Q2 2025 Dixie Group Inc Earnings Call
Greetings, welcome to the Dixie Group Q2, 2025 conference call at this time. All participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone to request operators assistance, during the conference, please press star zero on your telephone keypad. Please note, this conference is being recorded, I would now like to turn the call over to Dan Frierson, chief executive officer, thank you. You may begin.
Thank you, Devon, and welcome everyone to our second quarter.
Conference call. I have with me Alan Dany our Chief Financial Officer.
Our Safe Harbor statement is included by reference, both to our website and press release.
The gross profit margin for the second quarter of 2025 was 29.2% of sales compared to 28.1% in the second quarter of 2024.
Operating income in the second quarter of 2025 was $3.2 million, compared to $2.3 million in the second quarter of the prior year.
The company had net income of 1.2 million in the second quarter of 2025 compared to net income of 600,000 in the same period of the prior year.
Additionally, significant reduction in net debt took place during the last 6 months.
Despite lower year-over-year sales volume, we were able to produce stronger gross, gross margins at 29.2% of net sales.
Compared to 28.1 in the quarter of the priority, same quarter of the prior year.
We also reduced our year-over-year selling and administrative expenses.
These favorable results in 2025 are primarily the results for our cost production plan.
Which is for this year, which is estimated to produce 12.6 million in reduced spending.
Year-over-year.
we market conditions continue to negatively negatively impact Florida flooring industry sales in the second quarter of 2025
With the high interest rates and low consumer confidence. Being key factors leading to slow existing home sales and weak Home. Remodeling number.
Our soft Surface sales out past the outpace. The market in the second quarter as we were relatively flat year-over-year where the industry we believe was down approximately 7%.
A key growth segment in our soft surface products was our Duracell
Collection, which continues to gain, share of the polyester Market.
Also, the continued growth of our high-end decorative segment resulted in one of our strongest quarters for the sales of our decorative products.
At this time, Allan will review our financial results.
As Dan discussed. We are pleased to announce the positive results. For the quarter, despite the lower year-over-year, sales volume
Through our ongoing companywide cost reduction initiatives, we have been able to reduce costs and materials and reduce expenses within our production processes.
This helped lead to strong growth. Margins of 29.2% of net sales in the current quarter, compared to 28.1% and the prior year and 28.1% on the year to date with a comparison of 26.2% in the prior year.
Selling and administrative expenses. And our second quarter were 600,000 or 3.44% below the same quarter of the prior year and slightly lower on the year to date.
With the launch and prior years of product initiatives for hard surfaces, decorative, and polyester, substantially complete ongoing selling and marketing. Expenses are being maintained at a level to support our new products, introductions and Sample replenishment.
Our interest expense on the year was 3.4 million compared to the 2024 year-to-date interest expense of 3.2 million.
Higher internal, interest rates and advertising of financing fees contributed to this difference.
The net income for the quarter was $1.2 million compared to a net income of $600,000 in the prior year, for the fiscal year to date June. We had a net loss of $537,000 compared to a net loss of $1.2 million in the prior year.
On our balance sheet, our June month in receivables of 289 million was up from our seasonally low year, in balance of 23.3 million.
Net increase was driven by the comparatively higher sales volume in the second quarter.
Our net inventory balance, at the end of the quarter was 67.4 Million compared to a net inventory, balance of 76.1 million and the second quarter of the previous year.
We had a planned reduction of inventory in the fourth quarter of last year and we continue to manage our inventory at lower levels while maintaining timely service to our customers.
Council Bill and acred expenses were 41 million compared to 37 million in the same period of the prior year. Net property plant and Equipment decreased by 2.4 million from prior year end. And this decrease was primarily the result of 2.6 million dollars in depreciation with an offset of 155,000 in capital expenditures.
We do plan to hold our Capital expenditures at a maintenance level of approximately 800,000 for 2025 and depreciation, is estimated to be 5.2 million.
The net balance of our senior debt and cash, on the balance sheet. At the end of the second quarter was 45.6 Million, our 4.4 million lower than the same total of millions of Prior year end.
The remaining portion of our term debt decreased by 3.2 million from year end.
at the end of the quarter borrowing availability under our new senior credit facility was 13.1 million which was subject to a million dollar excess availability requirement
Our investor presentation is available on our website at Dixie group.com.
Stand. Thank you. Alan.
Over the last 3 years, the external environment for the Floor Covering business has continued to be difficult.
We have experienced declining sales as mortgage rates. Have remained at elevated levels.
Existing home sales have declined to the 4 million unit level, and consumer confidence has been at a historically low level.
As a company, we've been adjusting to these realities but we're also faced with 2 of our major suppliers, exiting the business in a disruptive manner.
These conditions have meant, we had to restructure our operations and product offering in a most turbulent environment.
To improve our results and restructure our operations. We have embraced a cost reduction plan, that is focused on virtually every phase of our business.
Doing more with less has meant reducing costs over the last three years by well over $50 million while improving quality and service.
We have also invested in our growth initiatives, over the last 4 years. We have enhanced our hard surface business, particularly our fabric of wood program which has resulted in growth of nearly 10% in the second quarter.
We've also invested in our decorative offering through additions to maslin's 1866, offering and fabric is the core line.
We've also broadened our dicks, DH.
Home offering by introducing more highly styled durac durasol polyester product.
These actions and activities that help us to continue growing market. Share in the soft Floor Covering Market.
Also believe soft Floor Covering is no longer seating significant market, share to hard surface products.
From a marketing standpoint, we continued our new TDG Rewards Plus program with new benefits and bonus tiers for our most loyal retail sales associates. Additionally, we maintained our partnerships with Roomvo and Broadloom in the digital space.
These programs, we continue to see increased lead generation online, sampling ordering and room visual visualizations.
These metrics are promising. As today's consumer is searching for Floor, Covering products online.
And we must meet them where they are.
Our.
Premier flooring center, Retail Partners continue to be a strong point for the company.
This program includes the selling system, which supports better goods and higher-end products, along with training, unique promotional opportunities, and other benefits.
The evolving tariff situation is adding to the current economic uncertainty.
The major impact on Dixie is with hard surface products and decorative products.
In the earlier tariffs were implemented in April, the industry, and we implemented price adjustments and supply chain changes to Medicaid, mitigate the impact of the initial tariffs.
We no longer Source from China.
But we will adjust pricing again as it becomes necessary, depending on the rates which are finally implemented.
The near-term outlook is very much the same as what we have experienced for the first half of the year.
Sales in order to run slightly behind last year.
In total but soft. Surface products are virtually the same as last year.
We continue to reduce costs by improving productivity conserving energy and expanding our operational cost initiatives.
Looking longer term.
At some point, consumer confidence will improve, and mortgage rates will decline, leading to an improvement in the market.
Today family formations are outpacing home construction.
home equity is an an all-time high and there's been up demand for more housing
The industrial history.
The industry has a history of a prolonged growth period when it exits a prolonged downturn.
Just as it did after the 20089, Great Recession.
after that recession, the next 4 years experienced 8% compounded, annual growth
We believe our cost reductions and growth initiatives in place will be an excellent. We will be in in an excellent position to take advantage of the changed market dynamics when they occur.
At this time we would like to open the meeting to your question.
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 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 keys.
Again, ladies and gentlemen. It is star. 1 on your telephone keypad to ask a question 1 moment, please while we pull for questions,
our first question comes from the line of Barry blank with jh Darby and Company. Please proceed with your question.
Hi, good morning, Dan good quarter that you had. I got 1 question. That's a little difficult, but I don't and I don't know if there is an answer to it.
but historically every 1% drop in interest rate, what would that equal usually in percentage of increase in sales if you could answer that,
Very, I wish I could give you a definitive answer to that. Obviously, I think any uh, reduction in mortgage. Uh, interest rates would have a positive impact but I I don't think I can give you a a definitive number.
Is there a lag time? Uh, what if interest rates should come down as they usually a lag time for when that comes down to When a business would pick up?
it, it is not a, a long period of time, but I think
I would look at consumer confidence at the same time. If consumer confidence is coming in up, I think it would be fairly quickly.
Thank you very much.
Thank you, Barry.
Thank you. Our next question comes from the line of Mike Hughes a private investor. Please proceed with your question.
Good morning. Uh, thanks for taking my questions. Uh, first on the tariffs, I would assume with the growth margin, you put up in the quarter, a little north of 29%. There wasn't much of an impact from the tariffs uh in the June quarter. Uh first. Can you confirm that? And then do you think the pricing you've put in place will fully cover you in in the third quarter? Or should we expect, uh, a little bit of a delayed negative impact on the Tariff front?
All right, as you know the whole tariff situation has been very volatile and a lot is happening today. Um but uh to answer your questions. First of all,
Uh, probably about 85% of our sales are not impacted At All by tariffs. Uh, because we manufacture our Goods in the United States. The only thing we import is uh hard surface and and some decorative products.
so,
Uh having said that we did increase prices that that we felt covered the costs of the April round of tariffs. Uh and the industry had had an industry-wide increase uh inductive products and in hard, surface products,
I would anticipate that the industry will do the same thing. Uh, once it's really determined what what these rates are.
country obviously is a little different and
It’s difficult to project, but no, there wasn’t a major impact in the second quarter, and nor do we expect a major impact in the third quarter because of the price increase.
Okay. Makes sense and then um, outside of tariffs can you just comment on your cost of goods, sold raw material inputs. Uh, what? What you're seeing on on that front?
Basically, we have not seen any inflation in raw materials yet.
I say you had, but we are still seeing some reductions in raw materials.
Basically and that has obviously helped with the uh, our gross margin.
Okay. So just on that front uh was there a lifo credit in the quarter that helped the the the gross margin number?
We have adjusted our life of
each quarter and then in line with cost reductions as well. The cost reductions in the period. Uh did result in lower cost of our inventory which we adjusted through to Lipa. Um, the adjust our, we look at our lipo at a year in basis, and adjust if needed uh, for any Lipa related, um changes that would be pushed through to income statement, but those would only be specific to a tier reduction, the gross margins would reflect Lipa based costing. So we absorb that or recognize that through the year, based on changes to our inventory values.
Okay, and then the cost Savings Program. How much uh incremental savings is in front of you?
yeah, we are anticipating or planning uh, 12.6 million over the um uh,
Course of the year. Uh we have achieved an identified approximately half of that through the first 6 months. So we feel very good about being able to achieve that goal and we'll continue to look for other cost savings uh throughout the remainder of the year uh to try and improve upon that.
Okay, so there's a little over 6 million left uh, on an annualized basis um, on that program, right?
Yeah. Actually uh maybe I'm a little less than that. We we've been very successful through the first half of the year so we're in we're running well very well on track to achieve our goal.
Okay, great. And then, my, my last question. Um, some commentary in the press release, um, part of the, the, uh, hard flooring business did well. And then the other part was challenged, uh, it sounds like maybe those challenges are behind. You can you just comment on, um,
Better performance in the second half.
The wood part of our business is what? Uh,
Did exceptionally well; that is the very high-end Fabrica would program.
Uh, we think that we anticipate that will continue to do well, the SPC and uh WPC uh luxury vinyl tile products are more challenged. Uh, there's more competition there and and uh,
I think it's going to depend on how much inventory is out there. Uh,
And and how some respond to tariffs. So that that's a little more problematic and, uh, has not been as good for us, as, as the wood business has
Okay. So the the hard flooring business I think is roughly. 20% of Revenue. Is that, is that correct in rough terms?
I would say it's less than 15% today.
Okay. Okay. Okay. Uh, can you
Just in rough terms, break out the part, that's performing well what percentage that is and then the more challenged piece.
Uh Mike unfortunately we don't don't break out those numbers publicly.
Okay, I had to try. I I appreciate all your time. Thank you. I don't I don't blame.
Thank you very much. Thank you. Thank you, Mike.
thank you as a reminder, ladies and gentlemen, if you would like to ask a question, please press star 1 on your telephone keypad,
It appears we have no further questions at this time. I'd like to turn the floor back over to Dan Frierson for additional comments.
Thank you all for joining us, uh, for this quarterly meeting.
We're we're happy to report.
that income and reduction of debt, both are important parts of our
position and going forward. Uh, we hope you'll join us next quarter. Thank you.
Ladies and gentlemen, that will conclude today's conference. Thank you for your participation and have a wonderful day.