Q1 2024 The Dixie Group Inc Earnings Call

Operator: Good day, and welcome to the Dixie Group Incorporated 2024 First Quarter 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 Chairman and Chief Executive Officer Dan Frierson. Please go ahead, sir.

Good day and welcome to the Dixie Group incorporated 2024 first quarter earnings Conference call. Today's call is being recorded at this time for opening remarks introductions I would like to turn the call over to Chairman and Chief Executive Officer Danfoss I said. Please go ahead Sir.

Daniel K. Frierson: Thank you, LaTanya, and welcome everyone to our first quarter conference call. I have with me Allen Danzey, who will be giving you information shortly.

Daniel K. Frierson: Thank you Latanya and welcome everyone to our first quarter conference call I have with me Alan Dan <unk>, who will be giving you information shortly our safe Harbor statement is included by reference both to our website and press release.

Daniel K. Frierson: Our safe harbor statement is included by reference both in our website and press release. For the first quarter of 2024, the company had net sales of $65,254,000, as compared to roughly $67 million in the same quarter the previous year. The company had an operating loss of $857,000 compared to an operating income of $306,000 in the first quarter of 2023. The net loss from continuing operations in the first quarter of twenty-four was two million four hundred and ten thousand dollars, or sixteen cents per diluted share.

Daniel K. Frierson: For the first quarter of 2024, the company had net sales of $65.254 million as compared to roughly 67 million in the same quarter previous year.

Daniel K. Frierson: The company had an operating loss of 857000 compared to an operating income of $306000 in the first quarter of 2020 three.

Daniel K. Frierson: Net loss from continuing operations in the first quarter of 'twenty, four was $2.410 million or 16 cents per diluted share.

Daniel K. Frierson: In 2023, the net loss from continuing operations for the first quarter was $1,551,000, or $0.11 per diluted share. Our net sales for the quarter were negatively impacted by high interest rates affecting the housing and home remodeling market and the impact on the economy from continued inflation. Overall, our net sales during the quarter were 2.7% below the prior year, while the industry, we believe, was down approximately 8%. Due to this lower demand, we saw less favorable margins in the first quarter as our lower volume resulted in underabsorbed fixed costs in our manufacturing plant. We also were able to reduce inventories, which had the same impact. At this time, Allen will review our financial results, after which I'll have additional comments regarding our results.

Daniel K. Frierson: 2023, the net loss from continuing operations for the first quarter was a million $551000 or 11 cents per diluted share.

Daniel K. Frierson: Our net sales for the quarter were negatively impacted by high interest rates affecting the housing and home remodeling market.

Daniel K. Frierson: Yeah.

Daniel K. Frierson: Impact on the economy from continued inflation.

Daniel K. Frierson: Overall, our net sales during the quarter were 2.7% below prior year.

Daniel K. Frierson: The industry, we believe was down approximately 8%.

Daniel K. Frierson: Due to this lower demand and we saw less favorable margins in the first quarter as our lower volume reserves resulted in under absorbed fixed cost in our manufacturing.

Allen: The action plans.

Daniel K. Frierson: We also were able to reduce inventories, which had the same impact.

Daniel K. Frierson: At this time, Alan will review, our financial results after which I'll have additional comments regarding our ourselves.

Allen: Thank you Dan.

Allen L. Danzey: As Dan just pointed out, our net sales in the first quarter of 2024 were 2.7% below the same period in the prior year. He said the primary driver of that was a favorable impact from higher interest rates and inflationary concerns which did impact consumer confidence, and we saw that reflected in home remodeling activity. The gross profit margin in the first quarter of 2024, which is 24.2% of net sales compared to 26.6% in the same quarter of the prior year.

Allen: As Dan just pointed out our net sales in the first quarter of 2024, where 2.7% below the same period in the prior year.

Allen L. Danzey: As he said the primary driver on that was the unfavorable impact from the higher interest rates and inflationary concerns, which did impact the consumer confidence and we saw that reflected in the home and remodeling activity.

Allen L. Danzey: The gross profit margin in the first quarter of 2024, which was at 24, 2% of net sales compared to 26, 6% in the same quarter of the prior year.

Allen L. Danzey: The gross product margin was negatively impacted by lower production volumes in our manufacturing plants in the earlier part of the quarter. However, production volumes were higher in the month of March, and the gross margin in that interim period returned to a level more in line with prior year-end expectations.

Allen L. Danzey: The gross profit margin was negatively impacted by lower production volumes at our manufacturing plant in the earlier part of the quarter for production volume was higher in the month of March and the gross margin in that interim period return to a level more in line with prior year and expectations.

Allen L. Danzey: Selling and administrative expenses in the first quarter of 2024 were closely in line with the prior year, but higher as a percent of lower net sales in 2024 at 25.1% compared to 24.5% in the prior year period. Our interest expense for the quarter was $1.5 million compared to $1.9 million in 2023. This decreased interest expense was driven by lower levels of debt in the current year.

Allen L. Danzey: Selling and administrative expenses in the first quarter of 2024 were closely aligned with the prior year, but higher as a percent of lower net sales in 2024, 25, 1% compared to 24, 5% in the prior year period.

Allen L. Danzey: Our interest expense in the quarter was $1 5 million compared to 1.9 billion in 2020 three.

Allen L. Danzey: Decrease in interest expense was driven by lower levels of debt in the current year.

Allen L. Danzey: Our net loss for the year was $2.5 million compared to our net loss in the prior year of $1.8 million. Looking at our balance sheet, our quarterly unreceivable has increased by $4.5 million from the prior year in balance. The increase was driven by higher billings to customers during the last month of the current period as compared to the seasonally lower December timeframe. However, our inventory was down from the prior year imbalance by 1.2 million. We have maintained inventory at low levels in line with demand during the quarter, and accordingly, we expect to...

Allen L. Danzey: Our net loss on the year was $2 5 million compared to a net loss in the prior year at $1 8 million.

Allen L. Danzey: Looking at our balance sheet, our quarter end receivables increased by $4 5 million for the prior year imbalance there.

Allen L. Danzey: The increase was driven by higher billings to customers during last months of the current period as compared to the seasonally lower December time frame.

Allen L. Danzey: Our inventory was down from prior year end balance of about $1 2 million.

Allen L. Danzey: We are maintaining inventory levels at Lowe excuse me got maintain inventory at low levels in line with demand during the quarter and accordingly, we expect to.

Speaker Change: Excuse me we had.

Allen L. Danzey: Excuse me, we have... We continue to maintain inventories at low levels in line with demand. In the second quarter, we did see that at the end of the first quarter, our accrued payables and accrued expenses were increased by $8.7 million, primarily due to raw materials on order, and that's compared to the end of the year, 2023. Property, plant, and equipment increased by $6.3 million during the quarter. This increase included cash purchases within the quarter of $499,000.

Speaker Change: Uh huh.

Allen L. Danzey: We have continued to maintain inventories at low levels in line with demand.

Allen L. Danzey: The second quarter.

Allen L. Danzey: We did see.

Allen L. Danzey: I'm sorry at the end of the first quarter, our accrued payables and accrued expenses were increased.

Allen L. Danzey: Increased by $8 7 million, primarily due to raw materials on order desk.

Allen L. Danzey: That's as compared to the end of the year.

Allen L. Danzey: 2020 three.

Allen L. Danzey: Property plant and equipment increased by $6 $3 million in the quarter.

Allen L. Danzey: This increase included cash purchases within the quarter of 499000.

Allen L. Danzey: And also that included deposits moved P. P N E and the amount of $6 5 million plus accruals and adjustments during the quarter.

Allen L. Danzey: These additions were offset by $1.5 million in depreciation.

Allen L. Danzey: It also included deposits moved to PP&E in the amount of $6.5 million plus accruals and adjustments during the quarter. These additions were offset by $1.5 million in depreciation. Our debt increased by $1.9 million from the end of 2023, mainly driven by operating results and the investments in samples and other costs associated with product introductions in the first part of the year. At quarter end, our unused borrowing availability under the revolving credit facility was $15 million.

Allen L. Danzey: Our debt increased by $1.9 billion from the end of 2020, three mainly driven by operating results and the investments in samples and other costs associated with product introduction introductions in the first part of the year.

Allen L. Danzey: At quarter end, alright, unused borrowing availability under the revolving credit facility was $15 million.

Allen L. Danzey: Our investor presentation is available on our website at www.dixiegroup.com. Dan. Thank you, Allen.

Speaker Change: Our investor presentation is available on our website at Www Dot group Dot Com Dan. Thank you Alan as we entered the first quarter. We felt we were at the bottom of a downcycle that had hopes of lower interest rates later in the year, which would be the catalyst for improved business conditions.

Daniel K. Frierson: Thank you, Allen. As we entered the first quarter, we felt we were at the bottom of a down cycle but had hopes of lower interest rates later in the year, which would be the catalyst for improved business conditions. It now appears the lowering of interest rates will be longer coming than we had originally anticipated. However, when housing starts and home resales do begin to improve, the industry should experience better business for a sustained period of time.

Daniel K. Frierson: It appears the lowering of interest rates will be longer coming than we had originally anticipated.

Daniel K. Frierson: Housing starts and home resales do begin to improve the industry should experience better business for a sustained period of time.

Daniel K. Frierson: The first quarter typically is the slowest period of the year, so it certainly felt as if we were bumping along the bottom of a downturn. But we did begin to experience normal seasonal improvement in our business as the quarter progressed. At the end of the quarter, in the month of March, net sales were slightly ahead of the same month last year, and, as Allen pointed out, our margins for the month were more in line with the prior year and our expectations. As a reminder, we have spent the last several years recovering from our major share supplier in Vista's abrupt and abusive exit from the business. We now have an ample supply of product from four major sources.

Daniel K. Frierson: The first quarter typically is the slowest period of the year. So it certainly felt as if we were bumping along the bottom of a downturn.

Daniel K. Frierson: But we did begin to experience normal seasonal improvement in our business as the quarter progressed.

Daniel K. Frierson: At the end of the quarter in the month of March net sales were slightly ahead of the same months last year.

Daniel K. Frierson: And as Alan pointed out our margins for the month were more in line with the prior year and our expectation.

Daniel K. Frierson: As a reminder, we have spent the last several years recovering from a major share supplier investors abrupt and abusive exit from the business.

Daniel K. Frierson: We now have ample supply of product from four major sources and in the first quarter began extruding, our own raw materials, which gives us not only lower cost material.

Daniel K. Frierson: And in the first quarter, we began extruding our own raw materials, which gives us not only lower cost material but availability of supply for the future, even if there are other major changes in the industry impacting fiber supply. Our initial focus has been on extruding white dyeable nylon, which allows us to present long, beautiful color lines that stand out in a residential market that has moved to a solution-dyed polyester sea of St. Louis.

Daniel K. Frierson: Availability of supply for the future even if there are other major changes in the industry impacting fiber supply.

Daniel K. Frierson: Our initial focus has been on extruding quite dabble, now, which allows us to purchase at long beautiful color lines that stand out in a residential market that has moved to a solution dyed polyester sea of sameness.

Daniel K. Frierson: In support of this, we launched a color marketing campaign, Step Into Color, which connects retailers and consumers with a world of color options, including custom colors that are prevalent in Fabrica but also available in our other soft service divisions. We lost 14 new carpet styles in the first quarter, including 11 Envisioned Nylon styles in our high-end division.

Daniel K. Frierson: In support of this we lost a color marketing campaign step into color.

Daniel K. Frierson: Which connects retailers and consumers with a world of color options, including custom colors that are prevalent in fab fab breaker, but also available at our other self service divisions.

Daniel K. Frierson: We lost 14, new carpet styles in the first quarter, including 11 envision nylon styles in our high end divisions are.

Daniel K. Frierson: Our Maslin introductions are a great mix of high fashion and mid price points to drive volume in the current challenging market conditions. In our Fabrica brand, we launched a trio of styles paying tribute to the brand's 50-year history. Homage, tribute, and adulation share a common color line of 50 colors, which were named after key fabric styles from the last 50 years.

Daniel K. Frierson: Maslin introductions are a great mix of high fashion and mid price points to drive volume in the current challenging market conditions.

Daniel K. Frierson: And our fabric and boot brand, we lost a trio of styles paying tribute to the brand's 50 year history.

Daniel K. Frierson: Image tribute and adulation share a common color lineup 50 colors, which were named as a key fabric styles from the last 50 years.

Daniel K. Frierson: I am sure these beautiful stiles will become go-to stiles for fabrica for years to come. DH Floors has continued to broaden its polyester product offering by incorporating our style and design capabilities at price points we cannot reach now. During the quarter, we continued to add products to our DuraSilk collection, and sales have reflected the strong acceptance of these looks. The remainder of our soft and our true core hard service introductions for 2024 will be released in the second quarter.

Daniel K. Frierson: I'm sure. These beautiful spouses will come go to yourself or fabric for years to come.

Daniel K. Frierson: D. H floors has continued to broaden as polyester product offering by incorporating our style and design capabilities at price points, we cannot reach with not a lot.

Daniel K. Frierson: During the quarter, we continued to add products to our dura silk collection and sales have reflected the strong acceptance of these looks.

Daniel K. Frierson: Major of ourselves and our true core hard service centered auctions for 2024 weeks will be released in the second quarter.

Daniel K. Frierson: Additionally, last year we embarked on a plan and successfully implemented a $35 million cost reduction program. This year, without additional sales volume, we're in the process of implementing an additional cost reduction plan of $10 million dollars by, and other controllable aspects of our business. During the first quarter, we were able to achieve, We also plan on continuing to reduce inventories until we experience sales growth. For the first four weeks of the second quarter this year, net sales were approximately 4% above the comparable period in the prior year.

Daniel K. Frierson: Additionally, last year, we embarked on a plan and successfully implemented a 35 million dollar cost production program.

Daniel K. Frierson: This year without additional sales of all you know we're in the process of implementing additional cost reduction plan of $10 million.

Daniel K. Frierson: By continuing to better manage the controllable controllable aspects of our business.

Daniel K. Frierson: During the first quarter, we were able to achieve that.

Daniel K. Frierson: We also plan on continuing to reduce inventories until we experienced sales growth.

Daniel K. Frierson: In the first four weeks of the second quarter and this year net sales are approximately 4% above the comparable period in the prior year.

Daniel K. Frierson: But order entry is approximately 8% below in the same period a year ago. The second quarter is typically our strongest quarter, and Strongman in the first quarter due to seasonality and our new products hitting retail floors.

Daniel K. Frierson: But order entry is approximately 8% below in the same.

Daniel K. Frierson: From the same period a year.

Daniel K. Frierson: A year ago.

Daniel K. Frierson: Second quarter is typically our strongest quarter.

Daniel K. Frierson: And first and.

Daniel K. Frierson: Stronger than the first quarter due to seasonality and our new products hitting retail floors.

Daniel K. Frierson: This morning... We announce that on May 1st, the company's board of directors approved the repurchase of up to $2.8 million of the company's common stock. Such purchases would be under a planned precedent to Rule 10b-5-1 of the Security, Securities and Exchange Act. Subject to the requirements of the Rule 10b-5-1, the purchase plan would permit the purchase of up to $2.8 million in company shares beginning on or about May 8th and continuing for about a year. At this time, we'd be happy to open the meeting to questions.

Speaker Change: This morning.

Daniel K. Frierson: We announced that on May 1st the company's board of directors approved the repurchase of up to $2.8 million of the company's common stock.

Daniel K. Frierson: [noise] purchases would be under a plan pursuant to rule 10, B five one of the Securities Securities and Exchange Act.

Daniel K. Frierson: Subject to the requirements of the rural tend to be five one the purchase plan would permit the purchase of up to $2.8 million of the company's shares beginning on or about may eight and continuing for about a year.

Speaker Change: At this time, we'd be happy to open the meeting to questions.

Daniel K. Frierson: [music].

Operator: Thank you. We will now conduct a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue.

Operator: Thank you. We will now conduct a question and answer session.

Speaker Change: Thank you we will now conduct a question and answer session.

Operator: We would like to ask a question. Please press star one on your telephone keypad.

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

Operator: You May press Star two if you would like to remove your question from the queue.

Operator: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, that's star 1 to ask a question at this time. One moment while we poll for questions. Once again, ladies and gentlemen, to ask a question, that's star one at this time. Our first question comes from Chris Riemenschneider with Morgan Stanley. Please proceed.

Operator: For participants using speaker equipment, it may be necessary to pick up your handset before pressing just darkies. Once again, that's star one to ask a question at this time.

Christian Riemenschneider: One moment, while we poll for questions.

Operator: Yeah.

Christian Riemenschneider: Once again, ladies and gentlemen to ask a question Thats Star one at this time.

Operator: Okay.

Operator: Yeah.

Operator: Okay.

Christian Riemenschneider: Our first question comes from Chris Raymond China with Morgan Stanley. Please proceed.

Christian Riemenschneider: Good morning.

Christian Riemenschneider: Good morning, Chris.

Christian Riemenschneider: In my remarks, you mentioned that you believe once interest rates come back down, the housing market will boost remodeling activity. It looks like...

Christian Riemenschneider: And in my remarks, you mentioned that you believe once interest rates come back down.

Christian Riemenschneider: The housing market.

Christian Riemenschneider:

Christian Riemenschneider: Will boost the remodeling activity.

Christian Riemenschneider: It looks like it's kind of evident that rates arent coming down anytime soon.

Christian Riemenschneider: It's kind of evident that rates aren't coming down anytime soon. How are you going to navigate that? $35 million last year, you're going to save another $10 million. Can you be profitable in this environment?

Christian Riemenschneider: Yeah.

Christian Riemenschneider: How are you going to navigate that.

Christian Riemenschneider: You see it.

Christian Riemenschneider: $35 million last year, you're going to see another 10 million.

Christian Riemenschneider: Can you be profitable in this environment.

Christian Riemenschneider: Yeah.

Daniel K. Frierson: Chris, obviously, we think it is going to be a while before business improves significantly. On the other hand, the upper end of the market is doing better than the market overall, and we're certainly seeing that with our brands, but we've got to continue cutting costs, and yes, we think we can be profitable at these levels. But I will say, obviously, a rising tide would certainly be appreciated and helpful, but we've got to get there whether the tide rises or not.

Speaker Change: Chris obviously.

Daniel K. Frierson: We think it is gonna be a while before business improved significantly on the other hand, the upper end of the market is doing better than the market overall, and we're certainly seeing that with our brands but.

Daniel K. Frierson: What's the time horizon for the $10 million savings over the next 12 months or the remainder of the year?

Daniel K. Frierson: We've got to continue cutting costs and yes, we think we can be profitable at these levels.

Daniel K. Frierson: Got.

Daniel K. Frierson: I will say, obviously, a rising tide would certainly be appreciated and helpful. But we've got to get there whether that.

Daniel K. Frierson: Tide rises or not.

Daniel K. Frierson: What's the time horizon for the $10 million savings that over the next 12 months or the remainder of the year.

Daniel K. Frierson: That is, the $10 million is distributed over the 12 months of the year. We accomplished some of that in the first quarter. We will continue, and it will impact the quarterly as we go.

Daniel K. Frierson: That is the.

Daniel K. Frierson: The 10 million is distributed over the.

Daniel K. Frierson: The 12 months of the year.

Daniel K. Frierson: We accomplished a good some of that in the first quarter.

Daniel K. Frierson: We will continue it will impact quarterly as we go.

Daniel K. Frierson: Any update on the NASDAQ listing regarding the stock being under a buck, and do you have an extension on that? We do have an extension.

Speaker Change: Any update on the NASDAQ list I mean, the lifting regarding the stock being under a Buck and do you have an extension on that.

Daniel K. Frierson: We do have the extension from the initial deficiency notice that we received in the fourth quarter of last year. The extension is through September of this year. We continue to stay focused on that, and we will continue to make efforts to address that as we go forward.

Speaker Change: We do have the extension from the initial deficiency notice that we received in the fourth quarter of last year. The extension is through September.

Daniel K. Frierson: September of this year, we continue to stay focused on that and.

Daniel K. Frierson: We'll continue to make efforts to address that as we go forward.

Speaker Change: Okay. Thank you.

Speaker Change: Thank you Chris.

Operator: Thank you. With no further questions, I would like to turn the call back to Dan Frierson for any additional or closing comments.

Daniel K. Frierson: Thank you with no further questions I would like to turn the call back to Dan for any additional or closing comments.

Daniel K. Frierson: LaTanya, thank you, and we thank all of you for being with us this quarter. Obviously, this is the slowest quarter of the year. Our business activity levels sequentially in the second quarter are certainly better than they were in the first. We certainly hope and believe that we can exercise the $10 million cost reduction plan and look forward to visiting with you at the end of the second quarter. Ladies and gentlemen, that will conclude today's conference. Thank you again for your participation. Have a great day!

Daniel K. Frierson: But telling you. Thank you and we thank all of you for being with US. This quarter. Obviously this is the slowest quarter of the year Uh Huh.

Daniel K. Frierson: This act habits activity level sequentially in the second quarter is certainly better.

Daniel K. Frierson: Better than it was in the first and.

Daniel K. Frierson: We certainly hope and believe that we can exercise.

Daniel K. Frierson: The $10 million cost reduction plan.

Daniel K. Frierson: And we look forward to visiting with you at the end of second quarter. Thank you.

Daniel K. Frierson: Ladies and gentlemen that will conclude today's conference. Thank you again for your participation have a great day.

Daniel K. Frierson: Uh-huh.

Daniel K. Frierson: Hum.

Daniel K. Frierson: [music].

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