Q1 2021 Dixie Group Inc Earnings Call

Our first quarter started on December 27th 2020, resulting in a slow start for our fiscal new fiscal year.

However, our business continued to strengthen into February and March and finished much stronger than January.

And stronger than last year.

The recovery of sales in the residential markets, which began in the second quarter of 2020 has continued through the first quarter of 2021.

Sales volume in the commercial markets has continued to be at lower levels.

Many of the cost reductions implemented in the second quarter of 2020 as part of our COVID-19 recovery plan have been made permanent even as sales volumes improve.

During the first quarter of 2021, our net sales increased seven 1% compared with the first quarter of 2020.

Our residential product sales were up 23 per cent for the quarter as compared with the prior year, while the industry. We believe was up approximately 20%.

<unk> product sales decreased 37% versus the prior year quarter, while the industry, we believe experienced a decrease of approximately 18%.

Alan will review, our first quarter results after which I will comment on current business conditions.

Thank you Dan.

Dan just mentioned the first quarter sales volume of $86 $3 million in 2021.

About seven 1% from our $86 million on the prior year with that growth coming primarily from our residential products driven by the strong demand in the residential market.

The gross profit margin on the first quarter of 2021 was 22, 6% of net sales.

Comparing against 23, 6% in the first quarter of 2020. This one point reduction in margin year over year was primarily the result of higher material costs that were not offset by increased pricing until later in the quarter.

Inefficiencies in our commercial market excuse me, our commercial plant and higher labor related costs also contributed to the low margins.

We have implemented price increases and realignment to manufacturing to bring on margins back in line.

Our selling and administrative costs in the first quarter of 2021 ended at $20 1 million or 300000 below the same period in 2020.

<unk> on selling and administrative expenses was primarily the result of cost saving initiatives, including permanent head count reductions implemented as part of our COVID-19 response plan in 2020.

For the current quarter, we incurred $1 $3 million on interest expense, which was flat when compared to $1 3 million in the first quarter of 2020.

The 2021 on interest expense includes approximately 180000 per the recognition of deferred expenses related to the de designation of an interest rate swap in 2020.

We ended the quarter with a loss from continuing operations of $2 million compared to a loss of $2 6 million in the same period of 2020.

We were able to decrease our long term debt, including the current portion by $2 $1 million during the quarter. The reduction was partially aided by increases in accrued expenses at quarter end.

Looking at our balance sheet at the end of March 2021, net receivables increased $3 $9 million over the year in 2020 balance.

On receivables was a result of higher sales volume.

Capital equipment acquisitions, including those funded by cash and financing was $364000 on the quarter.

Depreciation and amortization during the quarter was $2 6 million.

We anticipate capital expenditures for 2021 to be approximately $5 million and depreciation and amortization of approximately $10 million.

At quarter end, our borrowing availability under our long term credit agreement was approximately $44 million.

Our investor presentation is on our website at Investor debt Dixie Group Dot com.

With that I'll hand, it back to Dan for additional comments on closing remarks.

Thank you Alan.

As a country and a company we are all trying to assess the impact of COVID-19 on our business environment.

So far the commercial business has been adversely impacted since the pandemic began but we're now seeing signs of increased sample and project activity.

This type of activity is normally followed by improved business in the next six to nine months.

Our backorder position also has begun to grow again as the orders outpaced shipments during the first quarter.

The improvement in the commercial business as well.

But we believe the recovery will be longer coming in not as dynamic as the residential market recovery.

On the other hand, the residential business had a V shape recovery and appears to be benefiting from the reaction to COVID-19.

Strong new housing and remodeling activity have boosted floor covering sales in general and particularly carpet sales.

The reaction to being quarantine per an extensive period of time has been put on us do per higher and carpet.

It is difficult to predict how long this will last.

Many constraints in the pipeline speak for better business for a significant period of time.

One of the few negatives. It is the continued cost increases with which the industry has been faced and these increases have necessitated additional price increases.

Building on the momentum from late 2020, the first quarter provided a very strong start to the year for our residential business.

Our soft surface business grew 18%.

And our hard surface residential business grew 70% in comparison to the same period in the prior year.

For the month of March order entry in sales for residential products were both up over 40% compared to the prior year period.

Business is strengthening even further in the second quarter of 2021, and we're working very hard to maintain the great service levels for our customers.

We're excited to launch our high end Technic collection in 2021, we introduced three styles during the first quarter and we'll all lost three additional styles in the second quarter.

This collection features the industry's latest tactic tufting innovation and offers beautiful multi colored patterns with precise yarn placement and woven like visuals technique products were made with the envision 66.

Now on or strong oil flow and will be featured in our maslin and fabric of soft surface product portfolios.

Another major change for our industry has been the purchase of stainmaster buy loans.

The impact of this transaction will be phased in over the next several months and will mean the end of the stainmaster brand at retail.

While this will create confusion for awhile, we believe it provides additional opportunities for our residential business through our envision 66 now on offering.

Our envision 66, nylon program is allowing us to reach additional price points and expand.

Sumer base.

The program continued to deliver significant growth for us during the first quarter.

<unk> in volume versus the prior year.

We expanded our envision 66 product offering with eight new styles during the first quarter and our expanding further in the second quarter with 12 additional <unk>.

Miles across all three self surface divisions.

We also lost for decorative style staring in the first quarter and have an additional eight decorative styles planned for later this year.

Our hard surface programs continued to outpace the market with true core luxury vinyl segment, posting 70% growth for the quarter.

Notable growth came from our crew core Prime XL X XL collection, featuring 10 by 84 whitish longest WPC plant on the market.

We also saw tremendous growth from our true core Kao G T a collection.

Large tile visuals with the grout engineered into the locking system.

We're excited to continue our antibody.

Pipeline in 2021.

With two new innovations launching during the second quarter.

<unk> core three D. P will launch with 16 Skus. It is a digitally printed product <unk>.

Delivering very realistic high resolution visuals, virtually eliminating pattern repeat and offer superb abrasion and scratch resistance with an AC five commercial rate.

True core applause as a new opening price point for true core and we will have eight.

Skus produced in the USA.

On the fabric of wood program, we're expanding our market penetration introducing 14, new skus and are operating a handsome new retail display which will accommodate.

The entire line.

On April 17, 2021, the company identified the devices in its network were encrypted with ransomware.

Company immediately initiatives initiated in response protocols and launched an investigation.

And a forensic firm was engaged.

The company also notified law enforcement and is working to support its investigation.

The manufacturing and distribution activities of the company were substantially restored within the first week.

After the incident and we're completely restored within 10 days.

A company's website and E mail servers remain offline is the restoration efforts in forensics.

Investigation continues.

Despite this instance.

Incidents, we have been able to service our customers with relatively few interruptions.

To summarize where we are on a day in the first quarter of 2021, we would reduce debt by $2 million, bringing our total debt reduction to $62 million over the last 33 months.

Borrowing availability stood at 44 million under our senior revolving credit facility or.

Our residential division has continued to gain market share and built momentum during the first quarter.

Early 2021 shows continued strength with sales of residential products trending approximately 23% on over the prior year.

We implemented a price increase on April one 2021 to offset increases in raw materials transportation.

And people costs.

For 2021, we are investing in new product and talent, we are introducing over 40, new soft surface styles in over 60, new hard surface S. K use.

We have hired a retail channel leader, a decorative segment leader and additional hard surface salespeople.

For the month of March only residential order entry and sales were both up over 40% compared to the prior year period.

The business has continued to strengthen on the second quarter.

We would normally expect due to seasonality.

We also are announcing a price increase of approximately 5% of all residential and commercial products for late in the second quarter.

At this time, we would like to open up the.

Call to questions.

Errol.

Thank you.

At this time, we would like to open the conference call to questions. If you would like to ask a question. Please press star one on your telephone keypad.

Confirmation tone will indicate you are in the question queue.

One moment, please while we poll for your questions.

As a reminder, if you would like to ask a question. Please press star one on your telephone keypad.

Yeah.

There are no questions at this time I would like to turn the call back to Dan Myers for any closing or additional comments.

Daryl Thank you very much and thank you for being with us today.

Look forward to.

Getting the ransomware situation behind us and.

Working through the stainmaster.

The purchase of the Stainmaster brand silos.

On the marketplace.

Yes.

Talk to you next quarter.

Yeah.

Ladies and gentlemen that will conclude today's teleconference.

Thank you again for your participation.

Okay.

[music].

Yes.