Full Year 2023 The Dixie Group Inc Earnings Call
Good day and welcome to the Dixie Group, Inc, 2023 earnings Conference call.
Today's call is being recorded.
At this time for opening remarks, and introductions I would like to turn the call over to the chairman and Chief Executive Officer, Dan Frierson. Please go ahead.
Christine Thank you very much and welcome everyone to our fourth quarter and 2023 year end conference call.
Alan Danzy is with me Alan as our CFO.
Our safe Harbor statement is included by reference both to our website and press release.
Adjusted for the additional week in our prior fiscal year weekly sales in the fourth quarter were approximately 2% better than 2023 as compared to 2022.
Net sales for the year 2023 were down 9% from the prior year, but were down seven 2% on an adjusted weekly basis.
The lower net sales.
Mt was the result of a slowdown in the floor covering industry driven by high interest rates, which have dramatically impacted the housing and residential remodeling markets.
We believe the overall flooring industry experienced a significantly higher reduction in year over year sales volume.
Indicating we are continuing to gain market share in our core markets.
To the numerous actions, we took to reduce costs and improve operations. During the last two years, our fourth quarter gross margin improved by 13 percentage points to 27% of net sales as compared to 14% of net sales in the fourth quarter of 'twenty two.
At this time, Alan will review, our financial results after which I will have additional comments Alan Thank you, Dan and the fourth quarter of 2023 net sales were $66 7 million compared to $70 5 million in 2022.
And as Dan pointed out in the fourth quarter of 2022 included 14 weeks compared to the fourth quarter of 2023 at 13 weeks.
So on an average weekly basis sales in the fourth quarter of 2023, 1.8% above 2022 average weekly sales.
The net income for the fourth quarter of 2023 was $3 2 million that compares to a loss of $18 5 million in the fourth quarter of 2022.
The fourth quarter of 2023.
Income included expenses of $1 5 million for facility consolidations and a net gain of approximately $8 million as a result of the sale leaseback of art, there still Georgia facility. The loss in the fourth quarter 22 was related to higher costs, driven by inflation and freight rates in the fourth change in our raw materials as well as under absorbed.
Fixed costs from our planned decrease in production.
For the fiscal year 'twenty three net sales were $276 3 million compared to $303 6 million in the prior fiscal year.
The company in fiscal year 'twenty. Two included an additional 50 <unk> week twenty-three fiscal year consisted of the traditional 52 weeks.
On an adjusted average weekly comparative basis, the net sales and 23 or seven 2% below prior year.
Primary driver of the lower net sales was the unfavorable impact of higher interest rates and inflationary concerns that impacted consumer confidence and was reflected in lower home remodeling activity.
Gross margins in 'twenty three were significantly improved over 22 as a result of our restructuring and facility consolidation efforts beginning in 'twenty, two and continuing through the early part of 'twenty three.
Our gross margins year to date, 23, or 26, 7% of net sales compared to margin from the prior year at 17, 7%.
The low margin from 22 were the result of Exorbitantly high pricing from our former primary raw material provider Todd so their exit from the business.
Higher 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 that lower cost point and ocean freight rates have returned to normal levels. We also saw reductions in the cost of raw materials and favorable operating results from our manufacturing facility.
Selling and administrative expenses in the full year of 23 or $2 $8 million lower compared to the prior year, but higher as a percent of the lower net sales.
Selling expenses are primarily driven by samples and marketing investment in our new growth initiatives.
We incurred $3 $9 million in expense for facility consolidations. During 2023, this expense primarily related to facility closure and maintenance calls.
Also as previously mentioned in the fourth quarter of 'twenty three we recognized a gain of approximately $8 million in the other operating income as a result of the sale and leaseback of art, there still Georgia facility.
Our operating income inclusive of the facility consolidation expenses.
The gain on sale was $5 million.
Compared to a $28 $2 million operating loss in 2022.
Our interest expense on the year was $7 $2 million compared to $5 $3 million in 2022.
This increased interest expense was primarily driven by higher interest rates in the current year.
Our net loss on the year was $2 7 million compared to a net loss in the prior year at $35 1 billion.
Looking at our balance sheet, our receivables decreased by $1.3 million from the prior year imbalance. The decrease was driven by increased timing of customer payments during the last month of the current period.
As a result of decreasing costs and planned reduction in volume our inventory was down from the prior year end balance by $7 $5 million or 9%.
Yeah, let's payable and accrued expenses were below prior year and about $1.3 million, primarily due to the lower year over year calls.
Our capital expenditures on the year totaled under $1 million and depreciation was $7 3 million.
Our debt decreased by $16 $8 million from the end of 'twenty, two driven by the sale of ours, they're still facility along with operating result decreased inventory and the timing of lower cost of expense payments and purchases. These favorable cash flow items were offset by the cost of our facility consolidations.
Our borrowing availability on our senior line of credit is currently at $14 $5 million.
Our investor presentation is available on our website at Www Dot Dixie group Dotcom.
Yeah.
Thank you Alan.
2023 was a year of transition for our company. We spent much of 2022 adjusting to the exit of investor from the fiber business and the sale of the stainmaster brand to Lowe's, which resulted in the loss of our business and the home Center channel.
These changes along with our sale of our commercial business to Manhattan necessitated numerous restructuring of our operations, which we began in 2022 and finished in 2023.
These changes would have been difficult to under any circumstances, but were also adversely impacted by the slowdown in the floor covering business. During the year, we had to match capacity levels to current business activity.
The economy has thus far avoided a recession many of those industries, which are interest rate sensitive have already experienced a hard landing.
Our particular business is focused on the independent residential retailer and our customers have been severely impacted by the rapid increase in interest rates, which are dramatically impacted the housing and residential remodeling markets.
While our while new home construction has begun to improve.
The sale of existing homes is at the lowest point since 1995.
Because of this economic environment floor covering sales decrease during 2023.
The actual square yard some carpets, so by the industry in 'twenty three we're about 20% lower than two years before in 2020 one.
As we begin 2020 for our industry is at a cyclical low point so.
So we're continuing to minimize expenses, reducing overhead and lowering costs.
During 'twenty three we were able to reduce costs over $35 million and have a plan to further reduce costs in 2024 by an additional $10 million.
As a result of these actions taken in 'twenty three our gross margin percentage improved by 900 basis points.
As Alan has pointed out we also gained market share in 2023 and believe we can continue to do so through our growth initiatives.
Our initiatives to grow our hard surface business has continued to gain momentum as we have invested in our true core brand by broadening our product offering as well as our high end program High end Wood program as part of our fab breaker offering.
Today hard surface products represent about 20% of our sales and we believe and continue to gain market share.
We have been the leader in the industry and the World category. The addition of more distinct woven patterns handloomed in hand, tufted products have made us a more important supplier to the designer and high end retail communities through our 18, 66 by Maslin and decor by fabric or collections.
<unk> broadened our offering and made a significant investment for the future.
Our third initiative initiative has been to broaden our polyester product offering by incorporating our style and design capabilities at price points, we cannot reach with nylon products. We continue to add products to our <unk> silk collection and sales have reflected the strong acceptance these looks.
With these three initiatives in 'twenty three we invested heavily in displays and samples which has enabled us to expand our retail exposure.
We think the industry will not grow significantly in 'twenty four these initiatives should enable us to gain market share.
A major initiative for US this year is the starting up of our extrusion capability.
The ability to produce our own now on yarn will give us the assurance of having our own source of raw material and not be in the position we were in when and Vista exited the business production.
Production began in.
<unk> has begun and in the future will give us more cost effective source of raw materials.
Our commitment to be stabbed nylon fiber enables us to be the leader in the industry in offering a wider variety of fashionable products colored to the taste of our discerning customers.
And the industry to solution dyed products has created a sea of sameness from which our customers can't escape.
During the year, we've taken numerous actions to improve operational and sales results and have made structural changes to prepare us better for the future.
Simultaneously, we've been investing in the future through our growth initiatives and extrusion capabilities.
We believe that the actions we have taken to prepare us for the current difficult environment also position us for the eventual upturn, which we will inevitably experience.
The actions, we have taken have been done with an eye to the future.
When interest rates proceed in housing rebounds.
We'll be in a great position to take advantage of a prolonged upturn in existing home sales and a strong residential remodeling market.
During 'twenty four we're celebrating with our industry partners the 50th anniversary of fabric.
We will be celebrating our 50 year commitment to quality without compromise, which has positioned fabric as an industry leader in style design and color as well as quality.
We have been fortunate to have lower client as a director for the past 20 years his input and counsel have been most helpful. As we progressed through the turbulent times with which we had been placed during his tenure.
His presence has provided a calming and insightful influence regardless of the issues at hand.
He will not be standing for election at this year's shareholder meeting and we will Miss his presence and greatly appreciate his tremendous contributions to our company.
Looking at current business conditions for the first 10 weeks of the year. Our sales are slightly behind last year, but orders are in line with the first 10 weeks of the quarter last year. While this is better than we had expected and projected we believe a reduction of interest rates is the catalyst that will positively change.
Business conditions.
At this time, we'd like to open up the meeting to any questions.
Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
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You May press Star two if you would like to remove your question from the queue.
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One moment, please while we poll for questions.
Yeah.
Yeah.
Thank you. Our first question comes from the line of Barry Gardiner with Proverb. Please proceed with your question.
Good morning.
Thank you so much congratulations on a great margin quarter.
The improvements are really coming along and I'm I guess I had a question along the lines up for.
Through our model there.
Fair enough.
These gross margin I'm kind of improving in trailing upwards now that some of this consolidation has gone in and you're doing a bunch of things in house.
Relying on third party support.
Okay.
Yeah as far as the gross margin we do not.
Forward looking data, but as we've discussed the manufacturing operations.
The consolidations that we've done there.
Significant efficiencies.
Projects continue forward and we've identified and continue to implement cost savings initiatives in the current year, so where.
I'm very happy of course with the departures that we saw in 'twenty three and convenient.
To continue the momentum there.
Understood and then if I can.
And just one more.
Jack like God deficiency filing date, the company has it like mentioned any plan that I'm assuming.
Something that companies looking to address to make sure that the state compliance with the listing.
Okay. Barry first of all thank you for your questions and obviously, yes, we will be addressing that soon.
Soon.
Thank you so much they've done a great quarter.
Alright, thank Baird.
Okay.
Our next question comes from the line of Chris Raymond Schneider with Morgan Stanley. Please proceed with your question.
Good morning, just a couple of industry questions back in 15, the SaaS market. The soft surface market was about 55% of the overall, Florida market and 18 it dropped to 50% currently where are we in 2024, but soft surface seeing that 80% of our business is soft surface and every quarter you mentioned that you gave.
Market share can you quantify that thank you.
Yeah.
Chris.
We can quantify it we get numbers through our industry Association, but those are not published.
So we cannot give you exact numbers, but we we certainly have gained market share.
Carpet has continued to lose market share to hard surface I would say until the last year.
It seems to be to have leveled off.
And I think probably.
We will maintain that that that percentage.
Percentage.
We are about 5% of the <unk>.
Soft floor covering business and consequently, and we're in the upper end of the soft floor covering business I don't believe the upper end and we don't have.
Empirical data to back this up but I think the upper end of the market has done much better than the market overall.
<unk>, obviously has helped us gain market share, but we don't have data that separates the market by price points.
In addition to new.
Just discuss a little bit about the balance sheet and what is the boards.
Goal with the the debt.
As it relates to equity.
Yeah, Yeah, our balance sheet, we've taken great steps this year as far as to continue to decrease our debt, but it'll.
It'll fluctuate fluctuate with their operating needs, we did discuss with our board in the past board meeting as far as what our financing opportunities are and watching the economic conditions.
Capex and inventory investments as well as any new product initiatives and they drive.
The need for some more financing opportunities.
But where were.
Again, as we talked about on the margins were excited about the opportunity to continue to improve our margins and grow the Oh I can see the cash flow contributions from that but we're watching the economy is everyone is and will continue to monitor that and make sure that we identify our financing opportunities if needed, but hopefully the economy.
As Dan said that interest rates are reductions come in.
When we start seeing a rebound in.
The positive cash flow from operations.
We continue to focus on reducing our debt position.
Okay. Thanks back in the queue. Thank you Chris.
Thank you with no further questions in the queue I would now like to turn the call back to Dan Frierson for any additional or closing remarks.
Cristina Thank you and thank all of you for being with us for our call and look forward to visiting with you again at the end of next quarter. Thank you.
Ladies and gentlemen that will conclude today's conference. Thank you again for your participation.
Okay.