Q2 2024 The Dixie Group Inc Earnings Call

August 8, 2024

Daniel Frierson: Thank you, Maria, and I would like to welcome everyone to our second quarter conference call. I have with me Allen Danzey, our CFO, who will be participating, and our Safe Harbor Statement is included by reference to our website and to our press release.

Operator: Good day, and welcome to the Dixie Grouping 2024 second quarter earnings conference call. Today's call is being recorded.

Good day and welcome to the Dixie Group Inc. 2024 Second 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 the Chairman and Chief Executive Officer, Dan Frierson. Please go ahead.

Operator: 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.

Daniel Frierson: The good news from our second quarter is that we returned to profitability in a very challenging business environment. I'd like to go through some of the highlights of the quarter before Allen goes into more detail on our financial results. Net sales in the second quarter of 2024 were $70.5 million compared to $74 million in the same period of the prior year, down approximately 4.7%. The Gross Profit Margin, despite that, for the three months of the second quarter was 28.1% of net sales compared to 26.7% in the second quarter of twenty-three.

Daniel Frierson: Thank you, Maria, and I would like to welcome everyone to our second quarter conference call. I have with me, Alan Danzey, our CFO, who will be participating, and our safe harbor statement is included by reference to our website and to our press release. The good news from our second quarter is that we return to profitability in a very challenging business environment.

Thank you, Maria, and I would like to welcome everyone to our second quarter conference call.

I have with me Allen Danzey, our CFO , who will be participating. And our safe harbor statement is included by reference to our website and to our press release.

Daniel Frierson or Executive: The good news from our second quarter is that we return to profitability in a very challenging business environment. We saw favorable margins in the second quarter as a result of the consolidation of our manufacturing operations on the East Coast.

Daniel Frierson: Operating income in the second quarter of 24 was 2.3 million compared to 300,000 in the second quarter of the prior year. The company had a net income from continuing operations of $700,000 in the second quarter of 2004 compared to a net loss of $1.6 million in the same period of the prior year. Subsequent to quarter end, the company completed a 10-year sublease agreement to lease out all the available warehouse space in our Saraland, Alabama facility.

Daniel Frierson or Executive: The good news from our second quarter is that we return to profitability in a very challenging business environment.

Daniel Frierson: I would like to go through some of the highlights of the quarter before Alan goes into more detail on our financial results. That sales in the second quarter of 2024 were 70.5 million compared to 74 million in the same period of the prior year, down approximately 4.7%. The gross profit margin, despite that, the gross profit margin for the three months of the second quarter was 28.1% of that sales compared to 26.7% in the second quarter of 23. Operating income in the second quarter of 24 was 2.3 million compared to 300,000 in the second quarter of the prior year.

Daniel Frierson or Executive: I'd like to go through some of the highlights of the quarter before Allen goes into more detail on our financial results.

Allen Danzey: Net sales in the second quarter of 2024 were $70.5 million compared to $74 million in the same period of the prior year, down approximately 4.7%. The gross profit margin, despite that, for the three months of the second quarter was 28.1% of net sales compared to 26.7% in the second quarter of 2030. Operating income in the second quarter of 24 was $2.3 million compared to $300,000 in the second quarter of the prior year.

Daniel Frierson or Executive: Net sales in the second quarter of 2024 were $70.5 million compared to $74 million in the same period of the prior year, down approximately 4.7%.

Daniel Frierson or Executive: The gross profit margin, despite that, the gross profit margin for the three months of the second quarter was 28.1 percent of net sales compared to 26.7 in the second quarter of 23.

Daniel Frierson or Executive: Operating income in the second quarter of 24 was $2.3 million, compared to $300,000 in the second quarter of the prior year.

Daniel Frierson: The company had a net income from continuing operations of 700,000 in the second quarter of 24, compared to a net loss of 1.6 million in the same period of the prior year.

Allen Danzey: The company had a net income from continuing operations of $700,000 in the second quarter of 2004 compared to a net loss of $1.6 million in the same period of the prior year. Subsequent to quarter end, the company completed a 10-year sublease agreement to lease out all the available warehouse space in our Saraland, Alabama facility. The company will recognize an annual amount of approximately 1.8 million dollars in other income over the term of the lease.

Daniel Frierson or Executive: The company had a net income from continuing operations of $700,000 in the second quarter of 2024 compared to a net loss of $1.6 million in the same period of the prior year.

Daniel Frierson: Subsequent to quarter in, the company completed a 10-year sub-lease agreement to lease out all the available warehouse space in our Sarah Land, Alabama facility. The company will recognize an annual amount of approximately $1.8 million in other income over the term of the lease.

Daniel Frierson or Executive: Subsequent to quarter end, the company completed a 10-year sublease agreement to lease out all the available warehouse space in our Saraland, Alabama facility.

Daniel Frierson: The company will recognize an annual amount of approximately 1.8 million dollars in other income over the term of the lease. High interest rates affecting the housing and home remodeling market and their impact on the economy. Continued inflation continues to negatively impact the company; our net sales from soft surfaces during the quarter were less than 1% below the prior year, while the industry, we believe, was down approximately 5%. We saw favorable margins in the second quarter as a result of the consolidation of our manufacturing operations in the East Coast and other cost-saving measures, which we will be discussing in more detail. At this time, I'd like to turn the meeting over to Allen to review our financial results. Thank you, Dan.

Daniel Frierson or Executive: The company will recognize an annual amount of approximately 1.8 million dollars in other income over the term of the lease.

Daniel Frierson: High interest rates affecting the housing and home remodeling market and the impact on the economy from continued inflation continued to note negatively impact the industry. Our net sales from soft surfaces during the quarter were less than 1% below prior year, while the industry, we believe, was down approximately 5%. We saw favorable margins in the second quarter as a result of the consolidation of our manufacturing operations in the East Coast and other cost-saving initiatives, which we will be discussing in more detail.

Allen Danzey: High interest rates affecting the housing and home remodeling market and the impact on the economy. Continued inflation continues to negatively impact the. Our net sales from soft surfaces during the quarter were less than 1% below the prior year, while the industry, we believe, was down approximately 5%. We saw favorable margins in the second quarter as a result of the consolidation of our manufacturing operations in the East Coast and other cost-saving measures, which we will be discussing in more detail. At this time, I'd like to turn the meeting over to Allen to review our financial results. Thank you.

Daniel Frierson or Executive: High interest rates affecting the housing and home remodeling market and the impact on the economy from continued inflation continue to negatively impact the industry.

Daniel Frierson or Executive: Our net sales from soft surfaces during the quarter were less than 1% below prior year, while the industry, we believe, was down approximately 5%.

Daniel Frierson or Executive: We saw favorable margins in the second quarter as a result of the consolidation of our manufacturing operations in the East Coast and other cost-saving initiatives, which we will be discussing in more detail.

Daniel Frierson: This time, I would like to turn the meeting over to Allen to review our financial results.

Daniel Frierson or Executive: At this time, I'd like to turn the meeting over to Allen to review our financial results.

Allen Danzey: Thank you, Dan. Our net sales in the second quarter were down 4.7% from the prior year and are down 3.8% year-to-date. The higher interest rates and inflationary concerns have impacted our consumers' decision making, which has delayed decisions around large discretionary spending, including home purchasing and remodeling, which are drivers for our business. Although year-over-year sales were lower in the second quarter, gross profit margins did improve to 28.1% of net sales compared to 26.7% in the same quarter of the prior year.

Allen Danzey: Thank you, Dan. Our net sales from the second quarter were down 4.7% for the prior year and are down 3.8% on the year-to-date. The higher interest rates and inflationary concerns have impacted our consumer decision making, which has delayed decisions around large discretionary spending, including home purchasing and remodeling, which are drivers for our business. Although year-over-year sales were lower in the second quarter, gross profit margins did improve to 28.1% of net sales compared to 26.7% in the same quarter of the prior year. This improved growth profit margin in 2024 is a reflection of the positive results of our cost reductions throughout the company, our facility consolidation on the East Coast, and savings when successful start-up of our extrusion operations.

Dan: Thank you, Dan. Our net sales in the second quarter were down 4.7% from the prior year and are down 3.8% on the year-to-date.

Daniel Frierson or Executive: The higher interest rates and inflationary concerns have impacted our consumers' decision-making, which has delayed decisions around large discretionary spending, including home purchasing and remodeling, which are drivers for our business.

Daniel Frierson or Executive: Although year-over-year sales were lower in the second quarter, gross profit margins did improve to 28.1% of net sales compared to 26.7% in the same quarter of the prior year.

Allen Danzey: This improved gross profit margin in 2024 is a reflection of the positive results of our cost reductions throughout the company, our facility consolidation on the East Coast, and savings from the successful start-up of our extrusion operation. For the year to date, gross margins were 26.2% compared to 26.7% in the prior year. The year-to-date 2024 margins were unfavorably impacted by seasonally lower production volumes in our manufacturing plants in the earlier part of the first quarter. However, production volumes were higher in the month of March forward, and the growth margin returned to a level exceeding the prior year and in line with our expectations.

Daniel Frierson or Executive: This improved gross profit margin in 2024 is a reflection of the positive results of our cost reductions throughout the company, our facility consolidation on the East Coast, and savings from the successful start-up of our extrusion operations.

Allen Danzey: For the year-to-date, growth margins were 26.2% compared to 26.7% in the prior year. The year-to-day 2024 margins were unfavourably impacted by seasonally lower production volumes and are manufacturing plants in the earlier part of the first quarter. Production volume was higher in the month of March forward, and the growth margin returned to a level exceeding prior year in the line with our expectations. Failing an administrative expenses for the second quarter and year-to-date June in 2024 were lower in dollars and as percent of net sales when compared to the prior year. This was the result of cost-cutting initiatives, particularly in our samples administrative areas.

Daniel Frierson or Executive: For the year to date, gross margins were 26.2% compared to 26.7% in the prior year.

Allen Danzey: The year-to-date 2024 margins were unfavorably impacted by seasonally lower production volumes in our manufacturing plants in the earlier part of the first quarter. However, production volume was higher in the month of March forward, and the gross margin returned to a level exceeding the prior year and aligned with our expectations. Selling and administrative expenses for the second quarter and year-to-date June of 2024 were lower in dollars and as a percent of net sales when compared to the prior year. This was the result of cost-cutting initiatives, particularly in our samples and administrative areas.

Daniel Frierson or Executive: the year-to-date two thousand and twenty-four margins were unfavorably impacted by seasonally a lower production volumes that our manufacturing plants in the earlier part of the first quarter production volume was higher in the month of march forward and the gross margin returned to a level exceeding prior year in line with our expectations

Allen Danzey: Selling and administrative expenses for the second quarter and year-to-date June of 2024 were lower in dollars and as a percent of net sales when compared to the prior year. This was the result of cost-cutting initiatives, particularly in our samples and administrative areas.

Daniel Frierson or Executive: Selling and administrative expenses for the second quarter and year-to-date June of 2024 were lower in dollars and as percent of net sales when compared to the prior year. This was the result of cost-cutting initiatives particularly in our samples and administrative areas.

Daniel Frierson or Executive: This was the result of cost-cutting initiatives, particularly in our samples in administrative areas. Our interest expense for the quarter was $1.6 million compared to $1.8 million in 2023. And for the year to date, we had $3.1 million in interest expense in 2024 compared to $3.7 million in the prior year. These additions to PP&E were offset by approximately $3.3 million in depreciation. Our investor presentation is available on our website at www.

Allen Danzey: Our interest expense on the quarter was 1.6 million compared to 1.8 million in 2023, and for the year-to-date we had 3.1 million in interest expense in 2024 compared to 3.7 million in the prior year. This decrease in interest expense is being driven by the reduction in debt in the current year. By the lower year-of-year sales, the net income of the second quarter of 2024 was 603,000 compared to a net loss of 1.7 million in the same period of 23. On the year, we have a net loss of 1.9 million compared to a net loss in the prior year at 3.5 million.

Allen Danzey: Our interest expense for the quarter was $1.6 million, compared to $1.8 million in 2023. And for the year to date, we had $3.1 million in interest expense in 2024, compared to $3.7 million in the prior year. This decrease in interest expense is being driven by the reduction in debt in the current year.

Daniel Frierson or Executive: Our interest expense on the quarter was $1.6 million compared to $1.8 million in 2023. And for the year to date, we had $3.1 million in interest expense in 2024 compared to $3.7 million in the prior year.

Daniel Frierson or Executive: This decrease in interest expense is being driven by the reduction in debt in the current year.

Allen Danzey: Despite the lower year-over-year sales, the net income in the second quarter of 2024 was $603,000, compared to a net loss of $1.7 million in the same period of 2023. For the year, we had a net loss of $1.9 million compared to a net loss of $3.5 million in the prior year. Again, this improvement in our income has resulted in higher margins, primarily related to consolidation of manufacturing operations on the East Coast, savings from extrusion operations, and other year-over-year cost-cutting initiatives. Now, turning to our panelists.

Daniel Frierson or Executive: Despite the lower year-over-year sales, the net income in the second quarter of 2024 was $603,000 compared to a net loss of $1.7 million in the same period of 2023.

Daniel Frierson or Executive: on the year we have a net loss of one point nine million compared to a net loss in prior year at three point five million again this improvement in our income as resullt to higher margins from arily related to exsolidation of the manufacturing operations on the east coast leadving from extrusion operations and other year-of-year cost cutting initiatives

Allen Danzey: Again, this improvement in our income has resulted in higher margins from error related to consolidation of the manufacturing operations on the East Coast, savings from extrusion operations, and other year-of-year cost-cutting initiatives. Turning to our balance sheet, are quarter-end receivables increased by 4.3 million dollars 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. Our inventory was in line with prior year - in balance. We will continue to closely manage the inventory levels and line with demand while continuing to remain focused on maintaining timely service store customers.

Allen Danzey: Our quarter-end receivables increased by $4.3 million from the prior year end 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. Our inventory was in line with the prior year imbalance. We will continue to closely manage the inventory levels in line with demand while continuing to remain focused on maintaining timely service to our customers.

Allen Danzey: Our quarter-end receivables increased by $4.3 million from the prior year-end 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. Our inventory was in line with the prior year imbalance. We will continue to closely manage the inventory levels in line with demand, while continuing to remain focused on maintaining timely service to our customers.

Speaker Change: turning to our balance sheet our quarter-end receivables increased about four point three million dollars when the prior year and balance the increase was driven by higher billings to customers during last month for the current period as compared to seasonallyly lower in december time fraank

Daniel Frierson or Executive: Our inventory was in line with prior year imbalance. We will continue to closely manage the inventory levels in line with demand, while continuing to remain focused on maintaining timely service to our customers.

Daniel Frierson: Accounts payable and accrued expenses were above prior year-end by $6.2 million, primarily due to raw material orders online, with higher mid-year sales activity as compared to prior year-end. Net property, plant, and equipment increased by $4.7 million from year end. This increase included cash purchases of $1.4 million and prior year deposits moved to property, plant, and equipment in an amount of $6.5 million. These additions to PP&E were offset by approximately $3.3 million in depreciation.

Allen Danzey: Elsefable and accrued expenses were above prior year-in by 6.2 million dollars, primarily due to raw material orders on line with a higher mid-year sales activity as compared to prior year-in. Net property planning equipment increased by 4.7 million dollars from year-in. This increase included cash purchases of 1.4 million dollars and prior year deposits moved to property planning equipment in the amount of 6.5 million. These additions to PP&E were offset by approximately 3.3 million dollars in depreciation. Our debt increased by 3.4 million from the end of 2023, and that was mainly driven by investments in samples and other costs associated with the product introductions in the first part of the year.

Allen Danzey: Accounts payable and accrued expenses were above prior year-end by $6.2 million, primarily due to raw material orders online, with higher mid-year sales activity as compared to prior year-end. Additionally, property, plant, and equipment increased about $4.7 million from year end. This increase included cash purchases of $1.4 million and prior year deposits moved to property, plant, and equipment in the amount of $6.5 million. These additions to PP&E were offset by approximately $3.3 million in depreciation.

Daniel Frierson or Executive: Accounts payable and accrued expenses were above prior year-end by $6.2 million, primarily due to raw material orders online, with a higher mid-year sales activity as compared to the prior year-end.

Daniel Frierson or Executive: Net property plant equipment increased by $4.7 million from year end. This increase included cash purchases of $1.4 million and prior year deposits moved to property plant equipment in the amount of $6.5 million.

Daniel Frierson or Executive: These additions to PP&E were offset by approximately $3.3 million in depreciation.

Daniel Frierson: Our debt increased by $3.4 million from the end of 2023, and that was mainly driven by investments in samples and other costs associated with our product introductions in the first part of the year. At quarter end, our unused borrowing availability under the revolving credit facility was $14 million. Our investor presentation is available on our website at www.dixiegroup.com. Thank you, Allen.

Allen Danzey: Our debt increased by $3.4 million from the end of 2023, and that was mainly driven by investments in samples and other costs associated with our product introductions in the first part of the year. At quarter end, our unused borrowing availability under the revolving credit facility was $14 million. Our investor presentation is available on our website at www.dixiegroup.com.

Daniel Frierson or Executive: Our debt increased by $3.4 million from the end of 2023, and that was mainly driven by investments in samples and other costs associated with our product introductions in the first part of the year.

Allen Danzey: At quarter-end, our unused borrowing availability under the revolving credit facility was $14 million.

Speaker Change: that quarter-end our unused borrowing ailability under under revolving credit facility with fourteen million

Operator: Our investor presentation is available on our website at www.dixiegroup.com.

Daniel Frierson or Executive: Our investor presentation is available on our website at www.dixiegroup.com.

Daniel Frierson: Thank you, Alan. Our extrusion facility, which started up in late first quarter of this year, operated exceptionally well throughout the second quarter. This facility is providing cost reductions in nylon fiber and a continuous supply of fiber to meet our needs and help us serve our customers. This fiber is being used in many of our new carpet styles this year. We're focused on extruding white diable nylon, which is used in our long, beautiful color lines through all of our carpet brands.

Daniel Frierson: Thank you, Allen. Our extrusion facility, which started up late in the first quarter of this year, operated exceptionally well throughout the second quarter. This facility is providing cost reductions in nylon fiber and a continuous supply of fiber to meet our needs and help us serve our customers. This fabric is being used in many of our new carpet styles this year. We're focused on extruding white diabolo nylon, which is used in our long, beautiful color lines through all of our carpet frames.

Daniel Frierson or Executive: thank you allan our extrusion facility which started up in late first quarter of this year operated exceptionally well throughout the second quarter

Speaker Change: This facility is providing cost reductions in nylon fiber and a continuous supply of fiber to meet our needs and help us serve our customers.

Speaker Change: This fiber is being used in many of our new carpet styles this year.

Speaker Change: We're focused on extruding white diabolo nylon, which is used in our long, beautiful color lines through all of our carpet brands.

Daniel Frierson: During the quarter, we launched our Step Into Color campaign, which in store with in store marketing materials and additional presents as well. This campaign connects our retail customers, designers, and consumers with the world of color options. This includes custom color, which is now available in all brands and is a great option for the customer who is looking for that perfect hue of a particular color. In a residential market which continues to move toward offering a sea of sayingness that is solution to that polyester, we're setting ourselves apart with beautiful, timely color offerings. We have launched 18 new carpet styles in the second quarter of 24, including six new Durasil solution dye polyester styles and our DH Floors line and 11 new decorative styles in our 1866 and the color and the color of power.

Daniel Frierson: During the quarter, we launched our Step Into Color campaign with in-store marketing materials and a digital presence as well. This campaign connects our retail customers, designers, and consumers with the world of color options. This includes custom color, which is now available in all brands and is a great option for the customer who is looking for that perfect hue of a particular color.

Daniel Frierson: During the quarter, we launched our Step Into Color campaign with in-store marketing materials and a digital presence as well. This campaign connects our retail customers, designers, and consumers with a world of color options. This includes custom color, which is now available in all brands. It's a great option for the customer who is looking for that perfect hue of a particular color.

Daniel Frierson or Executive: During the quarter, we launched our Step Into Color campaign with in-store marketing materials and a digital presence as well.

Speaker Change: This campaign connects our retail customers, designers, and consumers with a world of color options.

Speaker Change: This includes custom color, which is now available in all brands and is a great option for the customer who is looking for that perfect hue of a particular color.

Daniel Frierson: In a residential market that continues to move toward offering a sea of the sameness that is solution-dyed polyester, we're setting ourselves apart with beautiful, timely color offerings. We launched 18 new carpet styles in the second quarter of 2024, including six new Duracell solution-dyed polyester styles in our DH floors line and 11 new decorative styles in our 1866 and color and decor collections. We also launched six new collections with 38 SKUs as updates to our hard surface program. These included SPC tile looks, high-end WPC, and high-end engineered wood in our Fabrica program.

Daniel Frierson: In a residential market that continues to move toward offering a sea of the sameness that is solution-dyed polyester, we're setting ourselves apart with beautiful, timely color offerings. We launched 18 new carpet styles in the second quarter of 2024, including six new DuraSilk solution dye polyester styles in our DH Floors line and 11 new decorative styles in our 1866 and Decor collections. We also launched six new collections with 38 SKUs as updates to our Hard Surface Program. These included SPC tile looks, high-end WPC, and high-end engineered wood in our Fabrica program.

Speaker Change: In a residential market which continues to move toward offering a sea of sameness that is solution-dyed polyester, we're setting ourselves apart with beautiful, timely color offerings.

Daniel Frierson or Executive: We have launched 18 new carpet styles in the second quarter of 24, including six new DuraSilk solution dye polyester styles in our DH floors line and 11 new decorative styles in our 1866 and the color and decor Our Premier Flooring Center Retail Program continues to show tremendous promise, the lowest since 1995 when there were far fewer homes. We're excited about the leasing out of our entire Saarland facility and the impact it will have on our company's income and cash flow over the 10-year period. We do have additional space, over 400,000 square feet, that we will be attempting to lease out in the future.

Daniel Frierson or Executive: We have launched 18 new carpet styles in the second quarter of 2024, including 6 new DuraSilk Solution Dye polyester styles in our DH Floors line and 11 new decorative styles in our 1866 and Decor offerings.

Daniel Frierson: We also launched six new collections with 38 skews as updates to our hard surface problems. These included SPC tile looks high in WPC and high in engineered wood and our Fabrica problem.

Daniel Frierson or Executive: We also launched six new collections with 38 SKUs as updates to our hard surface programs.

Daniel Frierson or Executive: These included SPC tile looks, high-end WPC, and high-end engineered wood in our Fabrica program.

Daniel Frierson: These launches complete our new product launches for 2024. We did a very good job this year in getting products launched early, and our new products are already generating meaningful volume. And when it comes to products, we're not taking our foot off the gas, as our design teams are already busy putting together new products for 2025. On the digital marketing front, we have continued our partnerships with Broadroom and Roomville. As a result, we're seeing increased lead generation and sales from our website. Product Visualization Online

Daniel Frierson: These launches complete our new product launches for 2024. We did a very good job this year in getting products launched early, and our new products are already generating meaningful volume. And when it comes to products, we're not taking our foot off the gas as our design teams are already busy putting together new products for 2025. On the digital marketing front, we have continued our partnerships with Broad Room and RoomVote. As a result, we're seeing increased lead generation and sample ordering from our website. Product Visualization Online.

Daniel Frierson or Executive: These launches complete our new product launches for 2024.

Daniel Frierson or Executive: We did a very good job this year in getting products launched early, and our new products are already generating meaningful volume.

Daniel Frierson or Executive: And when it comes to products, we're not taking our foot off the gas as our design teams are already busy putting together new products for 2025.

Daniel Frierson: On the digital marketing front, we continued our partnerships with Broadroom and Roombold. As a result, we're seeing increased lead generation sample ordering from our website and product visualization online. This is promising. As today's flooring consumers are very much engaged in the digital space, and serving the customer where they are is critical. Our premier flooring center retail program continues to show tremendous promise. After outpacing the market by a wide margin in 2023, we have seen the results improve even more in 2024. With strong growth for the second quarter and first half, our investment in samples, merchandising, and training in these stores is paying dividends with increased business and share gain.

Daniel Frierson or Executive: On the digital marketing front, we continued our partnerships with Broadroom and Roomville. As a result, we're seeing increased lead generation, sample ordering from our website, and product visualization online.

Daniel Frierson: This is promising as today's flooring consumers are very much engaged in the digital space, and serving the customer where they are is critical. Our Premier Flooring Center Retail Program continues to show tremendous promise. After outpacing the market by a wide margin in 2023, we have seen the results improve even more in 2024, with strong growth for the second quarter and first half. Our investment in samples, merchandising, and training in these stores is paying dividends with increased business and share gains.

Daniel Frierson: This is promising, as today's flooring consumers are very much engaged in the digital space; serving the customer where they are is critical. Our Premier Flooring Center Retail Program continues to show tremendous promise. After outpacing the market by a wide margin in 2023, we have seen the results improve even more in 2024, with strong growth for the second quarter and first half. Our investment in samples, merchandising, and training in these stores is paying dividends with increased business and share gains.

Speaker Change: This is promising as today's flooring consumers are very much engaged in the digital space and serving the customer where they are is critical.

Daniel Frierson or Executive: Our Premier Flooring Center Retail Program continues to show tremendous promise.

Daniel Frierson or Executive: after outbasacing the market by a wide margin in twenty twenty-three we have seen the results improve even more in two thousand and twenty-four with strong growth for the second quarter in first half

Daniel Frierson or Executive: our investment in samples merchandising and training in these stores is paying dividends with increased business and share gain we're excited to see where we can take the pfc concept in the future

Daniel Frierson: We're excited to see where we can take the BFC concept in the future. Our improved margins are a result of our cost reduction program starting in 2023 at $35 million. Our cost reduction this year was on 10-12 million. and Dollar. We have also already begun a cost reduction plan for next year. These plans have enabled us to better manage the controllable aspects of our business. In addition, we have continued to manage our working capital to improve cash flow and will continue to minimize capital expenditures until business conditions improve. When interest rates begin to decline, the industry will begin to improve.

Daniel Frierson: We're excited to see where we can take the PFC concept in the future. Our improved margins are a result of our cost reduction program starting in 2023 of $35 million, and our cost reduction this year of some $10 to $12 million. We have also already begun a cost reduction plan for next year. These plans have enabled us to better manage the controllable aspects of our business.

Daniel Frierson or Executive: our improved margins are a result of our cost reduction program starting in two thousand and twenty three of thirty five million dollars in our cost produuction this year of some ten to twelve million dollars we have also already begun a cost reduction plan for next year

Daniel Frierson or Executive: These plans have enabled us to better manage the controllable aspects of our business. In addition, we have continued to manage our working capital to improve cash flow and will continue to minimize capital expenditures until business conditions improve.

Daniel Frierson: In addition, we have continued to manage our working capital to improve cash flow and will continue to minimize capital expenditures until business conditions improve. When interest rates begin to decline, the industry will begin to improve. We feel our business is closely tied to existing home sales and mortgages. Existing home sales have gone from over 6 million units to below 4 million, the lowest since 1995 when there were far fewer homes. As business conditions improve, we think existing home sales will improve and revert to the, but we do not expect the third quarter to show improvement.

Daniel Frierson: In addition, we have continued to manage our working capital to improve cash flow and will continue to minimize capital expenditures until business conditions improve. When interest rates begin to decline, the industry will begin to improve, because we feel our business is closely tied to existing home sales and mortgages. Existing home sales have gone from over 6 million units to below 4 million, the lowest since 1995 when there were far fewer homes. As business conditions improve, we think existing home sales will improve and revert to the. We do not expect the third quarter to show improvement.

Daniel Frierson or Executive: When interest rates begin to decline, the industry will begin to improve. We feel our business is closely tied to existing home sales and mortgage rates.

Daniel Frierson: We feel our business is closely tied to existing home sales and mortgage rates. Existing home sales had gone from over six million units to below four million, the lowest since 1995 when they were far fewer homes. As business conditions improve, we think existing home sales will improve and revert to the mean. We do not expect third quarter to show improvement, but think interest rates should decline later this year or early next year. Third quarter to date continues to lag last year. Was self-surface, which is down slightly, performing better than hard service, surface for us.

Daniel Frierson or Executive: Existing home sales have gone from over 6 million units to below 4 million, the lowest since 1995, when there were far fewer homes.

Speaker Change: as business conditions improve we think existing home sales will improve and revert to the mean

Daniel Frierson: We think interest rates should decline later this year or early next year. Third quarter to date performance continues to lag last year, with soft surface, which is down slightly, performing better than hard surface. Circus for us. We're excited about the leasing out of our entire Saarland facility and the impact it will have on our company's income and cash flow over the 10-year period. We do have additional space of over 400,000 square feet that we will be attempting to lease out in the future. Again, the good news is that we have returned to profitability in a very challenging business environment. At this time, we'll open the meeting to questions.

Daniel Frierson: We think interest rates should decline later this year or early next year. Third quarter to date performance continues to lag last year with soft surface, which is down slightly, performing better than hard surface. Circus for us. We're excited about the leasing out of our entire Saarland facility and the impact it will have on our company's income and cash flow over the 10-year period. We do have additional space, over 400,000 square feet, that we will be attempting to lease out in the future. Again, the good news is that we have returned to profitability in a very challenging business environment. At this time, we'll open the meeting to questions.

Daniel Frierson or Executive: We do not expect 3rd quarter to show improvement. We think interest rates should decline later this year or early next year.

Daniel Frierson or Executive: Third quarter to date continues to lag last year with soft surface, which is down slightly, performing better than hard surface for us.

Daniel Frierson: We're excited about the leasing out of our entire Sarah Land facility and the impact it will have on our company's income and cash flow over the 10-year period. We do have additional space of over 400,000 square feet that we will be attempting to lease out in the future.

Daniel Frierson or Executive: We're excited about the leasing out of our entire Saarland facility and the impact it will have on our company's income and cash flow over the 10-year period.

Daniel Frierson or Executive: We do have additional space of over 400,000 square feet that we will be attempting to lease out in the future. Again, the good news is that we have returned to profitability in a very challenging and business environment.

Daniel Frierson: Again, the good news is that we have returned to profitability in a very challenging and business environment.

Operator: At this time, we'll open the meeting to questions. Thank you.

Operator: 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. The confirmation tone will indicate that your line is in the question queue. You might press star two if you would 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 key. One moment, please, will we pull for questions.

Operator: Thank you. We will now be conducting 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 that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star 2.

Speaker Change: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad.

Speaker Change: Confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would 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 key.

Operator: One moment, please, while we poll for questions. Our first question comes from Mike Hughes with SGS Capital. Please proceed with your question.

Speaker Change: One moment, please, while we poll for questions.

Mike Hughes: Our first question comes from Mike Hughes with SGF Capital. Please proceed with your question.

Speaker Change: Our first question comes from Mike Hughes with SGS Capital. Please proceed with your question.

Mike Hughes: Good morning. Thanks for taking my questions. First one, you said in the press release and, I think, in your commentary that the new product launches are complete for 2024. Will that have an impact on the SG&A in the back half? I think maybe you run sampling costs through SG&A. Would that step down in the third and fourth quarters?

Michael Hughes: Good morning. Thanks for taking my questions. First one, you said in the press release and, I think, in your commentary that the new product launches are complete for 2024. Will that have an impact on the SG&A in the back half? I think maybe you run sampling costs through SG&A. Would that step down in the third and fourth quarters?

Mike Hughes: Good morning. Thanks for taking my questions.

Daniel Frierson: First one, you said in the press release and I think in your commentary that the new product launches are complete for 2024. Will that have an impact on SG&A in the back half? I think maybe you run sampling costs through SGNA. Would that step down in the third and fourth quarter? From an expense standpoint, we do spread the costs of our sampling activities in line with sales in the year of introduction. So it is to some degree level, so the expenses will not be as greatly impacted, but it will be a positive toward cash flow as we pay for that investment heavily weighted to the first half of the year.

Speaker Change: Good morning. Thanks for taking my questions. First one, you said in the press release and I think in your commentary that the new product launches are complete for 2024.

Speaker Change: will that have an impact on the sga in the back half i think maybe you run sampling cost through sda would that step down in the third and fourth quarter

Allen Danzey: From an expense standpoint, we do spread the cost of our sampling activities in line with sales in the year of introduction. So it is, to some degree, a level playing field, so the expenses will not be as greatly impacted, but it will be a positive to our cash flow as we pay for that investment heavily weighted to the first half of the year.

Daniel Frierson or Executive: From an expense standpoint, we do spread the cost of our sampling activities.

Daniel Frierson or Executive: in line with sales in the year of introduction. So it is to some degree level, so the expenses will not be as greatly impacted, but it will be a positive to our cash flow as we pay for that investment heavily weighted to the first half of the year.

Daniel Frierson: Okay, and then the $10 million in cost savings, how much have you achieved at this point, and then secondarily, you alluded to another cost savings program for next year? Would it be of equal magnitude, or is it really too early to say? Let me respond and ask Allen to respond also of the 10 million to 12 million reduction this year. I would say we were about 40, 35 to 40 percent in the first half and the remainder in the last half of the year.

Daniel Frierson: Okay, and then the $10 million in cost savings. How much have you achieved at this point? And then, secondarily, you alluded to another cost savings program for next year. Would it be of equal magnitude, or is it really too early to say?

Daniel Frierson: Okay. And then the $10 million in cost savings, how much have you achieved at this point? And then, secondarily, you alluded to another cost savings program for next year. Would it be of equal magnitude, or is it really too early to say?

Speaker Change: Okay. And then the $10 million in cost savings, how much have you achieved at this point? And then secondarily, you alluded to another cost savings program for next year. Would it be of equal magnitude or is it really too early to say?

Daniel Frierson: Let me respond and then ask Allen to respond also. Of the 10 million to 12 million... reduction this year, I would say we were about 40, 30, 35 to 40% in the first half and the remainder in the last half of the year. In terms of the plan for next year, we are just beginning that plan. It is not of the same magnitude right now. We are at about half the level of... production for this year.

Allen Danzey: Let me respond and ask Allen to respond also. Of the $10 million to $12 million... reduction this year, I would say we were about 40, 30, 35 to 40% in the first half and the remainder in the last half of the year. In terms of the plan for next year, we are just beginning that plan. It is not of the same magnitude right now. We are at about half the level of production for this year.

Allen: Let me respond and then ask Allen to respond also. Of the 10 million to 12 million

Daniel Frierson or Executive: reduction this year, I would say we were about 40, 30, 35 to 40 percent in the first half and the remainder in the last half of the year.

Allen Danzey: In terms of the plan for next year, we are just beginning that plan. It is not the same magnitude right now. We are at about half the level of the reduction for this year. Yeah, I would agree with that because we do expect to be able to achieve the savings that we have discussed for this year as the year plays out. The excretion operations was started in February time frame, our contributing now in continuing contributing going forward.

Daniel Frierson or Executive: In terms of the plan for next year, we are just beginning that plan. It is not the same magnitude right now. We are at about half the level of the...

Allen Danzey: Yeah, I would agree with that. I do expect to be able to achieve the savings that we have discussed for this year. As the year plays out, the extrusion operations, which started in the February time frame, are contributing, and we'll continue to contribute going forward. We continue to look next year and beyond for additional cost savings, and we'll update on that as well.

Daniel Frierson or Executive: reduction for this year.

Daniel Frierson or Executive: I do expect to be able to achieve the savings that we have discussed for this year. As the year plays out, the extrusion operations, which started in the February timeframe, are contributing, and we'll continue to contribute going forward. We continue to look next year and beyond for additional cost savings, and we'll update on that as well.

Speaker Change: Yeah, I would agree with that.

Daniel Frierson or Executive: do expect to be able to achieve the savings that we have discussed for this year as the year plays out the extrusion operations was started in february time frame are contributing now continue to contribute going forward we continue to look next year and all working

Daniel Frierson: We continue to look next year in all of our additional cost savings, and we will update on that as we can.

Daniel Frierson or Executive: additional cost savings and we'll update on that as we can.

Allen Danzey: Okay, and the gross margins this quarter, at a little over 28%, were impressive. Was there anything one-time in nature in that number that would make that unsustainable? I know it's going to vary with the level of revenue, but if you were to repeat this level of revenue, would that be the number on a go-forward basis?

Mike Hughes: Okay, and then the gross margins this quarter at a little over 28 percent were impressive.

Speaker Change: ok and the gross margins this quarter a little or twenty eight percent were impressive was there anything one time in nature in that number that would make that un sustainable i know it's going to vary with the level of revenue but if you were to repeat this leve of revenue would that be the number on a go forward basis

Daniel Frierson: Was there anything one time in nature in that number that would make that unsustainable? I know it is going to vary with the level of revenue, but if you were to repeat this level of revenue, would that be the number on a go-forward basis? Yeah, there are always one-time things going both directions every period, but there was nothing of any significant magnitude during the quarter.

Allen Danzey: Yeah, we do. There's always one-time things going both directions every period, but there was nothing of any significant magnitude during the quarter. We feel like these are sustainable margins at the volume that we are at, reflecting, again, cost savings throughout the company, particularly on the East Coast as we've consolidated manufacturing operations, which made available space that we're also able to take advantage of by leasing out.

Speaker Change: Yeah, we do. There's always one-time things going both directions every period, but there was nothing of any significant...

Daniel Frierson: We feel like these are sustainable margins at the volume that we are at, reflecting again cost savings throughout the company, particularly on the East Coast as we have consolidated main factoring operations, which might available space that we are also able to take advantage about leasing out.

Daniel Frierson or Executive: magnitude during the quarter. We feel like these are sustainable.

Daniel Frierson or Executive: margins at the volume that we are at, reflecting again.

Daniel Frierson or Executive: call settings throughout the company, particularly.

Speaker Change: on the East Coast as we are.

Daniel Frierson or Executive: We've consolidated manufacturing operations, which made available space that we're also able to take advantage of by leasing out.

Allen Danzey: Okay, and then the hard surfaces business. I think your commentary about soft surfaces would imply that hard surfaces were down maybe 15 to 20 percent. Number one, is that correct? And if it is, can you just comment on that?

Allen Danzey: Okay, and then the hard surfaces business. I think your commentary about soft surfaces would imply that hard surfaces were down maybe 15 to 20 percent, number one. Is that correct? And if it is, can you just comment on that?

Mike Hughes: Okay, and then the hard surfaces business, I think your commentary about soft surfaces would imply that hard surfaces was down maybe 15 to 20 percent.

Speaker Change: Okay, and then the hard surfaces business, I think your commentary about soft surfaces would imply that hard surfaces was down maybe 15 to 20%. Number one, is that correct? And if it is, can you just comment on that?

Daniel Frierson: Number one, is that correct? And if it is, can you just comment on that? Yes, that is correct. Of course, hard surfaces less than 20 percent of our total business, so obviously our soft surface being down slightly is a positive for us, and we are gaining market share on the soft surface side.

Allen Danzey: Yes, that is correct. Of course, hard surface is less than 20% of our total business. So obviously, our soft surface being down slightly is a positive for us, and we are gaining market share on the soft surface side. We don't have good data on the hard surface side to know exactly what the market is down. We do on the soft surface side, but yes, our hard surface business was down in the 15% to 20% range for the core.

Allen Danzey: Yes, that is correct. Of course, hard surface is less than 20% of our total business. So obviously, our soft surface being down slightly is a positive for us, and we are gaining market share on the soft surface side. We don't have good data on the hard surface side to know exactly what the market is down. We do on the soft surface side. But yes, our hard surface business was down in the 15% to 20% range for the core.

Speaker Change: Yes, that is correct. Of course, hard surface is less than 20% of our total business.

Daniel Frierson or Executive: So obviously, our soft surface. We don't have good data on the hard surface side to know exactly what the market is down.

Daniel Frierson or Executive: So, obviously, our soft surface being down slightly,

Daniel Frierson or Executive: is a positive for us and we are gaining market share on the soft cirface side

Daniel Frierson: We don't have good data on the hard surface side to know exactly what the market is down. We do on the soft surface side, but yes, our hard surface business was down in the 15 to 20 percent range for the quarter.

Daniel Frierson or Executive: We don't have good data on the hard surface side to know exactly what the market is down. We do on the soft surface side, but yes, our hard surface business was down in the 15 to 20 percent range for the core.

Mike Hughes: Okay, and then on the 1.8 million dollars in sub-leason come, is that all incremental and would you just straight-line that? We will start to see $450,000 a quarter in other income. It is a straight line.

Allen Danzey: Okay, and then on the $1.8 million in sub-lease income. Is that all incremental? And would you just straight line that? We'll start to see $450,000 a quarter in other income.

Speaker Change: Okay, and then on the $1.8 million in sub-lease income.

Speaker Change: is that all incremental and would you just straightline that we'll start to see four hundred and fifty thousand dollars a quarter in other income

Allen Danzey: It is a straight line, incremental, except to the point that we do have 200,000 square feet of space in Sara Land already under lease at a similar lease rate. This is replacing that, taking the full place of that, so it's incremental, but we already have about a million dollars, just under a million, of current lease revenue, and the 800,000 additional.

Allen Danzey: It is a straight line, incremental except to the point that we do have 200,000 square feet of space in Sarah Land already under lease at a similar lease rate. This is replacing that, taking the full place of that, so it's incremental, but we already have about a million dollars, just under a million current lease revenue, so the 800,000 additional.

Daniel Frierson: It is incremental, except to the point that we do have 200,000 square feet of the space in Sairland already under lease at a similar lease rate. This is replacing that, taking the full place of that. So it is incremental, but we already have about a million dollars, just under a million current lease revenues. of the 800,000 additional would be incremental.

Daniel Frierson or Executive: Incremental, except to the point that we do have 200,000 square feet of space in Sara Land already under lease at a similar lease rate. This is replacing that, taking the full place of that, so it's incremental, but we already have about a million dollars, just under a million current lease revenue.

Daniel Frierson or Executive: It is a straight line.

Daniel Frierson or Executive: incremental, except to the point that we do have 200,000 square feet of the

Daniel Frierson or Executive: Space and Sarah Land are already under lease at a similar

Daniel Frierson or Executive: lease rate. This is replacing that, taking the full place of that, so it's incremental, but we already have about a million dollars, just under a million current lease revenue, so the $800,000 additional would be incremental.

Allen Danzey: Okay, for the additional space you're looking to lease out, what's the level of interest at this point?

Mike Hughes: Okay, in the additional space, you're looking to lease out, what's the level of interest at this point? We're not able to say at this point; we focused most of our efforts on the satellite facility because of the market stability that we have in that area.

Allen Danzey: Okay, for the additional space you're looking to lease out, what's the level of interest at this point?

Speaker Change: okay in the additional space you're looking to lease out what's the level of interest at this point

Allen Danzey: We're not able to say at this point. We focused most of our efforts on the Sara Land facility because of the market stability that we have in that area. We are shifting our focus now to the other available space that we have also been working to clean out and make available to lease. So we're early in the stage of that, but excited about the opportunity to focus on it and see if we can get some return. We do not expect the rates to be as high as we were able to get in the Sara Land market, but it is certainly a great opportunity for us, and we look forward to it.

Allen Danzey: We're not able to say at this point. We focused most of our efforts on the Sarah Lamb facility because of the market stability that we have in that area. We are shifting our focus now to the other available space that we have also been working to clean out and make available to lease. So we're early in the stage of that, but excited about the opportunity to focus on it and see if we can get some return. We do not expect the rates to be as high as what we were able to get in the Sarah Lamb market, but it is certainly a great opportunity for us, and we look forward to it.

Daniel Frierson or Executive: we're not able to say at this point we focused most of our efforts on the air la facility because of the market ability that we have in that area we are shiiftinging our focus now to the other viliable space that we

Daniel Frierson: We are shifting our focus now to the other available space that we have also been working to clean out to make available to lease. So we're early on stage of that but excited about the opportunity to focus on it and see if we can get some return. We do not expect the rates to be as high as we were able to get the satellite market, but certainly a great opportunity for us, and we look forward to working on that.

Operator: Good day, and welcome to the Dixie Grouping 2024 Second Quarter Earnings Conference call. Today's call is being recorded.

Daniel Frierson or Executive: have also been working to clean out to make available to lease. We're early in the stage of that, but excited about the opportunity to focus on it and see if we can get some return. We do not expect the rates to be as high as what we were able to get in the Sarah land market, but certainly a great opportunity for us.

Daniel Frierson: 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. Thank you, Maria, and I would like to welcome everyone to our second quarter conference call. I have with me, Alan Danzey, our CFO, who will be participating, and our safe harbor statement is included by reference to our website and to our press release. The good news from our second quarter is that we return to profitability in a very challenging business environment.

Mike Hughes: Okay, and last, I'm sorry, last question for you. What do you expect the cash capex to be in the back half of the year?

Mike (Questioner): Okay, and last, I'm sorry, last question for you. What do you expect the cash capex to be in the back half of the year?

Michael Hughes: Okay, and last, I'm sorry, last question for you. What do you expect the cash capex to be in the back half of the year?

Mike Hughes: Okay, in last, I'm sorry, last question for you. What do you expect the cash cap-backs to be in the back half of the year? On total, we expect to be in the 9.204 range, which includes a lot of that on the cap-backs of the back half.

Speaker Change: and we look forward to

Mike (Questioner): Okay, and last, I'm sorry, last question for you. What do you expect the cash CapEx to be in the back half of the year?

Allen Danzey: In total, we expect to be in... 9.2 or 9.4 range, which includes the CAPEX or the back half. We're in the 1 to 1.5 million range, looking at just general maintenance projects. As Dan mentioned earlier, we're looking at our CAPEX over the upcoming periods to maintain at low levels, waiting on business to improve, and fixing our decision around operations.

Allen Danzey: In total, we expect to be in... 9.2 or 9.4 range, which includes the CAPEX in the back half. We're in the 1 to 1.5 million range looking at just general maintenance projects. As Dan mentioned earlier, we're looking at our CAPEX over the upcoming periods to maintain at low levels, waiting on business to improve, and fixing our decision around operations.

Mike (Questioner): In total, we expect to be in the...

Speaker Change: nine point to a four range which include pe any other vance on the cap taion back half

Daniel Frierson: We were in the 1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1 Okay, so did the first half include cap-backs for the extrusion projects? Is that why that number's a little bit elevated? Yes, we recognized the cap-backs of the extrusion equipment in the first quarter, but again, the cap- the cash portion of that was most heavily spent in deposits in the prior years. So it was not a cash commitment this year as much as it was just recognizing the capital on our boats. So the cash portion for this year was in the first quarter, yes.

Mike (Questioner): We're in the 1 to 1.5 million range, looking at just general maintenance projects. As Dan mentioned earlier, we're looking at our CAPEX over the upcoming periods to maintain at low levels, waiting on business to improve and facing our decision around operations.

Mike Hughes: Okay, so did the first half include CAPEX for the extrusion projects? Is that why that number is a little bit elevated? Yes.

Allen Danzey: Okay, so did the first half include CapEx for the extrusion projects? Is that why that number is a little bit elevated? Yes, we think so.

Speaker Change: okay so did the first half include capex for the extrusion projects is that why that numbers a little bit elevated

Allen Danzey: Yes, we recognized the CapEx of the extrusion equipment in the first quarter, but again, the cash portion of that was most heavily spent on deposits in the prior years, so it was not a cash commitment this year as much as it was just recognizing the capital on our books.

Speaker Change: yes we recognize the capex of the extrusion equipment in the first quarter but again the cap of the cash portion of that was most heavily spent and deposits in the prior years

Daniel Frierson: Operating income in the second quarter of 24 was 2.3 million compared to 300,000 in the second quarter of the prior year. The company had a net income from continuing operations of 700,000 in the second quarter of 24, compared to a net loss of 1.6 million in the same period of the prior year. Subsequent to quarter in, the company completed a 10-year sub-lease agreement to lease out all the available warehouse space in our Sarah Land Alabama facility.

Speaker Change: So it was not a cash commitment this year as much as it was just recognizing the capital on our books. So the cash portion for this year was in the first quarter? Yes.

Allen Danzey: The cash portion for this year was in the first quarter. Yes.

Mike Hughes: Okay. Thank you very much. That's all I have. Thank you for your questions, Mike.

Michael Hughes: Okay. Thank you very much. That's all I have. Thank you for your questions, Mike.

Mike Hughes: Okay, thank you very much. That's all I have.

Operator: Thank you for your questions, Mike.

Operator: Thank you for your question, Mike.

Mike (Questioner): okay thank you very much that that's all i had

Daniel Frierson: With no further questions in the queue, I will now turn the call back over to Dan Fireson. Thank you very much. We appreciate everybody being with us this quarter.

Daniel Frierson: With no further questions in the queue, I will now turn the call back over to Dan Frierson.

Daniel Frierson: With no further questions in the queue, I will now turn the call back over to Dan Fryer.

Speaker Change: With no further questions in the queue, I will now turn the call back over to Dan Frierson.

Operator: Maria, thank you very much. We appreciate everybody being with us this quarter and are looking forward to, hopefully...

Daniel Frierson: Thank you very much. We appreciate everybody being with us this quarter, pleased to be returning to profitability in a very difficult business environment, and looking forward to, hopefully... Lower interest rates in the future, which we think will have a major impact on our industry. Ladies and gentlemen, that will conclude today's conference.

Daniel Frierson: Maria, thank you very much. We appreciate everybody being with us this quarter, pleased to be returning to profitability in a very difficult business environment, and looking forward to, hopefully... Lower interest rates in the future, which we think will have a major impact on our industry. Ladies and gentlemen, that will conclude today's presentation.

Operator: Maria, thank you very much. We appreciate everybody being with us this quarter. Again, we're pleased to be returning to profitability in a very difficult business environment and looking forward to, hopefully,

Daniel Frierson: Again, we're pleased to be returning to profitability in a very difficult business environment and looking forward to hopefully lower interest rates in the future, which we think will have a major impact on our industry. Thank you.

Daniel Frierson: The company will recognize an annual amount of approximately $1.8 million in other income over the term of the lease. High interest rates affecting the housing and home remodeling market and the impact on the economy from continued inflation continued to note negatively impact the industry. Our net sales from soft surfaces during the quarter were less than 1% below prior year, while the industry, we believe, was down approximately 5%. We saw favorable margins in the second quarter as a result of the consolidation of our manufacturing operations in the East Coast and other cost saving initiatives, which we will be discussing in more detail.

Speaker Change: Lower interest rates in the future, which we think will have a major impact on our industry. Thank you.

Operator: Ladies and gentlemen, that will conclude today's conference. Thank you again for your participation. Thank you very much.

Operator: Ladies and gentlemen, that will conclude today's conference. Thank you again for your participation, and many more. Thank you for watching. We'll see you next time.

Operator: Ladies and gentlemen, that will conclude today's conference. Thank you again for your participation. Michael Hughes, Daniel Frierson, Christian Riemenschneider, Barry Blank

Speaker Change: ladies and gentlemen that will conclude today's conference thank you again for your participation

Operator: [music] Music Music Music Music Music Music Music Music Music Music

Allen Danzey: This time, I would like to turn the meeting over to Allen to review our financial results. Thank you, Dan. Our net sales from the second quarter were down 4.7% for the prior year and are down 3.8% on the year-to-date. The higher interest rates and inflationary concerns have impacted our consumer decision making, which has delayed decisions around large discretionary spending, including home purchasing and remodeling, which are drivers for our business. Although year-over-year sales were lower in the second quarter, gross profit margins did improve to 28.1% of net sales compared to 26.7% in the same quarter of the prior year.

Operator: [music] R.I.P., television, and music

Allen Danzey: This improved growth profit margin in 2024 is a reflection of the positive results of our cost reductions throughout the company, our facility consolidation on the East Coast and savings when successful start-up of our extrusion operations. For the year-to-day growth margins were 26.2% compared to 26.7% in the prior year. The year-to-day 2024 margins were un favourably impacted by seasonally lower production volumes and are manufacturing plants in the earlier part of the first quarter.

Allen Danzey: Production volume was higher in the month of March forward and the growth margin returned to a level exceeding prior year in the line with our expectations. Failing an administrative expenses for the second quarter and year-to-date June in 2024 were lower in dollars and as percent of net sales when compared to the prior year. This was the result of cost-cutting initiatives particularly in our samples administrative areas. Our interest expense on the quarter was 1.6 million compared to 1.8 million in 2023 and for the year-to-date we had 3.1 million in interest expense in 2024 compared to 3.7 million in the prior year.

Allen Danzey: This decrease in interest expense is being driven by the reduction in debt in the current year. By the lower year-of-year sales the net income of the second quarter of 2024 was 603,000 compared to a net loss of 1.7 million in the same period of 23. On the year we have a net loss of 1.9 million compared to a net loss in the prior year at 3.5 million. Again, this improvement in our income has resulted in higher margins from error related to consolidation of the manufacturing operations on the East Coast, savings from extrusion operations and other year-of-year cost-cutting initiatives.

Allen Danzey: Turning to our balance sheet are quarter-end receivables increased by 4.3 million dollars from the prior year in balance. The increase was driven by higher billings to customers during last month of the current period as compared to the seasonally lower December timeframe. Our inventory was in line with prior year-in balance. We will continue to closely manage the inventory levels and line with demand while continuing to remain focused on maintaining timely service store customers.

Allen Danzey: Elsefable and accrued expenses were above prior year-in by 6.2 million dollars primarily due to raw material orders on line with a higher mid-year sales activity as compared to prior year-in. Net property planning equipment increased by 4.7 million dollars from year-in. This increase included cash purchases of 1.4 million dollars and prior year deposits moved to property planning equipment in the amount of 6.5 million. These additions to PP&E were offset by approximately 3.3 million dollars in depreciation.

Operator: [music]

Speaker Change: ?? ?? ?? ?? ??

Allen Danzey: Our debt increased by 3.4 million from the end of 2023 and that was mainly driven by investments in samples and other costs associated with the product introductions in the first part of the year. At quarter-end our unused borrowing availability under the revolving credit facility was 14 million.

Operator: Our investor presentation is available on our website at www.dixiegroup.com.

Operator: Michael Hughes, Daniel Frierson, Christian Riemenschneider, Barry Blank; Michael Hughes, Daniel Frierson, Christian Riemenschneider, Barry Blank, Dixie Group; Michael Hughes, Christian Riemenschneider, Barry Blank, Dixie Group.

Daniel Frierson: Thank you, Alan. Our extrusion facility which started up in late first quarter of this year operated exceptionally well throughout the second quarter. This facility is providing cost reductions in nylon fiber and a continuous supply of fiber to meet our needs and help us serve our customers. This fiber is being used in many of our new carpet styles this year. We're focused on extruding white diable nylon which is used in our long beautiful color lines through all of our carpet brands.

Daniel Frierson: During the quarter, we launched our step into color campaign which in store with in store marketing materials and additional presents as well. This campaign connects our retail customers, designers and consumers with the world of color options. This includes custom color which is now available in all brands and is a great option for the customer who is looking for that perfect hue of a particular color. In a residential market which continues to move toward offering a sea of sayingness that is solution to that polyester, we're setting ourselves apart with beautiful, timely color offerings.

Daniel Frierson: We have launched 18 new carpet styles in the second quarter of 24, including six new durasil solution dye polyester styles and our DH floors line and 11 new decorative styles in our 1866 and the color and the color of power. We also launched six new collections with 38 skews as updates to our hard surface problems. These included SPC tile looks high in WPC and high in engineered wood and our Fabrica problem.

Daniel Frierson: These launches complete our new product launches for 2024. We did a very good job this year in getting products launched early and our new products are already generating meaningful volume and when it comes to products, we're not taking our foot off the gas as our design teams are already busy putting together new products for 2025. On the digital marketing front, we continued our partnerships with Broadroom and Roombold. As a result, we're seeing increased lead generation sample ordering from our website and product visualization online. This is promising. As today's flooring consumers are very much engaged in the digital space and serving the customer where they are is critical.

Daniel Frierson: Our premier flooring center retail program continues to show tremendous promise. After outpacing the market by a wide margin in 2023, we have seen the results improve even more in 2024. With strong growth for the second quarter and first half, our investment in samples, merchandising and training in these stores is paying dividends with increased business and share gain. We're excited to see where we can take the BFC concept in the future.

Daniel Frierson: Our improved margins are a result of our cost reduction program starting in 2023 at $35 million. Our cost reduction this year was on 10-12 million, and Dollar. We have also already begun a cost reduction plan for next year. These plans have enabled us to better manage the controllable aspects of our business. In addition, we have continued to manage our working capital to improve cash flow and will continue to minimize capital expenditures until business conditions improve.

Daniel Frierson: When interest rates begin to decline, the industry will begin to improve. We feel our business is closely tied to existing home sales and mortgage rates. Existing some home sales had gone from over six million units to below four million, the lowest since 1995 when they were far fewer homes. As business conditions improve, we think existing home sales will improve and revert to the mean. We do not expect third quarter to show improvement, but think interest rates should decline later this year or early next year. Third quarter to date continues to lag last year was self-surface, which is down slightly performing better than hard service, surface for us.

Daniel Frierson: Again, the good news is that we have returned to profitability in a very challenging and business environment.

Operator: At this time, we'll open the meeting to questions. Thank you.

Michael Hughes: Our first question comes from Mike Hughes with SGF Capital. Please proceed with your question.

Daniel Frierson: Good morning. Thanks for taking my questions. First one, you said in the press release and I think in your commentary that the new product launches are complete for 2024. Will that have an impact on SGNA in the back half? I think maybe you run sampling costs through SGNA. Would that step down in the third and fourth quarter? From an expense standpoint, we do spread the costs of our sampling activities in line with sales in the year of introduction.

Daniel Frierson: So it is to some degree level, so the expenses will not be as greatly impacted but it will be a positive toward cash flow as we pay for that investment heavily weighted to the first half of the year.

Daniel Frierson: Okay, and then the $10 million in cost savings, how much have you achieved at this point, and then secondarily you alluded to another cost savings program for next year? Would it be of equal magnitude or is it really too early to say? Let me respond and ask Allen to respond also of the 10 million to 12 million reduction this year. I would say we were about 40, 35 to 40 percent in the first half and the remainder in the last half of the year.

Daniel Frierson: In terms of the plan for next year, we are just beginning that plan. It is not the same magnitude right now. We are at about half the level of the reduction for this year. Yeah, I would agree with that because we do expect to be able to achieve the savings that we have discussed for this year as the year plays out, the excretion operations was started in February, time frame, our contributing now in continuing contributing going forward. We continue to look next year in all of our additional cost savings and we will update on that as we can.

Daniel Frierson: Okay, and then the gross margins this quarter at a little over 28 percent were impressive. Was there anything one time in nature in that number that would make that unsustainable? I know it is going to vary with the level of revenue, but if you were to repeat this level of revenue, would that be the number on a go-forward basis? Yeah, there are always one time things going both directions every period, but there was nothing of any significant magnitude during the quarter.

Daniel Frierson: We feel like these are sustainable margins at the volume that we are at reflecting again cost savings throughout the company, particularly on the East Coast as we have consolidated main factoring operations which might available space that we are also able to take advantage about leasing out.

Daniel Frierson: Okay, and then the hard surfaces business, I think your commentary about soft surfaces would imply that hard surfaces was down maybe 15 to 20 percent. Number one, is that correct and if it is, can you just comment on that? Yes, that is correct. Of course, hard surfaces less than 20 percent of our total business, so obviously our soft surface being down slightly is a positive for us and we are gaining market share on the soft surface side.

Daniel Frierson: Okay, and then on the 1.8 million dollars in sub-leason come, is that all incremental and would you just straight line that? We will start to see $450,000 a quarter in other income. It is straight line. It is incremental, except to the point that we do have 200,000 square feet of the space in Sairland already under lease at a similar lease rate. This is replacing that, taking the full place of that. So it is incremental, but we already have about a million dollars just under a million current lease revenues, of the 800,000 additional would be incremental.

Daniel Frierson: Okay, in the additional space, you're looking to lease out what's the level of interest at this point? We're not able to say at this point we focused most of our efforts on the satellite facility because of the market stability that we have in that area. We are shifting our focus now to the other available space that we have also been working to clean out to make available to lease. So we're early on stage of that but excited about the opportunity to focus on it and see if we can get some return. We do not expect the rates to be as high as we were able to get the satellite market but certainly a great opportunity for us and we look forward to working on that.

Daniel Frierson: Okay, in last, I'm sorry, last question for you. What do you expect the cash[inaudible] Okay, so did the first half include cap-backs for the extrusion projects? Is that why that number's a little bit elevated? Yes, we recognized the cap-backs of the extrusion equipment in the first quarter, but again, the cap- the cash portion of that was most heavily spent in deposits in the prior years. So it was not a cash commitment this year as much as it was just recognizing the capital on our boats. So the cash portion for this year was in the first quarter, yes.

Michael Hughes: Okay, thank you very much. That's all I have. Thank for your question, Mike.

Daniel Frierson: With no further questions in the queue, I will now turn the call back over to Dan Fireson. Thank you very much. We appreciate everybody being with us this quarter. Again, we're pleased to be returning to profitability in a very difficult business environment and looking forward to hopefully lower interest rates in the future, which we think will have a major impact on our industry. Thank you.

Operator: Ladies and gentlemen, that will conclude today's conference. Thank you again for your participation. Thank you very much.

Michael Hughes: Michael Hughes, Daniel Frierson, Christian Riemenschneider, Barry Blank Michael Hughes, Daniel Frierson, Christian Riemenschneider, Barry Blank, Dixie Group Michael Hughes, Christian Riemenschneider, Barry Blank, Dixie Group

Q2 2024 The Dixie Group Inc Earnings Call

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