Q2 2021 Dixie Group Inc Earnings Call
Greetings and welcome to the Dixie Group second quarter 2021conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference. Please.
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Thank you Stacie and welcome everyone to our second quarter Conference call.
I have with me our CFO Alan dancing on.
Our safe Harbor statement is included by reference both to our website and press release.
As we've highlighted in the quarterly results.
Our sales were approximately $105 million for the quarter net income of about $3.3 million.
And we've had we had strong order activity throughout the quarter, which has continued into the third quarter.
For the second quarter of 2021, the company had net sales of $104.8 million and income from continuing operations of $3.4 million or 21 cents per diluted share.
Net sales for the second quarter of 2020 were 60 million 60.8 million. The net loss from continuing operations in the second quarter of last year was approximately $7 million or a loss of 46 cents per diluted share.
During the second quarter of 2021 we were able to build on the momentum we experienced through the end of the first quarter.
Overall net sales increased 72.3 per cent compared with the second quarter of 2020.
Net sales of our residential flooring products were up.
99.5% or close to double what comparables residential sales from the second quarter of 2020, comparing favorably to the industry, which we believe was up approximately 50 to 55 per cent.
For the first 6 months of the year. Our total net sales of residential products was up 55, 1% over the same period in the prior year.
This significant year over year increase on the net sales of our residential floor covering products was a result of the impact of the COVID-19 pandemic in the second quarter of last year and strong growth in new and existing home sales and home remodeling in 2021.
Sales volume in the commercial markets has improved but continued to be at lower levels.
Alan Danzig will review, our financial results after which I will have additional comments regarding events, which took place during the quarter.
Alan Thank.
Thank you Dan as Dan just discussed this was a very good quarter for the company driven by the strong demand in the residential markets.
Net sales during the second quarter of this year, where it on or $4.8 million as on 'twenty..1 point <unk> 21 per cent increase over the sales of $86.3 million that we saw on the first quarter of the year and it puts our total net sales for the first 6 months of this year at $191.1 million, that's an increase of 35 per <unk>.
On that over the first 6 months of the Covid impacted year of 2020.
Our gross profit margin on the quarter was 24.6 per cent of net sales compared to 21, I'm sorry, 21% in the second quarter of 2020.
The 2021 margins were driven by the increased volume on the manufacturing plants, which was partially offset by rising material and labor costs. When they implemented price increases this year on our products to offset these rising costs.
Selling and administrative costs in the second quarter of 2021 ended at 21.0 million or 20 per cent of net sales.
Compares to $23.3 per cent in the first quarter of this year on 27 per cent of the same period of the prior year.
Prior period was affected by the onset of the pandemic after which we began a reduction in selling and administrative expenses as part of our COVID-19 response plan have held on to many of these reductions while strategically investing in the gross for our residential markets.
Our operating income on the quarter was $4.6 million or 4.4 per cent of net sales compared to a loss of $5.6 million in the second quarter of 2020.
For the current quarter, we incurred $1.2 million on interest expense, which was a reduction from the second quarter amount in 2020, which was at $1.4 million for 2020..1 interest expense includes approximately $180000 per the recognition of deferred expenses related to the designation of an interest.
Right swap.
The decreased interest as a result of our financing initiatives in the fourth quarter of 2020, and our continued efforts towards debt reduction.
Our year over year debt reduced from $79.1 million in the second quarter of 2020 to $77.9 million in our current quarter.
Net income on the quarter was $3.3 million, giving us on the earnings per share of 22 cents per.
For the fiscal year to date, we reported a net income of $1.3 million and earnings per share of 8%.
Turning to our balance sheet at the end of June 2021, the higher sales demand for the quarter drove increases in our net receivables of $10.9 million in inventories of $1.7 million when compared with the first quarter cash.
I'll stay on more on accrued expenses increased $5.6 million from the previous quarter due to the sales volume as well as some timing of payments at quarter end.
Capital equipment acquisitions, including those funded by cash and financing was $1.8 million on the quarter.
Depreciation and amortization during the quarter was 2 and a half million winter.
We anticipate capital expenditures for 'twenty, and 'twenty, 1 to be approximately 5 million and depreciation and amortization to be approximately $10 million.
At quarter end, our borrowing availability under the long term credit agreement was $42 million.
Please see our Investor presentation. Please go to our website at Www Dot group Dot com and click on our investors debt.
I'll hand, it back to Dan for hours on for further comment.
Alan.
Our second quarter was punctuated by 3 major events, 2 of which will have a significant impact on our future.
First a ransomware attack, which occurred in mid April.
It impacted our operations in both internal and external communications.
Certainly our April results were negatively impacted but we were able to return to more normal operations later in the quarter with limited impact on our customers.
Second.
The sale of the St Master brand to Lowe's and the withdrawal of the brand from independent retailers as well as the price changes by Investor will have long lasting impact on our business and the industry.
We are executing a plan to enhance our brand and competitive offerings to the market.
Lastly, we have entered into an agreement in principle for the sale of our commercial business. This sale would represent a major change of focus for our company. We're currently negotiating terms and conditions of the proposed sale.
Upon successful completion of the sale our entire focus will be solely.
On the residential floor covering market, where our well known and respected brands continue to gain market share.
Due to the growth of our residential divisions, our commercial business represents less than 15% of our sales.
Well, there's actually many of our planned second quarter product launches were delayed by the ransomware attack, but we were still able to launch some key products into the residential market.
On the self serve her side, we lost on 4 new technique patterns in our Madison and Fabry could divisions. These are high on patterns tufted on the latest tufting innovations on the Mark and produced with envision 66 fiber.
We also launched several other envision 66 products across all divisions, bringing our total envision 66 offering to 31 styles with additional styles coming during the third quarter.
In April we unveiled our new envision S. D Pet solutions program with 5 new special edition styles expected to begin hitting.
Retail stores this summer.
1 key event for the industry during the second quarter with the sale of the Stainmaster brand.
By investors to loans.
Over the last couple of years, our company has begun developing alternative fiber offerings in order to diversify our sources of raw materials and help prepare for such an eventuality.
We had also introduced in version 6.6 products as our new brand to the industry. In response to this event, we quickly developed a multifaceted strategy to help our specialty retail customers transition their showrooms from our stainmaster brand to our envision 66 and envision.
S D pet solution brands.
A component of this effort was the development of the Premier Flooring Center P. F C.
P. F C was developed as a non disruptive turnkey solution for existing stainmaster flooring retailers.
Yeah.
The P. F. C offers a retail friendly selling system for upselling to better goods and focuses on the benefits of nylon 6.6. It also provides new signage labels and in store merchandising materials to create a fresh new look and feel in the showroom.
We will be installing the PFC and about 200 stores this summer.
On the hard surface side, we introduced to make 2 key programs in our luxury vinyl category true core 3 D. P. A new collection of 12 wood and tile visuals and our true core family.
It's built on a S. P C Corps and features and enhanced digital print technology.
These beautiful products deliver high definition visuals and AC 5 scratch resistant rating for exceptional durability and virtually eliminates the pattern repeat found in most luxury vinyl flooring products currently on the market.
We also introduced true core applause and SPC offering with 8 F. Skus made in the U S. A this is our first domestically sourced.
Luxury vinyl program.
And we're seeing great reception to the competitive price points and simplified supply chain for this offering.
Our commercial business in the commercial market continues to be adversely impacted by COVID-19.
Sales of commercial flooring products during the quarter were down approximately 8% from the previous year.
We are beginning to see improvement, but we believe the recovery recovery will be longer coming in not as dynamic as the residential market recovery.
On June 32021, we announced that we'd entered into an agreement in principle for the sale of the commercial business.
Obviously, we're continuing to discuss the terms and conditions of this agreement.
Our residential flooring sales and orders for the first 5 weeks of the quarter have continued at a very strong pace well ahead of the same period a year ago.
Both residential sales and orders are approximately 30% of head our head of sales and orders in July of last year and debt.
Well ahead in the 30% range of 2019 as well.
Due to the increased cost pressure on many fronts.
Industry wide price increases were implemented during the last half of the second quarter Covid.
Additional price increases have been announced for August.
We're all material labor and transportation costs have continued to escalate.
At this time, we would like to open up the meeting for any questions you may have.
Thank you at this time, we will be conducting a question and answer session.
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Your first question is Mike you with SGS capital.
Good morning, Thanks for taking my questions first 1 just on the sustained master opportunity.
Is it possible to size the revenue opportunity in the specialty retail channel and then that product line does it carry an above average gross margin for you.
Well, obviously, the stainmaster products, we're very much in the higher end of the business to respond to that.
I don't think there's any way, we can quantify the opportunity, but I see it as a excellent opportunity to introduce our brand.
We had already been doing so over the last couple of years and to build on that.
With the <unk>.
Retailers, who can.
Concentrate in the upper end of the market. So we do see it as an opportunity obviously, there will be a transition period.
Going from Stainmaster to our envision 66 and envision.
<unk> solution.
But prada.
Products.
Our solution products, but and that will take some time, but we see this longer term as an opportunity for us to become more important with a broader product selection for our retail customers.
Customers.
Okay, and what percentage of your residential sales right now are from the envision product line.
I don't have that today, but all products are going to be are in the process of being switched from stainmaster to envision 66 that.
That is our brand so we will be branding everything with that.
Almost everything with that very soon or we are in the process will be accomplished in the next couple of months.
Okay, and then on the pending a commercial line divestiture I think you just disclose the the revenue numbers can you give us an idea on what the gross margins and the operating contribution for that line.
We had we had shared the percentage of sales with the with you previously.
We have 1 segment, so we have not divulged or separated R. R.
Most margin or any other financials or the commercial side of the business obviously.
Once the transaction is consummated there will be some some material that will be available at that time.
Okay and then just last question for you.
Obviously, everyone in the industry is faced with cost pressures and you're taking pricing do you think the pricing actions, we will protect the third quarter gross margins kind of at the level you just reported or will we need to wait till the fourth quarter to kind of get back to the.
Number that was close to 25 per cent.
That's somewhat difficult to predict.
Would add debt we are on LIFO. So those increases are come right away to us and our costs are.
So typically when we raise prices were a little behind the cost increases, but they have been for increases this year.
And it is.
Not an easy prediction to make but we are intent.
Over the last half of the year is to have.
Is to increase prices to offset.
Raw raw material price increases I would say on the hard surface side.
Obviously, that's been complicated by the transportation costs.
Which.
Difficult to.
Predict and we.
We are passing those costs, along but again, we are on LIFO and there will probably be some impact from that.
Okay, and if I may sneak in just 1 last question just the commentary.
About residential sales and orders being approximately 30% ahead of.
Our 2020 in 2019 the month of July.
On the full quarter September 'twenty was 86 million on the full quarter September 19 was 95 million. So I know, it's a monthly number but I'm a little confused by what the compare that too.
Well, obviously I I've mentioned 19, because last year was we were just coming out of the Covid downturn and it was actually greater.
The increase but.
I think the what I was trying to get across as we're seeing solid growth relative to where we were prior to COVID-19.
Okay as I thought I appreciate it thank you very much.
Thank you I would like to turn the floor over to Dan for closing remarks.
Stacey Thank you very much and thank all of you for being with US on our conference call.
We look forward to talking with you again at the end of third quarter.
This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.
Okay.