Q3 2024 The Dixie Group Inc Earnings Call

Good day and welcome to the Dixie Group, Inc. 2024 third 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.

Dan Frierson: Thank you Jess and welcome everyone to our third quarter 2024 conference call.

Dan Frierson: With me Alan Dancy, our CFO.

Dan Frierson: Our safe Harbor statement is included by reference both to our website and press release.

Dan Frierson: For the third quarter of 2024, the company had net sales of $64 million $877000 as opposed as.

Dan Frierson: As compared to 68.576 million in the same period.

Dan Frierson: 2023.

Dan Frierson: The company had an operating loss of $2 million $107000 compared to an operating loss of 913000 jobs.

Dan Frierson: Dollars and the <unk>.

Dan Frierson: Third quarter of 2023.

Dan Frierson: Net loss from continuing operations in the third quarter was 3 million seven or 26 cents per diluted share in 'twenty two 'twenty three the net loss from continuing operations for the third quarter was $2.211 million or 15 cents per diluted share.

Dan Frierson: Net sales in the third quarter started off slowly.

Dan Frierson: And the market July but improve throughout the remainder of the core soft market conditions as a result of higher interest rates low existing home sales and low consumer confidence.

Dan Frierson: American, particularly impacted our overall sales volume.

Dan Frierson: Sales from soft surfaces during the quarter were 3% below prior year, while the industry. We believe was down approximately 6.5%.

Dan Frierson: Operating margins in the third quarter were unfavorably impacted by the lower manufacturing volume and the plants and significant nonrecurring costs.

Dan Frierson: For capacity charges from utilities at our manufacturing facilities in California and.

Dan Frierson: Higher costs related to our self insured medical benefits and workers compensation.

Dan Frierson: At this time.

Our financial review I will turn it over to Alan Danzig.

Alan Danzig: Thank you Dan.

Alan Danzig: As Dan mentioned, our net sales in the third quarter were down five 4% from the prior year and they were down four 3% on the year to date.

Alan Danzig: Interest rates and low consumer confidence has delayed our consumer decisions around large discretionary spending which includes the home purchasing and remodeling which are drivers for our business.

Alan Danzig: As Dan mentioned the impact on our gross profit margin, which in the third quarter was 24, 6% of net sales compared to 26, 6% in the same quarter of the prior year.

Alan Danzig: For the year to date September 2024, the gross margins were 25, 7% compared to $26 six in the prior year.

Alan Danzig: Despite the lower third quarter margins, we believe the positive results of our cost reductions throughout the company.

Alan Danzig: Facility consolidations on the east coast and savings from the startup of our extrusion operations will restore to higher margins in line with volumes.

Alan Danzig: Selling and administrative expenses for the third quarter and year to date September were lower in dollars and as a percent of sales when compared to the prior year. This was the result of year over year cost cutting initiatives, particularly in our sample and administrative areas.

Alan Danzig: Our interest expense on the quarter with $1 6 million compared to $1 8 million in 2023.

He has made up for the year to date.

We had $4 8 million and interest expense in 2024 compared to $5 5 million in 2023.

Alan Danzig: Decrease in interest expense is being driven by a lower average debt in the current year.

Alan Danzig: The net loss from continuing operations in the third quarter of 2024 was $3 9 billion compared to a net loss of $2 4 million in the same period of 2023.

Alan Danzig: On the year, we have a net loss from continuing operations of $5.

Alan Danzig: $5 million compared to a net loss in the prior year at $5 4 million.

Alan Danzig: Turning to our balance sheet.

Alan Danzig: Our quarter end receivables increased by $2 9 million from prior year end balance.

Alan Danzig: That was $1 5 million lower than the same period of the previous year due to lower sales volume in the current period.

Our net inventory balance at the end of third quarter was $76 8 million.

Alan Danzig: This was $3 $2 million or 4% below the inventory balance at September of 2023.

Alan Danzig: We do plan to reduce inventories in the fourth quarter, while remaining focused on maintaining timely service to our customers.

Alan Danzig: Notes payable and accrued expenses were $1 million lower than the same periods in the previous year in line with the planned reduction in spending and inventory related areas as we enter into the fourth quarter.

Net property plant and equipment increased by $3 $6 million from a year end.

Alan Danzig: This increase included cash purchases at $1.9 billion in prior year deposits that were moved into PP&E in the mail a $6 5 million.

Alan Danzig: These additions to PP&E were offset by approximately $4 8 million and depreciation.

Alan Danzig: Our debt increased by $3 nine $9 million at the end of 2023, mainly driven by operating need for investment in samples and other costs that were associated with product introductions in the first part of the year.

Alan Danzig: Year over year that was lower by $9 $5 million and our current unused borrowing availability under our revolving credit facility is $12 $3 million.

Alan Danzig: Our investor presentation is available on our website at Dixie Group Dotcom.

Alan Danzig: Dan.

Dan Frierson: Thank you Alan we're pleased by the results of the successful operation of our extrusion equipment that began in the first quarter of this year.

Dan Frierson: Along with providing raw material at a lower cost the importance of securing an internal supplier fiber became even more apparent as one of our suppliers have wide now on announced they would be shutting down their operations later this year.

Dan Frierson: Throughout the third quarter, we continued to promote our step into color campaign through marketing materials placed in our customer retail stores as well as digital advertising.

Step into the color campaign connects our retail customers.

Dan Frierson: Designers and consumers with a world of color options, including custom color availability and all our brands.

Dan Frierson: This provides the end user with colorful options in peacetime nylon as opposed to the sea of sameness that as solution dyed polyester.

Dan Frierson: Our marketing activities in the third quarter included continued focus on expanding our digital marketing efforts, which has resulted in increased lead generation sample order activity from our websites and improved capabilities for online product visualization.

Dan Frierson: We also saw strong growth from retail stores, where we have placed our premier Premier flooring Center program.

Dan Frierson: When examples merchandising and training in these stores have provided returns have increased business and greater market share.

Dan Frierson: Our product and marketing initiatives should allow us to continue to outperform the industry and what has been a difficult flooring market.

Our cost savings initiatives, including the successful operation of our extrusion equipment.

Dan Frierson: And the consolidation of our east coast manufacturing facilities have us in a strong position to maximize the return from an anticipated improvement in demand going into 2025.

Dan Frierson: Higher demand is expected to be driven by higher existing home sales and remodeling as a result of decreasing interest rates and access to elevated home equity.

Due to the lower level of business in the third quarter, we did not build inventory as we normally would in anticipation of a strong fourth quarter.

Dan Frierson: We also anticipate lowering inventory in the fourth quarter. So we will underproduce our sales during the period this period.

Dan Frierson: The hurricane season impacted business in several geographical areas, where we do business.

Dan Frierson: In the last half of the year that certainly has impacted us and ship, but should provide an uplift during the following year.

Higher Ocean freight rates were also adversely impacted third quarter results.

Dan Frierson: And also probably led to increased inventory of hard surface products in anticipation of the dock worker strike.

Dan Frierson: At this point Ocean freight rates are returning to more normal levels, but there's uncertainty about the impact of the dockworkers negotiations going into next year.

Dan Frierson: The preliminary thoughts about next year point to continued lowering of interest rates and mortgage rates, which along with the wealth effect of higher home values and a bullish stock market share to increase existing home sales and remodeling.

It's impossible to determine the mortgage rate level that will change the current market dynamics.

Around 60% of outstanding mortgage holders have a rate below 4%.

Dan Frierson: There also is a pent up demand to sell homes and equity as a share of total real estate value is above 70%.

Dan Frierson: Which is the highest level since the 19 fifties this could make homeowners willing to take the hit on are more expensive mortgage sooner than most people think.

Dan Frierson: Also we anticipate getting the election behind us will help clear the air and provide a more positive environment for consumers. It certainly will change the advertising that we see daily.

Dan Frierson: T V.

Speaker Change: Total sales for the fourth quarter and to date are slightly below slightly below year ago levels, but our soft surface sales. So far in the fourth quarter are slightly above year ago levels.

Speaker Change: This time, we would like to open up.

Speaker Change: Calls to questions.

Speaker Change: Thank you at this time, we will be happy to open the conference call to your questions if you'd like to ask a question. Please press star one on your telephone keypad.

Speaker Change: Information tumbler indicate that your line is in the question queue.

Speaker Change: Press Star two to remove yourself from the queue.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment. Please poll for questions.

Speaker Change: Once again, ladies and gentlemen to ask a question.

Speaker Change: Please press star one on your telephone keypad.

Speaker Change: Okay.

Speaker Change: Thank you we do have a question coming from the line of Barry Gertner with improv.

Speaker Change: Please proceed with your question.

Speaker Change: Hey, good morning.

Barry Gertner: I wanted to know in the last call, we discussed the NASDAQ delisting and Alan.

Barry Gertner: And that you're trying to get ahead of it.

Barry Gertner: Subsequently the stock did get delisted.

Barry Gertner: I was curious what the thinking is with management going forward.

Barry Gertner: How this ties into the refinancing of the October 2025.

Speaker Change: It's Scott discussions here had started.

Barry Gertner: Yes.

Barry Gertner: RSV.

Barry Gertner: Start situations, you've talked about we were monitoring that.

Barry Gertner: We made efforts on our side as well as the speaking with our board and investors and.

Barry Gertner: I get as we approach the deadline the best option for US was to move to the dose.

Speaker Change: Marcus I think that's worked out very well for us.

Speaker Change: The reporting requirements are much the same so we will continue to provide information out to investors and it will be able to save some internal cost.

Speaker Change: As we move forward under the OTC markets.

Speaker Change: We are as you mentioned.

Speaker Change: Approaching are within the one year period of time.

Speaker Change: Our current agreement with the senior facility and we're talking with lenders and working through.

Speaker Change: Considering what options, we have to move forward in that area.

Speaker Change: Thank you with no further questions in the queue I will turn the call back to Dan Frierson for any additional or closing remarks.

Dan Frierson: Yes, hey, thank you very much and thank all of you for being on the call and we look forward to discussing our fourth quarter with you.

Speaker Change: Next year. Thank you.

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

Speaker Change: [music].