Q3 2025 Dixie Group Inc Earnings Call
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Good day, and welcome to the Dixie Group Inc, 2025 third quarter earnings conference call.
Today's call is being recorded.
At this time for opening remarks and introductions, I'd like to turn the call over to the chairman and chief executive officer Dan Frierson please go ahead sir.
Thank you, Melissa, and welcome everyone, to our third quarter earnings conference call.
Our Safe Harbor statement is included by reference, both to our website and press release.
For the third quarter of 2025, the company had net sales of 62,379,000 as compared to 64877 thousand dollars in the same quarter of 2024.
The company had an operating loss of 2,225,000 compared to an operating loss.
2,177,000 in the third quarter of 2024.
The net loss from continuing operations. In the third quarter of 2025 was 3,998,000 or 28 cents per diluted share in 2024 the net loss from continuing operations. For the quarter was 3,729,000 or 26 cents per diluted share.
Third quarter sales, got off, got off to a slow start. As a result of headwinds in the housing markets, tied to high interest rates and high housing cost prices.
Despite a slow start to the quarter, we saw a strong rebound in sales for September, giving us momentum as we entered the fourth quarter.
The average weekly order entry rate, for the first month of the fourth quarter was 12% above the average weekly order entry rate in the third quarter and close to last year's level for the same period.
At this time, I will turn the meeting over to Alan, who will review our financial results.
Lower sales volume in the first part of the third quarter resulted in Gross margins that were less favorable than what we had seen in the first 2 quarters of this year. They were still slightly favorable to the prior year at 24.8% of net sales compared to 24.6% in the third quarter of 2024.
The year to date, margins were still very favorable to the prior year to date, September at 27% compared to 25.7% the prior year.
Our selling and administrative expenses were $1.2 million, or 6.8% below the same quarter of the prior year, and they were 2.5% lower on a year-to-date basis.
We've had significant reductions in, selling expenses, particularly related to samples and marketing and they were partially offset by higher legal expenses.
Other operating expenses of a million dollars in the third quarter included at least income, net of the related expenses, estimated legal costs and other miscellaneous expenses.
Our interest expense on the year, was 5.4 million compared to the 2024? Year-to-date interest expense of 4.8 million
We had higher internal interest rates and advertising of financing fees throughout the year that contributed to that difference.
The net loss on the quarter was 4.1 million compared to a net loss of 3.9 million in the prior year.
Fiscal. Year-to-date September. We had a net loss of 4.6 million compared to a net loss of 5.8 million in Prior year.
Looking to our balance sheet, our September month, then receivables of 26.3 million was up from our seasonally, low year-end balance of 23.3 million and that increase was driven by the comparatively higher sales volume in that latter period.
Our net inventory balance. At the end of the third quarter was 68.5 Million compared to a net inventory, balance of 76.8 million, and a third quarter of the previous year.
We had a planned reduction of inventory in the fourth quarter of last year, and we continue to manage inventory at the lower levels while maintaining our service to our customers at a timely level.
Accounts payable on acred expenses, were 44.00 million 1, excuse me, 44.1 million compared to 36.8 million in the same period of the previous year. As a result of extended terms and timing of payments that were due,
Net property plant and Equipment decreased by 3.5 million from our prior year in this included, 3.9 million in depreciation year to date year to date. Capital expenditures have been 446,000.
We plan to hold Capital expenditures under our maintenance. Level of approximately 800,000 for this year and depreciation is expected to be 5.1 million.
The debt on our balance sheet decreased by 916,000 from year end, our senior debt balance net of restricted and unrestricted cash on the balance sheet. At the end of the third quarter was 45.8 million.
That's a 4.2 million dollar reduction from that same total a year prior year end.
Our balance return debt decreased by 4 million from year end.
At the end of the quarter borrowing availability under our new senior credit facility was 10.9 million, which was subject to a 6%.
Our investor presentation is available on our website at Dixie, group.com and thank you. Alan, for the past 3 years, the supply of available housing has not kept pace with household, formations, which has created a shortage of supply.
Consequently, the flooring industry has been impacted by low home sales and consumers postponing large discretionary purchases.
Housing turnover has a dramatic impact on the flooring industry residential remodeling is the primary driver of our sales. As flooring is often replaced before a home is listed for sale or just after a home is purchased.
Over the last 3 years, the soft Floor Covering industry has been down approximately 30% in units.
The mitigate the impact of slower business. We have curtailed capacity and significantly lowered costs.
The 3 year period, including this year, we have lowered costs by nearly $60 million.
This has been accomplished by a restructuring, our oper operations and reducing costs in almost every phase of our business.
In preparation for next year, we have developed an additional profit Improvement, plan of 10 million, which will be 90% in place by the end of the year.
We have also continued to minimize Capital expenditures and closely manage our working capital.
As a result in the last year, we have lowered our net debt by over 12 million dollars.
Of concern for our industry and Industry generally.
Since we produce most of our products domestically, it has less impact on our company than some others.
We have monitored these actions closely and have initiated price increases to mitigate the impact of the Terrapin. Tariff increases when appropriate
We have also increased prices in the fourth quarter on all soft Floor Covering product.
As has most of the industry, which will have a major impact on our financial results next year.
For the third quarter. And for the first 9 months of 2025 our year-over-year soft surface. Net sales were down less than 1%. Outperforming the industry, which we, we believe was down closer to 4% in the quarter and 6% for the first 9 months.
Our commitment to the luxury end of the market has enabled us to continue to outperform the market during these difficult times.
Growth segment has been our durasol.
SD collection, which has shown
Strong growth and gain, share of the polyester Market. Our high-end carpet, segment also had positive growth in the quarter for both nylon and decorative products.
Building on this momentum. In the third quarter, we introduced 2 Enduro.
new durasol polyester carpet Styles and 6 new decorative carpet styles,
in our hard surface segments, our fabric of wood is a highlight
With Nest sails, increasing over 70% 17% year-over-year for the first 9 months.
While our true core segment, decline for the quarter. Our true core Prime, WPC collection, showed positive signs as the market is Shifting toward WPC.
while Market, headwinds persist, especially, within residential housing and consumer confidence, our team remains committed to high-end customer service, design, focused product introductions
And operational excellence.
Our continued focus on cost, reductions in O operational efficiencies will be instrumental in navigating industry challenges.
And driving improved. Profitability in future periods.
Subsequent to a quarter end.
As we said in our press release, the company has entered into a memorandum of understanding to settle 2 of its pfas related lawsuits, and the company has obtained an agreement in principle to meet them at dismissed without prejudice from a third, PFA s related lawsuit.
An estimated liability for the proposed settlement or recorded within the third quarter results, in the legal expenses associated, with these cases are included in our administrative expenses, the proposed Agreements are subject to certain conditions and final negotiations with the plaintiffs in these matters.
Looking forward. We're optimistic that declining interest rates along with the wealth effect from higher home prices and the stock market should positively positively impact Floor Covering purchases.
At this time, we'll open the meeting for questions.
Thank you. If you'd 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'd 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 1 moment, please while we pull for questions.
Our first question comes from the line of Mike Hughes private investor, please proceed with your question.
Good morning. Uh, thanks for taking my questions. Um, first on the price increases, I, I think the price increases on the imported goods were, uh, implemented on September 30th and then the nylon polyester and Freight on October 20th.
Uh, so I assumed there was not really any impact on the
uh,
Just reported quarter, could you maybe help us quantify the impact from those 2 actions on the fourth quarter? And then into next year, Dan? I think you mentioned that it could have a materially positive impact. How would you define materially positive?
Uh, first of all, we have had several increases on on Imports. We had 1 earlier in the summer, in addition to what you outlined there uh, as the first
Uh, Liberation day tariffs were implemented.
Uh overall uh the the impact will be uh somewhat muted in the fourth quarter. As as you pointed out they're going into effect in the October, November time frame.
and uh, by the time you receive orders, um,
Ship the products and so forth. Uh, it it, there is a lag. So, I would say in the fourth quarter, there will be relatively small impact, but Major Impact next year. And we think the impact will be some somewhere in the
Okay, great. Great. And then you've already addressed this, uh, to some extent. But, um, some of the batting and furniture furniture players, uh, said business was pretty good in the September quarter through Labor Day and then it kind of softened you, your your, your your your your saying that you've experienced something a little bit different. So your business actually, uh, did it. Did it strengthened in October or how? How did it perform in September? And then in October,
Mike. First of all, uh, we we tend to be a little different from from some other people in the, in our industry and in some other Home Furnishings, uh businesses
Second and fourth quarters tend to be our best quarters.
uh, and
we uh, in the high-end particularly
uh, you begin to see a buildup of orders in September typically, uh, which in in, uh,
manifest itself and higher sales or shipments in October and November.
Then then slowing down in the December. But uh, our October business I think is as we outlined there. If we run our run rate at some 12%, over the third quarter run rate and very close, very similar to what we experienced a year ago.
Okay good. And then the uh the the 10 million in cost takeouts uh that you referenced on today's call and in the press release.
That's incremental beyond what you've done so far, correct. So uh, that would be a benefit for 2026 versus 25 of 10 million is that I just want to clarify
Uh, that is an incremental from cost Productions previously, but that includes the 6 million of the price increases.
Okay. Okay, great. Okay. It is a year-over-year incremental Improvement.
Okay, and then the other operating expenses, roughly a million dollars is that related to the legal settlements.
As we mentioned, um, we did record an estimate, uh, to the other operating expenses, uh, based on having reached some agreements here. Prior to this, we were not able to estimate the cost of this. Um, it was agreements.
Are still under uh, negotiation and subject to certain conditions. So they certainly are not final at this time and uh there's obviously some confidentiality involved.
Than that. But we're happy to be reaching the stage we're at and we look forward to some conclusion on these lawsuits.
Okay, so I'll ask a little differently. There’s an other operating expense item in the September quarter of roughly $1 million.
Uh, is it fair to think that that will not uh, recur in the December quarter?
There is certainly an understanding that a portion of that would not be recurring. Yes.
Okay.
And then last item, can you just speak uh, to liquidity and your comfort level? If let's say that, uh, mortgage rates, stay where they are for the next? I don't know, 12 to 18 months,
Are you still comfortable with with your liquidity, where it stands today? Or would you take additional actions on that front?
Manage certainly within the uh operating cash flow and maintain our debt levels and actually reduce those over time period. But as you mentioned everything's uh
Unpredictable out in the market right now, we're happy with the momentum. We've seen here, coming out of third quarter and into the fourth quarter. Uh, but we, as Dan mentioned, first quarter is a seasonally low period for us. So we're we're keeping an eye on that and we'll be looking at opportunities for uh financing additional, uh, availability or funds coming from additional financing.
And is there any additional uh, land that can be sold off at this point or Sally specs? Anything like that?
uh, yes, we do have opportunity with uh, several uh, property locations that uh, we are considering and looking at uh, those opportunities as well as some equipment financing and just seeing what presents the best, uh, terms and, uh,
Amounts for us.
Okay, I appreciate your time. Thank you.
Thank you. Once again, as a reminder, it's star 1 to join the question queue. We'll pause just a moment to allow for any other questions.
Mr. Far, I'm seeing no other questions at this time. I'll turn the floor back to you for final comments.
On the call, we appreciate your interest. Uh we're Mighty glad to get uh the pfas lawsuits.
Uh, the rearview mirror and look forward to a better fourth quarter. Thank you very much.
Thank you, this concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.