Q4 2021 Dixie Group Inc Earnings Call

We're 36% above the net sales of $251 million in the previous year.

As adjusted for the divestiture of our commercial business.

Net income for the fiscal year end 2021 was $1 6 million.

With $5 2 million income from continuing operations.

As a result of the inflationary impact on inventory costs, our LIFO reserve for inventory increased by $16 2 million in 2021 more than doubling the reserve balance at the end of fiscal year 2020.

Despite rising costs in 2021, we were able to reduce our total debt at fiscal year end December 20.

2021 to a lowest fiscal year end level in nearly 10 years.

At this time I will turn it over to Alan <unk> Chief Financial Officer.

Thank you Dan.

The year 2021 was full of challenges from a ransomware attack to significant increases in raw material costs.

That is true of our commercial business, but even if we face. These challenges we were able to grow sales and further strengthen our balance sheet moving into 2022.

In the fourth quarter of 2021, our sales of $89 2 million or 18, 2% above the prior year amount of $75 5 million.

But our gross profit margin in fourth quarter dropped to 14, 4% compared to the prior year at 25, 9%.

This drop in margin was driven by cost increases in our raw materials, and a $7 $5 million increase to our LIFO reserve during the quarter.

This split if at a loss from continuing operations of $4 4 million for the quarter compared to a loss of 552000 in the fourth quarter of 2020.

As Dan mentioned for the fiscal year 2021, our net sales were $341 2 million an increase of 36% over the net sales of $250 9 million in the prior year.

Gross profit margin for the year was 22, 6% of net sales, which was slightly below the prior year margin of 22, 9%.

Selling and admin costs as a percent of net sales was 19, 9% in 2021, which compared favorably to the 2022% sorry into 2020% or 23, 2%.

But in dollar selling and admin increased year over year.

As a result, having cut back on our investment in selling expenses and travel with the initial outbreak of COVID-19 in 2020.

Our decrease in our debt over the last two years has brought our interest expense down to $4 $7 million in 2021 compared to $5 8 million in 2020.

We ended the year with an income from continuing operations at $5 $2 million compared to an $11 million loss in continuing operations in 2020.

The loss from discontinued operations, which includes the divestiture of the commercial business. During 2021 was $3 $5 million or $20 21, compared to an income of <unk>.

615000 in 2020.

Net income on the year was $1 6 million.

Tears against a net loss of $9 2 million in the prior year of 2020.

With a look at the balance sheet at the end of December 2021, net receivables increased $7 $3 million over the prior year. This increase was the result of higher sales volume during 2021.

Inventories increased by $14 $8 million, driven by the higher demand and higher costs that was offset by a $16 $2 million increase as Dan mentioned in our LIFO reserve during the year.

Capital expenditures are just under $5 million on the year with $9 1 million and depreciation.

<unk> payable and accrued expenses increased $8 $4 million year over year and again the biggest factor was the rising costs, particularly as throughout the fourth quarter.

Proceeds from the divestiture of our commercial division offset the higher costs in 2021, allowing us to reduce our debt by $1 $1 million from the end of the prior year.

And again as Dan mentioned in his opening comments this broader long term and current portion of debt on our balance sheet is the lowest year end level since 2011.

At year end, the borrowing availability under our long term credit agreement was $37 6 million.

Our investor presentation, including.

It.

Investor presentation Thats on our website at Www Dot the Dixie group Dot Com, Dan. Thank you Allen.

As the year 2020 was coming to a close we have begun to see stronger business activity with residential orders and shipments up 15% in the fourth quarter.

We also were feeling the benefits of cost reductions that were implemented in reaction to the COVID-19 pandemic.

<unk>, we were experiencing operational improvement in quality yields and cost.

We felt these improvements along with our significantly improved balance sheet had us well prepared for 2021.

As we entered the second quarter, our residential business was strong in the commercial business was beginning to improve.

But during the second quarter, we experienced three major events two of which will have significant impact on our future.

In mid April we were the target of a ransomware attack that at first brought our operations and communications to a halt.

Fortunately, we were not totally compromised in over several weeks, we were able to restore order entry operations in shipping first on a limited basis than to a more normal level.

We did not however, lose a significant amount of data.

We did however, lose a significant amount of data and programs, which has continued to impact the timeliness of getting administrative things done.

This disruption did bring.

The best from our associates, who work many long hours to lessen the impact of the ransomware attack on our customers our associates in the company.

Secondly was the announcement by investors that the Stainmaster brand was being sold to Lowe's.

The actions taken by investors since this announcement and made it clear to us that they.

We will not continue to be a fiber supplier.

They continue to raise prices dramatically.

Insurers products made from their fiber are no longer competitive in the marketplace and we are in the process of replacing all investor fiber as quickly as possible.

These actions by Vista negatively impacted our margins and profitability in the fourth quarter as we were not able to pass along all of the increases and will continue to impact us until we complete the conversion to other suppliers in the second quarter of this year.

The third major event of the second quarter was the announcement that we had entered into an agreement in principle for the sale of our commercial business, which represented about 15% of our sales.

The sale of this business was completed in the third quarter.

<unk> did not include any facilities, which.

Retained for expansion of our residential footprint.

Our atmore facility is already converted to a residential yarn processing and carpet manufacturing facility.

In a time of very tight labor supply, we are able to utilize this facility and the associates there to service our expanding residential retail business the.

The <unk> facility will be used to service our true core hard surface brand.

Our true core luxury vinyl and wood programs have continued to grow dramatically in 2021 early 'twenty two.

Since 2009, we have more than doubled our sales and market share in the residential market and in 2021 as we indicated our.

Our sales increased 36%.

Our commitment to better goods in the design community has led to strong growth and improved results for our residential business.

As part of our commitment to the upper end and decorative market in 2022, we're bringing two new collections to the market.

Our Massillon 18, 66 and fabric the day core product offerings bring a large number of fresh and distinctive looks which are designed to complement our hard and soft surface surface offerings for the design community.

And unfortunately, the same master sale has already begun to impact our business with lowes as they have increased.

Increased emphasis on perceived value at the expense of style and design.

Our plan to continue growing our residential business our plan is to <unk>.

Continue growing our residential business through our growth initiatives focused on residential.

<unk> customer.

Dramatically increased costs of raw materials implemented by in Vista, and their desire to exit the market.

It's negatively impacted our results, but as the year progresses, we will utilize other suppliers, Switzerland enhance our flexibility enable.

Enable us to be more competitive and improve profitability.

As we look to the future our industry is well positioned to take advantage of the increase in new housing and sales of existing homes.

Our retail customers have learned how to compete in a COVID-19 world.

In the end consumer has focused on beautifying their homes.

These trends certainly provide opportunities for us in the upper end of the flooring market.

At the same time, there are issues, which we and all businesses need to overcome.

Despite the federal reserve's previous comments inflation is here and impacts all of us.

We like everyone else in the industry must deal with cost and availability of raw materials.

Severe labor shortages and transportation cost issues.

Our new material sourcing plan will be implemented during the first half of 'twenty two.

<unk> residential products into our Atmore, Brazil.

The facility will provide additional worker availability.

And the domestic sourcing of hard surface will help us deal with the transportation issues.

2021 was a challenging year in many respects, but we enter the new year with great optimism.

Our associates rose to the occasion, when ransomware hit and continue to deal with COVID-19 related issues.

We finished the year with sales up 36% and a strong balance sheet and improve profitability.

In 2021, we continue to gain market share due to the dedication and hard work of our associates and the support of our retail customers.

The sale of our commercial business allows us to focus on the residential business, which plays to our greatest strengths.

In summary, net.

Sales in the fourth quarter of 2021 increased 18% over the prior year quarter and as we already mentioned sales for the year were up 36%.

We also have.

Several growth initiatives in response to the sale of the St Master brand to lows, we have created the Premier flooring Center probe.

And.

And all of our nylon and all of our now on customers or move to envision.

<unk> and envision solution pet solutions brands.

We continue to introduce new hard surface products into our rapidly growing <unk> core and fabric of fine would probe.

We're also entering new categories to diversify our hard surface offerings.

And as we pointed out we have launched new decorative sac offerings.

In early 2022, our momentum has continued with sales through the first 10 weeks of the year up in the high single digits versus the same period of 2021.

At this time, we will open the meeting to questions.

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

Confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

One moment, please while we poll for questions.

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

Formation tone will indicate your line is in the question queue.

With no questions in the queue I would like to turn the call back to Dan <unk> for any additional closing remarks.

Thank you Kyle and thank all of you for being with US on our conference call.

Again, we are optimistic about the year.

We feel like the transformation of our products to other suppliers.

Suppliers.

It will be complete in the second quarter and have a significant impact on our results going forward. Thank you very much.

Ladies and gentlemen that will conclude today's conference. Thank you again for your participation.

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