Q4 2022 Dixie Group Inc Earnings Call

Speaker 1: The.

Speaker 1: Godthemough Crazy, Mrs.aley, there son come in

Speaker 2: Yeah. Good day and welcome to the Dixie Group Incorporated 2022 earnings conference call. Today's call is being recorded.

Speaker 2: At this time for opening remarks and introductions, I would like to turn the call over to Chairman and Chief Executive Officer Dan Frierson. Please go ahead.

Speaker 3: Thank you, Darrell, and welcome everyone to our fourth quarter and year-end 2022 conference call.

Speaker 3: I have with me Alan Bansy, our chief financial officer who will also be presenting.

Speaker 3: Our safe harbor statement is included by reference both to our website and press release. Net sales for the fiscal year of 2022 or 304 million or 11% below the net sales of 341 million.

Speaker 3: in the fiscal year of 2021. And that was lost for the fiscal year in 2022 with 35.1 million.

Speaker 3: with 33.4 million loss from continuing operations.

Speaker 3: The plan for consolidation of our East Coast facilities has resulted in a 24% reduction of associates and is expected to result in estimated savings of over $25 million.

Speaker 3: At this time, Allen will review our financial results after which I will have additional comments. Allen, thank you Dan. Our financial results for the 2022 fiscal year reflected the large unbavorably impact on our inventory costs in the first half of the year, which was due to several primary factors.

Speaker 3: We had exorbitant price increases in post on this by our former primary raw material provider.

Speaker 3: and a cost of converting to the new suppliers in fact the RMT as well.

Speaker 3: Extremely high-break rates on imported products in the first half of the year, and we also saw that most industries did higher cost overall as a result of inflation. Although most of these factors were improved or eliminated by the fourth quarter, we continued to work through inventory at implated values to cause incurred in the earlier periods. In addition, in the fourth quarter, our growth margins were negatively impacted by lower production volume in our plants.

Speaker 3: in the fourth quarter of 2021.

Speaker 3: As a result of the lower sales volume and the negative factors previously discussed, a gross profit as a percent of net sales for the fourth quarter was 14 percent compared to 14.4 percent in the fourth quarter of 2021. Selling in administrative expenses were 31.3 percent of net sales in the fourth quarter of 2022 compared to 19.2 percent.

Speaker 3: in the same quarter of the prior year. The increased SDNA expenses in 2022 were primary related to cost for samples and marketing. The net loss on the quarter was 18.5 million compared to a loss of 6.1 million in 2021. For the fiscal year 2022 net sales were 304 million.

Speaker 3: men calls for 25.4 percent of net sales compared to 19.9 in the prior fiscal year.

Speaker 3: Our interest expense in 2022 was $5.3 million, which was an increase over the previous year, which was at $4.7 million. This increase was driven by a higher level of debt and higher interest rates during the period.

Speaker 3: We ended the year with a loss of $35.1 million compared to an income of $1.6 million in the prior fiscal year.

Speaker 3: The law of the 2022 included 4.6 million facility consolidation expense and 1.7 million dollars from discontinued operations. Looking at changes that are balanced, sheet of receivables decreased by $14 million from 2021 fiscal year in ballots.

Speaker 3: The reduction AR balance was due to lower sales volume in the last period of 2022 and a year-of-year loss of our sales to the largest mass merchant customer. By lower sales volume, inventory was relatively flat year-of-year. At the end of 2022, retained a high-leveled inventory relative to the sales.

Speaker 3: of our decorative business that had just been introduced to year-end. To count the payable and accrued expenses decreased by 11.1 million at the end of 2022, as compared to 21. This decrease was in line with the lower volume and cost of purchases for inventories at 2022 fiscal year-end. Capital expenditures during the year were 4.6 million with depreciation for the year.

Speaker 3: at www.dixigruit.com. Thank you, Alan. During 2022, we faced a number of obstacles which were made even more difficult by the slowdown in business, which the industry began to experience in the second quarter.

Speaker 4: The decision by investor to exit the Stain National Online Business has had a significant impact on our company.

Speaker 4: Initially, we were not aware that their exit would be so abrupt and abusive. Starting in 2020, Investor began increasing prices dramatically.

Speaker 4: Initially we were not aware that their exit would be so abrupt and abusive. Starting in 2020, investor began increasing prices dramatically, which continued.

Speaker 4: into last year. Increases were of a magnitude that could not be passed onto our customers. These actions meant we had the source product elsewhere as rapidly as possible.

Speaker 4: These actions significantly increase that cost and consume the time of our operating people. Consequently, now on raw material from all sources, excuse me, concurrently,

Speaker 4: Nylon raw material from all sources increased significantly, which impacted our competitiveness in the marketplace.

Speaker 4: The actions by Ambassador ultimately led to our loss of Dixie's home and tire business with lows.

Speaker 4: Our team did an excellent job of replicating our stainless-master products in the field with new sources of raw material. But the one-time calcium curd were enormous.

Speaker 4: and in end delaying of new products until very late in the year. At the same time, we were working through the issues which were created by investor, our hard service business.

Speaker 4: Along with the industry was impacted by electrical issues and exorbitant ocean-pray grates.

Speaker 4: which rose rapidly to unprecedented levels. These costs also could not be fully passed on to our customers.

Speaker 4: Fortunately, those rates now have returned to more normal levels.

Speaker 4: We also experienced significant costs in restructuring our East Coast carpet manufacturing to reflect the loss of the low's business.

Speaker 4: and the slowdown of demand starting in the second quarter. This entails ceasing yarn and carpet manufacturing and our at-more Alabama plant.

Speaker 4: and starting the repurposing of the plant to accommodate equipment to produce luxury vinyl tile and to locate our hard surface distribution to this facility. At more today is the distribution center for our hard surface.

Speaker 4: products, but due to economic changes we decided to postpone our plan to locate LBT manufacturing in the plan.

Speaker 4: The loss of the lowest business and the general reduction in demand impacted our fourth quarter results.

Speaker 4: as Alan has already indicated. In order to reduce inventory levels to match our sales levels, we had temporary shutdowns in several facilities.

Speaker 4: and reduced hours worked in others, which resulted in significant unabsorbed fixed costs. In the quarter of the combination of the lower volume, plant shutdowns and pertailments.

Speaker 4: and the consumption of higher cost product inventory decreased our financial results.

Speaker 4: As a result of these issues, which we were faced, we embarked on an extensive construction plan.

Speaker 4: which included the consolidation of our manufacturing.

Speaker 4: Under this plan, we began this year with 24% fewer people in our company and should reduce costs in 2023 and excess of $40 million.

Speaker 4: We are also taking other actions to reserve cash and continue to reduce inventory in 2023. Even though we're expecting this year to be a challenging one...

Speaker 4: with the cost reductions in place and growth in issues, initiatives being that have been implemented we expect our results to be much improved. As we enter 2023, the uncertainty in the economy largely due to inflation and higher interest rates leads us to believe our markets will not show growth this year.

Speaker 4: While we think our core business will be sluggish, we do anticipate growth from our recent growth initiatives.

Speaker 4: Our hard surface growth in this began in 2017 with two collections.

Speaker 4: The Ford Surface Group initiative began in 2017 with two collections in the WPC segment.

Speaker 4: Although the initial launch was successful, it quickly became clear that we needed to increase our talent level and focus on our surface category to make this a meaningful part of our business.

Speaker 4: and be successful in the long run. In mid-2018 we hired James and Stepp as vice president of Art Surfaces.

Speaker 4: Jayman came from Portek, the leading brand in the resurgence segment.

Speaker 4: He developed a three-core brand as well as the INWOOD program and created a product strategy which worked well for our three brand sales team structure. Over the next four years with James Leadership, we have expanded our offering to include over 200.

Speaker 4: SKUs of WPC and SPC, LBT. And over 50 SKUs of engineered wood. And we have entered the Laminon category, which is making a resurgence in the market with water resistant technology advancements. And we have seen the hard surface segment grow to approximately 50 million.

Speaker 4: dollars of sales annually and represent about 20% of our total sales. Our second growth in H2 revolves around the exit of Stainmaster Fiber from the market, and the growth of polyester products in the floor covering business. We have had success with polyester products over the years, but have not been a major player. We have been able to access certain differentiated products.

Speaker 4: which fit into our Dixie home offering. We now have also been able to source polyester yarn at competitive prices so that we are now applying our best in industry product development capabilities to the polyester category. In 2022 our polyester business crew.

Speaker 4: 49 percent and in this year we're introducing non-new products in our Dixie home division. The early reaction has been phenomenal and we're projecting sales growth of 75 percent for the year starting from a very low base.

Speaker 4: Beyond 2023, we're planning additional introductions, taking advantage of our unique sources. This will continue to be an important part of our Dixie home offering. Our third growth initiative revolves around wool. The INWOL business has been part of Dixie's portfolio for 15 years. However, we've been primarily focused on internally-tested wool products. Our gehtreved dal ? in the expres did start in recognition of our Gades.

Speaker 4: While we have enjoyed success in this category, there's been a shift in consumer preference from the style and design standpoint. The shift has been toward more distinct patterns in woven, hand loom, and hand-tepted constructions.

Speaker 4: These types of products have traditionally been a very small part of our offering. To address these changes and grow our business in 2021, we heard hired LEM and Delino to lead our high inductive segment. LEM has...

Speaker 4: Over 35 years of experience in this segment and understands this business very well, including the landscape of suppliers, products and key customers. Land developed a three-year strategy and plan to grow this category. In 2022, we unveiled the 1866 product.

Speaker 4: Products by Masle, King on the Year Masle was founded, and Decor by Famrika, King on the notion of Fabrika's reputation for high-end, best-in-class products. These new problems with new brands and 27 fresh new styles were very well received by the market. In 2023, we were watching another 30 new styles and days.

Speaker 4: from this category for the year. During last year, we've taken numerous actions to improve short-term results this year, and are making structural changes to help us deal with market conditions. So simultaneously, we've been investing in the future growth of our...

Speaker 2: the future through our growth initiatives. These actions should have us well positioned for future growth when there's no conditions to improve. Here's Sam, we'd be like to open up to call for questions. Darryl? At this time, we would be happy to open up the conference questions. If you would like to ask a question, please press star 1 on your telephone keypad. The confirmation tone will indicate your line as in the question queue. You may press star 2 to remove your questions from the queue. One moment please, we'll be poll for your questions.

Speaker 2: As a reminder, that's Star 1. If you'd like to ask the question, there are no questions at this time. I'd like to have the call back over to Dan Friarson for any closing comments. Darrell, thank you very much. And we appreciate everyone joining us for the call. And look forward to 2023.

Speaker 2: which should be much improved in 2022. Thank you. Goodbye. Thank you, ladies and gentlemen, that will conclude today's conference call. Thank you again for your participation. You may disconnect your lines at this time.