Securities and Exchanges Act.

In the early part of the third quarter, the company has seen continued softness in the market with order entry running below prior year levels.


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