Q3 2023 The Dixie Group Inc Earnings Call
Speaker 1: Good day and welcome to the Dixie Group Incorporated's 2023 third quarter earnings conference call. Today's call is being recorded.
Good day and welcome to the Dixie Group incorporated 2023 third quarter earnings Conference call.
Today's call is being recorded.
Speaker 1: At this time for opening remarks, I'll turn the floor over to Chairman and Chief Executive Officer Dan Frierson. Please go ahead.
At this time for opening remarks, I'll turn the floor over to chairman and Chief Executive Officer, Dan Frierson. Please go ahead.
Speaker 2: Thank you, Rob, and welcome everyone to our third quarter conference call. I have with me today Alan Dansey, our CFO .
Thank you, Rob and welcome everyone to our third quarter conference call.
With me today are Alan Dancy, our CFO.
Speaker 2: Our safe harbor statement is included by reference both to our website and press.
Our safe Harbor statement is included that reference both to our website and press release.
Speaker 2: For the third quarter, our net sales of 68.6 million were down approximately 4% compared to the same quarter of last year.
For the third quarter, our net sales of 68 6 million were down approximately 4% compared to the same quarter of <unk>.
Last year.
Speaker 2: Net operating income was a loss of $913,000 compared to a loss of over $7 million in the third quarter.
Net operating income was a loss of $913000 compared to a loss of over $7 million in the third quarter of.
2022.
Speaker 2: Despite the lower sales volume, this year our gross margin for the third quarter improved by over 9%.
Despite the lower sales volume this year, our gross margin for the third quarter improved by over nine percentage points from 17, 5% a year ago to 26, 6% this year.
Speaker 2: 17.5% a year ago to 26.6% this year.
First nine months of 2023 operating income was a loss of $354000, which included facility consolidation expenses in the amount of 2.3 minutes.
Speaker 2: First nine months of 2023 operating income was a loss of $354,000, which included facility consolidation expenses in the amount of 2.3 million dollars.
Speaker 2: 354,000 loss compared to an operating loss of 12.3 million for the same period a year ago.
The 354000 loss compared to an operating loss of $12 3 million for the same period a year ago.
Speaker 2: The housing market remains constrained due to limited supply, high interest rates, and continued inflation pressures.
The housing market remains constrained due to limited supply.
High interest rates and continued inflation pressure.
Speaker 2: Consequently, the residential flooring market remains weak.
Consequently, the residential flooring market remains weak as a result of lower home resales and deferred home improvement projects.
Speaker 2: result of lower home resales and deferred home improvement projects.
Speaker 2: sales for the quarter, as I indicated, were down 4%. But we believe the industry was down significantly more.
Sales for the quarter as I indicated were down 4%, but we believe the industry was down significantly more so we believe we gained market share in our markets again this quarter.
Speaker 2: So we believe we gain market share in our markets again this quarter.
Speaker 2: The flooring industry is experiencing a cyclical downturn like we've had many times over the last 10 years as the market gets VT, meaning that the market cutting irises money money
The flooring industry is experiencing a cyclical downturn like we've had many times over the years.
Speaker 2: to early determine when the economic situation will improve, but at some point it will. And the industry will experience a.
It's too early to determine when the economic situation will improve but at some point it will.
And the industry will experience a rebound in growth.
Speaker 2: After Allen reviews our financials, we'll discuss how we're working through the downturn and preparing for the future.
After Alan reviews, our financials, we'll discuss how we're working through the downturn and preparing for the future.
Speaker 3: Thank you, Dan. To reinforce what Dan said about ourselves and the...
Thank you Dan [noise].
To reinforce what Dan said about ourselves in the.
Speaker 3: Third quarter, we did see the 4% decline in sales down to $68.6 million from the prior year quarter at $71.8 million. That puts us on the nine months ended September 30th, net sales of $210 million was 10% below the net sales of $233 million in the same period of the prior year.
Third quarter, we did see the 4% decline in sales down to $68 6 million from the prior year quarter at $71 8 million.
This is on the nine months ended September 30th ER net sales of $210 million was 10% below the net sales of 233 million in the same period of prior year.
Speaker 3: A decrease in sales over the nine-month period was partially attributable to a loss in volume in the Mass Merchant Channel due to a shift in strategy by our largest Mass Merchant customer to lower sales.
Decrease in sales over the nine month period was partially attributable to a loss in volume in the mass merchant channel due to a shift in strategy by our largest mass merchant customer. It's a lower price point offerings. Net sales were also unfavorably impacted by high interest rates and inflationary concerns impacting customer consumer confidence as reflected in.
Speaker 3: Net sales were also unfavorably impacted by high interest rates and inflationary concerns impacting consumer confidence as reflected in lower home remodeling activity.
Lower home remodeling activity.
Speaker 3: As Dan mentioned, the growth margins through the first nine months of 2023 are significantly improved over 2022 as a result of our restructuring and facility consolidation efforts that we began in 2022 and that continued into 2023.
As Dan mentioned, the gross margins through the first nine months of 'twenty three are significantly improved over 22 as a result of our restructuring and facility consolidation efforts that we began in 2022 and that continued into 2023.
Speaker 3: Our gross margins in the third quarter and year to date were 26.6% of net sales compared to margins in the prior year below 19%.
Gross margins in the third quarter and year to date were 26, 6% of net sales compared to margins in the prior year below 19%.
Speaker 3: Low margins in the first half of 22 were the result of exorbitantly high pricing from our former primary raw material provider tied to their exit from the business.
Low margins in the first half of 'twenty two as a result of Exorbitantly high pricing from our former primary raw material provider tied to their exit from the business. Prior year was also impacted by very high ocean freight rates on imported containers by the end of 'twenty. Two we had changed our raw material fibers over the multiple suppliers at lower cost.
Speaker 3: Prior year was also impacted by very high ocean freight rates on imported containers.
Speaker 3: By the end of 22, we had changed our raw material fibers over to multiple suppliers at lower cost points and ocean freight rates had returned to more normal levels.
Points in Ocean freight rates have returned to more normal levels. We also saw reductions in the cost of raw materials and favorable operating results from our manufacturing facilities in 2023.
Speaker 3: We also saw reductions in the cost of raw materials and favorable operating results from our manufacturing facilities.
Speaker 3: The selling and administrative expenses in the first nine months of 2023 were slightly lower in dollars compared to the same period in the prior year, but higher as a percent of the lower sales in 2023. Selling expenses are primarily driven by samples of marketing investment and new growth.
Selling and administrative expenses in the first nine months of 'twenty three were slightly lower in dollars compared to the same period in the prior year, but higher as a percent of the lower sales in 2023.
Selling expenses are primarily driven by samples and marketing investment and new growth initiatives.
Speaker 3: We incurred $552,000 in expenses for Facility Consolidation during the third quarter of 2023. This expense was primarily related to facility closure and maintenance costs. Our operating loss, inclusive of Facility Consolidation expenses, was $913,000.
We incurred 552000 in expenses for our facility consolidation during the third quarter of 23.
This expense was primarily related to facility closure and maintenance costs are.
Our operating loss inclusive of facility consolidation expenses was 913000.
Speaker 3: compared to a $7.2 million operating loss in the third quarter of 2020.
Compared to a $7 $2 million operating loss in the third quarter of 'twenty two.
Speaker 3: For the first nine months of 23, we had an operating loss of $354,000 compared to a loss of $12.3 million in the same period of 2022.
For the first nine months of 'twenty three we had an operating loss of 354000 compared to a loss of $12 3 million in the same period of 2022.
Speaker 3: 23 year to date operating laws included 2.3 million dollars in facility
23 year to date operating loss included $2 $3 million and facility consolidation expenses.
Speaker 3: Interest expense on the quarter was $1.8 million compared to $1.3 million in the same quarter of 22. Interest expense on the nine months ended September 30th, 23 was $5.5 million compared to $3.5 million in the prior year. This increased interest expense was driven by increased borrowings on our senior line of credit and higher interest rates in the current year.
Interest expense on the quarter was $1 8 million compared to $1 3 million in the same quarter of 'twenty two.
Interest expense on the nine months ended September 30th 23 was $5 5 million compared to $3 5 million in the prior year.
This increased interest expenses driven by increased borrowings on our senior line of credit and higher interest rates in the current period.
Speaker 3: Our net loss on the quarter was 2.4 million compared to the net loss in the same period of the prior year at 8.8 million.
Our net loss in the quarter was $2 4 million compared to a net loss in the same period of the prior year at $8 8 million on a year to date, we had a net loss of $5 9 million compared to a loss of $16 6 million in the prior year.
Speaker 3: In the year to date, we have a net loss of $5.9 million compared to a loss of $16.6 million in the priority.
Speaker 3: Looking at our balance sheet, our receivables increased by $3 million from the prior year in balance.
Looking at our balance sheet, our receivables increased by $3 million from the prior year end balance.
Speaker 3: The increase was driven by the higher comparative sales volume during the last months of the respective period.
The increase was driven by the higher comparative sales volume during the last months of the respective periods as.
Speaker 3: As a result of decreasing cost and plant reduction in volume, our inventory was down from the prior year in balance by $3.8 million.
As a result of decreasing costs and planned reduction in volume our inventory was down from the prior year end balance of about $3 $8 million.
Speaker 3: Accounts payable and accrued expenses were up over prior year-end by 5.9%.
Payable and accrued expenses were up over prior year in that $5 9 million, primarily due to timing and increased spending related to higher anticipated sales volume going into the seasonally stronger early fourth quarter.
Speaker 3: Primarily due to timing and increased spending related to higher anticipated sales volume going into the seasonally stronger early fourth quarter.
Speaker 3: Capital expenditures for the quarter totaled $166,000 bringing the year-to-date to $763,000.
Capital expenditures for the quarter totaled 166000, bringing the year to date to 763000.
Speaker 3: Total capital expenditures are planned around $1 million for the year, and depreciations estimated to be $6 million.
Total capital expenditures are planned around $1 billion for the year and depreciation is estimated to be $6 2 million.
Speaker 3: Our debt decreased by $3.4 million from the end of 2022 driven by operations, decreased inventory, and timing of lower cost of expense payments and purchases offset by the high activity related to samples for new products and the cost of facility consolidation.
Our debt increased our excuse me our debt decreased by $3 $4 million from the end of 2022, driven by operations decreased inventory and timing and lower cost of expense payments and purchases offset by the high activity related to samples for new products and the cost of the facility consolidations.
Speaker 3: Our barring availability at quarter end was $15.9 million.
Barring availability at quarter end was $15 $9 million.
Speaker 3: Our VESTA presentation is available on our website at www.dixiegroup.com.
Our best your presentation is available on our website at Www Dot Dixie group Dotcom.
Tom I'll hand, it back over to Dan for Us.
Speaker 2: Thank you, Alan. We are continuing to manage the controllable aspects of our business by implementing productivity improvement.
Yeah, we are continuing to manage the controllable aspects of our business by implementing productivity improvements.
Speaker 2: reducing costs and headcount, restructuring assets where appropriate, and managing our working capital to optimize our cash flow, all of which lowers our expenses, improves our results.
<unk> costs, and head count restructuring assets, where appropriate and managing our working capital to optimize our cash flow all of which lowers our expenses improves our results and decreases there.
Speaker 2: Our third quarter results and improved gross margin show the positive impact of the actions we have taken over the last year.
Our third quarter results and improved gross margin shows the positive impact of the actions we've taken over the last year. So.
Speaker 2: Our facility consolidations have better aligned demand with lower cost capacity. Our headcount reductions have
Our facility consolidations have better align demand with lower cost capacity.
Our head count reductions have lowered our costs and we've experienced operational improvements in our manufacturing facilities. We are still on track to reduce costs this year by $35 million.
Speaker 2: And we have experienced operational improvements in our manufacturing facility.
Speaker 2: We are still on track to reduce costs this year by $35 million.
In addition to lowering costs and improving operations over the last year. We've continued to invest in our growth initiatives, which is night, which has enabled us to gain market share.
Speaker 2: In addition to lowering costs and improving operations over the last year, we have continued to invest in our growth initiative.
Speaker 2: which has enabled us to gain market share.
Speaker 2: We have continued to invest in our hard surface initiative and have broadened our product offering with particular emphasis on innovative products.
We have continued to invest in hard surface, our hard surface initiative and have broadened our product offering with particular emphasis on innovative products.
Speaker 2: In this category, we have continued to gain retail floor space and market share.
In this category, we have continued to gain retail floor space and market share. The products today include SBC, WPC laminate and engineered wood.
Speaker 2: products today include SPC, WPC, laminate and engineered wood with appropriate merchandising.
Appropriate merchandising for each category.
Speaker 2: Our decorative products initiative, which encompasses 1866 by mass.
Our decorative products initiative, which encompasses 18 66 biomass, one and decor Ralph Africa has continued to grow this category for US has continued to grow this category for us while the industry has not grown.
Speaker 2: core by Fabrica has continued to grow. This category for us has continued to grow this category for us, while the industry has not.
Speaker 2: We now have a broad offering of domestic and imported products.
We now have a broad offering of domestic and imported products, which allows our customers to offer a wide assortment of wall and other decorative products to their most discerning customers.
Speaker 2: allows our customers to offer a wide assortment of wool and other decorative products to their most discerning customers.
Speaker 2: Continue to gain momentum as our new product samples hit the floor.
We continue to gain momentum as our new product samples hit the floor.
Speaker 2: The third initiative has been to emphasize innovative polyester products.
The third initiative initiative has been to emphasize innovative polyester products to fill price points, which are important to certain customers seeking affordable fashion or.
Speaker 2: fill price points which are important to certain customers seeking affordable fashion.
Speaker 2: Our Dura-Silk solution bag program, merchandised as the Elements Collection.
Our dura silk solution back program.
Arching bass as the elements collection as gain traction quickly in the market. This year and we have experienced significant growth.
Speaker 2: gain traction quickly in the market this year and we have experienced significant growth.
Speaker 2: With these three initiatives in place, we have invested heavily in displays and samples, which has enabled us to expand our retail exposure.
With these three initiatives in place we have invested heavily in displays and samples which has enabled us to expand our retail exposure.
Speaker 2: This investment has helped us outperform the market in sales, but at a cost.
This investment has helped us outperform the market in sales, but at a cost.
Speaker 2: We would expect our selling costs next year to return to a more reasonable level.
We would expect our selling costs next year to return to a more reasonable level.
Speaker 2: Despite the investment in many new products, we were able to reduce debt by over $3 million at the end of the third quarter compared to the end of the prior year.
Despite the investment in many new products, we were able to reduce debt by over 3 million at the end of the third quarter compared to the end of the prior year.
Raw material cost.
Speaker 2: Raw material costs peaked early in the year and prices have decreased as demand declined and employment declined.
Ross peaked early in the year and prices have decreased as demand declined and inflation moderate.
Speaker 2: The decrease in raw material costs has helped offset the increase in people costs, which have increased significantly due to the rapid inflation which we all have experienced.
The decrease in raw material cost has helped offset the increase in people costs, which have increased significantly due to the rapid inflation, which we all have experience.
Speaker 2: In order to better position our company strategically, we will begin our extrusion of nylon in the first quarter of next year.
In order to better position our company strategically we will begin our extrusion of nylon in the first quarter of next year.
Speaker 2: We have taken this action to moderate the impact of any future disruptions of raw materials.
We've taken this action to moderate the impact of any future disruptions of raw materials and to lower costs.
Speaker 2: The industry continues to experience a difficult period as discretionary spending seems to be focused on experiencing things rather than purchasing items.
The industry continues to experience a difficult period as discretionary spending seems to be focused on experiencing things rather than purchasing items.
Speaker 2: Despite these trends, the upper end of the market is outperforming the market in general. Our focus on the upper end continues.
Fight these trends the upper end of the market is outperforming the market in general.
Our focus on the upper end continues to be a plus and for the first six weeks of the fourth quarter, our sales and orders are slightly better than a year ago.
Speaker 2: first six weeks of the fourth quarter, our sales and orders are slightly better than a year ago.
At this time, we will open the meeting for questions.
Thank you.
I'd like to ask a question today, you May press star one from your telephone keypad, a confirmation tone will indicate your line is in the question queue.
Speaker 1: I'd like to ask a question today. You may press star one from your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your...
You May press Star two if you like to move your question from the queue.
Speaker 1: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker 1: One moment, please, while we poll for questions. Once again, that's star 1. Thank you.
Please pull for questions once again Thats star one thank you.
Thank you.
Speaker 1: Our first question is from Barry Blank with J.H. Darby. Please proceed with your question.
My first question is from Barry blank with J H Tobey. Please proceed with your questions.
Speaker 4: Good morning, Dan. Dan, I have a question. Assuming that interest rates start to come down in the second half of next year.
Good morning, Dan.
And I have one question, assuming that interest rates start to come down in the second half of next year.
Speaker 4: What do you anticipate the lag time is of an interest rate decrease to the sales starting to increase for current homeowners?
What do you anticipate the lag time is of an interest rate decrease to the sales starting to increase for current homeowners.
Speaker 2: That's an excellent question. I wish I had a
Barry that's a excellent question.
Wish I had a a.
[laughter] Crystal ball that could tell me that.
Speaker 2: Crystal ball that could tell me that I don't know exactly when
I don't know exactly when.
Certainly.
Speaker 2: Certainly, remodeling comes first, and then, obviously, more home resales. But I think.
Remodeling comes first.
And then obviously.
Or home resales.
But I think lower interest.
Speaker 2: significantly lower interest costs, there would not be too long a lag. I think if it is a very slow decline, it obviously will take
Significantly lower interest cost.
Would not be too long of a lag I think if it is a very slow decline.
Obviously, it will take much longer.
I have one additional question.
Speaker 4: I have one additional question. The fact is that the Lowe's business is no longer there. Have you increased distributors or different companies that are selling the product to make up for some of the lost volume in Lowe's?
The fact is that the Lowe's business is no longer there.
Have you increased distributors selling.
Different companies that are selling the product to make up for some of the lost volume and Lowe's.
Yeah.
Speaker 2: Well, as you know, our focus is on the residential retailer all across the country.
Well as you know our focus is on the residential retailer all across the country. We do not at this time sell the big boxes.
Speaker 2: do not at this time sell the big boxes. We think their market share has declined, however, and our focus
We think their market share has declined however, and.
Our focus is.
Speaker 2: is on retailers throughout the country, and we feel like we are gaining market share in that piece of the market.
Is on retailers throughout the country.
And we feel like we are gaining market share.
And that piece of them are.
Thank you very much.
Thank you Barry.
Speaker 1: The next question is from the line of Barry Gertner with Improverb. Please proceed with your question.
The next question.
<unk> is from the line of Barry Gertner with him and for the please proceed with your question.
Speaker 5: Thanks, Dan. I guess it's a call of berries today. I just had two quick questions for you. The first being these facility consolidation costs that we're seeing and then kind of in conjunction with denouncing kind of in-house production of materials not to rely on supply chain partners.
Thanks, Dan.
I guess you could call a very today Oh.
Two quick questions for you.
The first being <unk>.
Facility consolidation costs.
We're seeing them.
And then kind of in conjunction with announcing guy kind of.
In house production of materials not to rely on supply chain partners.
Speaker 5: Could you give us an idea specifically around, like, which one of the facilities you've kind of been able to, like, gain sort of progress on consolidating into and how we should think about your footprint going forward with this new activity of manufacturing in-house?
Could you give us an idea specifically year round.
Like which one of the facilities, you've kind of been able to.
Like gain sort of progress on on consolidating into and how we should think about your footprint going forward with this view.
Activity of manufacturing in house.
Speaker 2: Let me take a stab at that and then ask Alan to comment on it as well. In terms of perfect manufacturing or tufting, we had two facilities that were in operation. We consolidated that into one, into our Eton plant, which was a lower cost operation. And therefore, there were not only advantages of.
Let me take a stab at that and then ask Alan to comment on it as well in terms of.
[laughter].
Perfect manufacturing our testing we had two facilities.
Consolidated that into one.
Into our <unk> plant, which was a lower cost.
And therefore, they're not only advantages.
Speaker 2: Consolidation, but consolidation into a lower cost facility.
The consolidation, but consolidation into a lower cost facility. The same thing was true.
Speaker 2: same thing was true of our yarn manufacturing. We were producing yarn in Atmore as we do in Roanoke, Alabama.
Our yarn manufacturing, we were producing yarn and add more as we do in Roanoke, Alabama.
Speaker 2: We consolidated all that into our Roanoke, Alabama plant, which was the lower cost producer. And it has enabled us to lower our costs overall.
We consolidated all of that entire one oak, Alabama plant, which was the lower cost producer.
And it has enabled us to lower our costs overall.
Alan do you have comments there, yes, the facility consolidation expenses.
Speaker 3: Alan, you have comments there? Yes, the facility consolidation expenses that...
Speaker 3: continue to incur this year, we have estimated about 500,000 left in that process, which is mainly focused on taking down existing racks and equipment in the facilities that we vacated down in the South Alabama area.
We've continued to incur this year, we have estimated about 500000 left and in that process, which is mainly focused on.
Taking down the existing.
Iraq and equipment in the facilities that we vacated down in South Alabama area.
Speaker 3: to utilize those facilities for administrative and distribution of LDF.
Continue to utilize those facilities for administrative and distribution of L. P F.
Speaker 3: have some space available that we are looking to be able to lease out going forward.
We have some space available that we are looking to be able to lease out going forward as well.
Speaker 5: Thank you. That's extremely helpful, guys. And then just one quick follow-up. On the Artisville facility, you had mentioned a little while back, kind of a complete, like announced the sale lease back and then that had fallen through. I wanted to know if there'd been any progress or if you guys are still in the, you know, considering looking at a deal there.
Thank you that's extremely helpful.
And then just one quick follow up.
On the order its still a facility you had mentioned a little while back a kind of a complete like announced the sale leaseback and then that had fallen through I wanted to know if.
There have been any progress or if you guys are still.
And then considering looking at a deal there.
Speaker 3: Yeah, as we announced, when we did announce the mass on the team that we were working for, following through, we continued to pursue an opportunity for a sale of these stacks.
Yeah, as we announced when we did announce the.
That's all the time that we were working towards.
Three we continue to pursue the opportunity for a sale leaseback.
Situation that we would have would be able to close by the end of the year.
Speaker 3: that we would hope would be able to close by the end of the year. Thank you very much.
Thank you very much.
Yeah Yeah.
Thank you.
Speaker 1: Thank you. With no further questions in the queue, I'll turn the call back to Dan Frierson for any additional or closing remarks.
Further questions in the queue I'll turn the call back to Dan Frierson for any additional or closing remarks.
Speaker 2: Thank you, Rob. And thank all of you for being with us today. Obviously, the market, our market has been very slow this year. Despite that we have continued to lower costs, we plan to continue lowering costs going into next year.
Thank you Rob and thank all of you for being with US today are obviously the market are.
Market has been very slow this year. Despite that we have continued to lower costs. We plan to continue lowering costs going into next year.
Speaker 2: and but have invested in our growth initiatives, which we think once business improves, we'll have a significant impact on our sales. Thank you for being with
And but have invested in our growth initiatives, which we think once business improves we will have a significant impact on our sales. Thank you for being with us.
Speaker 1: Ladies and gentlemen, that will conclude today's conference. Thank you again for your participation.
Ladies and gentlemen that will conclude today's conference. Thank you again for your participation.
I think.