Q2 2020 Dixie Group Inc Earnings Call
Today's call is being recorded.
At this time for opening remarks, an introduction I would like to turn the call over the chairman and Chief Executive Officer, Dan Prior.
Please go ahead.
Hi, good they're all and welcome everyone to our second quarter Conference call.
With me as Alan Dancy, our Chief Financial Officer.
Our safe Harbor statement is included refers to both our website and pressure lakes.
The covert 19 pandemic the second quarter were most unusual.
Our first objective was to maintain the health and safety of our associates.
Same time, we want to continue servicing the existing business.
Running our plants at reduced rates, but also decrease mm.
In order to ensure our survival, we had to reduce differ and eliminate as much cost as possible.
Manage our crash prudently.
We actually have half of our associates not working for some period of time.
Due to these actions that are frankly.
Due to these actions are back a Bible belt <unk> increased during the quarter from all of around 8 million to the 20 million dollar right.
Currently.
Sales down nearly 40% for the quarter if required every one to be part of the solution and our associates rose to the challenge.
For the second quarter the company had net sales.
16.824 million dollar has compared to over 100 million.
In 2019.
The second quarter 2020 that sales were down 39% as compared to the same quarter and night team.
In April sales were down 54% for from the same Moroccan the prior year.
Results for the covert night team and then make unrelated government orders.
Negatively impacted our and our customers are below teams are transact business.
Sales recovered gradually over the quarter with my sales volume down 40%.
And Jim that sales down 21% 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 million or 46 cents per diluted share.
As compared to a loss of American $191000 or seven cents per diluted share in the second quarter of 19.
As with most companies the covert 19 pandemic had a significant impact on our sales on the core.
Once the extent of the covert 19 pandemic became apparent we implemented our continuity plan to maintain the health and safety of our associates.
Our cash and minimize the impact on our customers.
Minimize can prevent cases of covert exposure in our facilities. We have taken measures aimed at sanitation, then safety, including a large scale covert testing mandatory temperature checks prior to starting work requirements to where my ask one not able to maintain social burst and saying and deep cleaning.
Again 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 at our facilities to below demand to maintain order flow to our customers, while simultaneously reducing inventories to align them with our law.
Lower customer demand.
In order to preserve cash we placed a large percentage of our associates either on rotating layoffs or furlough.
We implemented approximately $14 million and cost cuts for the current year.
These costs costs included deferring maintenance when possible reduced capital expenditure instituting select job eliminations and temporary salary reductions.
We've deferred new product introductions that reduced our SAP why marketing expenses for the year.
We work with suppliers lenders on landlords to extend payments in the second quarter for existing agreements. We have taken advantage of deferral of payroll related taxes under the care Sag as well are suffering payments into our defined contribution retirement plan.
We've modified our senior credit facility to provide additional flexibility with regard to loan availability.
We are still assessing the long term impacts of the covert crisis on our markets and operating practices.
That recovery in our residential markets has been quicker than in our commercial markets as is typical during periods of economic recovery.
We're encouraged by the improvement we've seen in sales in recent weeks, but as a research on of covert kit 19 cases has been seen in many parts of the country and as government authorities reassess their decisions to lift.
The restrictions and their jurisdictions were cautious as to what the remainder of the year might look like.
Alan Dancy will now review, our second quarter from actual results after which I'll comment further on current conditions.
Alan.
Thank you Dan.
Our net sales on the second quarter 2020 were $60.8 million.
As a 39.4% decrease on the 2019 second quarter net sales of 100.4 million.
The decrease in sales during the quarter as Dan mentioned with the result of the kind of a 19 pandemic and associated closures and restrictions from government mandate.
The negative sales impact related to the kind of 19 pandemic started late in the first quarter Emirates Deloitte appointments second week of April after which we began seeing a recovery throughout the quarter.
The gross profit for the quarter was 20.1% of net sales compared to 23.4% and a second quarter 2019.
The 2020 gross profit was negatively impacted by the lower sales volume, including the under absorption of fixed costs.
Selling and administrative cost and a second quarter 2020 or $4.6 million lower than the second quarter 2019.
Due to lower net sales in 2020 value administrative expenses as a percent of net sales were higher at 27.2% second quarter 2020, compared to 21% in the second quarter 29 team.
Induction and selling administrative expenses are primarily the result of cost saving initiatives implemented as a result, as a cousin nighttime had been.
These initiatives included reduction in samples and marketing expenses reductions and restrictions on travel reductions in payroll expenses and job eliminations furloughs and temporary pay reductions as well as other expense reductions.
During the quarter, we also incurred $1.2 million on facility consolidations severance expenses.
These expenses included $246000 and residual expenses related to our profit improvement plan and $1 million for severance and financing expenses related to our cobot 19 response plan.
Operating loss in the second quarter, 2020 was $5.6 million compared to operating income of 574000 for the same period in 2019.
Our total debt decreased by $11.6 million from the end of the prior quarter.
Production during the quarter was primarily driven by working capital changes.
Currently reductions in our accounts receivable and inventories.
Year over year that has decreased $48.1 million when compared to the second quarter 2019.
As a result of the decrease in debt interest expense and the second quarter was down 21% as compared to the second quarter 2019.
This decrease in debt and interest expense year over year is primarily the result, and the sale of our California facility in the fourth quarter 2019, and better use of working capital.
As Dan mentioned, our diluted earnings per share from continuing operations was negative 46 cents.
Turning to our balance sheet at the end of June 2020, net receivables decreased $6.2 million during the quarter.
The increase in receivables are the result in lower sales volume in the second quarters compared to the prior quarter.
Inventory decreased $8.3 million than the second quarter in 2020 from the March month end balance.
During the second quarter, we reduced our production at our plants to below demand, allowing us to reduce our inventories while still meeting the customer demand.
Capital equipment acquisitions, including those funded by cash in financing was $1.7 million in the second quarter $2020.
Depreciation and amortization during the quarter was $2.6 million.
We anticipate capital expenditures for 2020 to be approximately 3.5 million and depreciation amortization of approximately 10.6 million.
The availability on our long term credit agreement is currently $21 million, we have applied for and are waiting approval on the fixed asset loan with expectation and closing by all this month and has agreed to with our senior credit facility.
Our investor presentation, including our non-GAAP information is on our website at Www Dot indexing.
And thank you Alan.
In the second quarter sales of our commercial products were down 42% on our year over year basis, while the industry. We believe was down close to 30% for the same time periods.
Our commercial hard surface sales were up over 20% for the period relative to a year ago.
We anticipate the market for commercial products will recover more slowly than the residential business.
Recently, we have gotten great response to our most recent product launch living series.
However orders for the specifications, we're generating or not likely to be ordered or ship to until the first half of 2021.
We're also gaining traction with our innovative sustain a modular tile backing system.
The sustain a modular tile banking system as a PVC and polyurethane free cushion carpet cow backing with very high recycle content.
Product is reasonable and able to be installed in high humidity situations. We have recently received NSF 140 platinum certification on certain products.
Backing can be applied to all of our modular products.
Sales of our residential products were down 38% for the quarter with yet industry, we believe around down 30%.
The residential business has recovered more quickly than originally anticipated when the initial impact of covert 19 pandemic became apparent in mid March.
Specialty retail segment was down by 50% and April recovered to being down 35% in may and was down less than 10% 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 envisioned six six program continues gaining traction in the market.
In our new envision six six introductions for 2020 are off to a very good start.
In less than two years.
Envision six six has quickly become a strong platform for growth across all of our residential divisions and provides us with a strategic diversification.
Needed in our residential portfolio.
In their home Center channel our order entry returned to pre covert 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.
Early indicators on these products are positive and has.
We are seeing sales and orders on many of these styles within the first few 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 or hard surface sales were greater than 60% ahead of last year and our new products for 2020 have just begun to reach retail store.
A new product, we're especially excited about is true core Kyle GT integrated grout technology, with 12 stone and tile visuals and a locking system, which provides a realistic grout visual.
We're also excited to introduce Tricor Prime X X apparel at 10 inches wide and 84 inches long enters the widest and longest.
WPC plank on the market.
And eight colors that are on trend with today's design and consumer taste. Lastly, we're introducing two new collections of our fabric Award program, which is gaining momentum with sales well ahead of last year levels.
We have hired seven salespeople focused exclusively on hard surface. This group is made a notable impact on our market penetration and sales and their respective territories.
We expect to continue expanding our hard surface stale sales team going forward. We're also hiring sales resources into key growth markets almost soft surface side of our business.
Reflecting on the second quarter, we're proud of how our associates pull together as the impact of co. It became apparent at every level in the company. The appropriate actions were taken to help ensure our success even.
Even though our facilities were operating on reduced schedules our operation control.
We're strong weeks.
Variance to excellent results from a safety quality waste and cost standpoint, which meant we were able to continue providing our customers outstanding service in a very uncertain period.
We had no idea as we entered our hard year anniversary that we would be confronted with a worldwide pandemic and social unrest in this country.
The values that have permeated our company for the last 100 years are the values that will help ensure our success in the future.
Our company's stands for inclusion in for the dignity of every individual we've also tried to build people as we build our business.
Providing opportunity for all.
Looking forward, while it is not clear when our economy and country will return to more normal trends I.
I believe with the reduction of debt.
$48 million in the last year and the responsiveness of our organization.
That has been shown to the rapidly changing environment, we're in a position to continue growing our business.
I've been impressed with the resiliency of our customers.
They have adjusted to changing conditions quickly and had been able to continue attracting potential customers to their stores and make them comfortable with the purchase and installation flooring products. Consequently, the upper end of the residential market as regain momentum and we believe we're poised to gain market share.
At this time, we would like to open up to call the questions.
Thank you we will now be conducting a question and answer session.
You would like to asking question. Please press star one on your telephone keypad.
Confirmation Tony will indicate your line is in the question Q.
He may press star too if you would like to remove your question from the Q.
For participants using speaker equipment and may be necessary to pick up your handset before pressing the star Q.
One moment, please while we fall for your questions.
Our first questions come from the line of ferry blank with J.H. Darby. Please proceed with your questions.
Dan.
You did very well in this quarter I'm really pleased with the results that you have I have a few questions Bob.
In.
The quarter that that we had in its got to be a modest smaller companies that didnt fair that well and I haven't financial troubles.
Do you have the will slow on the would be capabilities of trying to go out on some of these companies is that something that the company is looking to do.
Very.
Well, thank you for being on the call.
Obviously, we've had our heads down pretty much up looking at operations and doing everything we can to ensure a bright future.
However, I think you're correct there will be a number of companies that.
We'll have problems and I think as we.
Move forward, we'll be looking at those.
My next question is.
How do you see the.
Flooring business picking up compared to the carpet business in the next quarter.
Barry as you know were relatively new in the hard surface business. Therefore, we're operating from very low base and therefore, we are showing very very.
Percentage growth.
And the acceptance in the marketplace is been great. So we see that as a real strong growth initiative for us as a company.
Much stronger obviously, the carpet where our base is so large.
But.
Many of the customers were dealing with today, our customers were also selling carpet.
And we're getting great response to our new products.
Okay.
Thank you very much Dan appreciate it.
Thank you Barry.
With no further questions in the queue I'll turn the call back to dance Ryerson for any additional or closing remarks.
Barrel. Thank you and thank all of you for being on our call. This quarter. It was our most unusual quarter and hopefully one that we will never have to go through again.
But.
As we look forward, we are excited about the future and see great opportunity. Thank you for being with us.
I'm sorry.
This does conclude todays conference you may disconnect your lines at this time.
Thank you for your participation and have a great. Thanks.