The Dixie Group, Inc. (NASDAQ: DXYN) today reported financial
results for the quarter ended September 28, 2019. For the third
quarter of 2019, the Company had net sales of $95,447,000 as
compared to $101,562,000 in the same period in 2018, a decrease of
6.0%. In the third quarter of 2019 our sales, exclusive of sales
through the mass merchant channel, were down 1.5% relative to the
third quarter of 2018. We have seen changes in our mass merchant
sales as this channel has shifted more to hard surface flooring
products, and we did not repeat a large initial stocking order to
this channel which occurred during this period in 2018.
For the third quarter of 2019, the Company had a
loss from continuing operations of $2,577,000 or $0.16 per diluted
share; however, adjusting for costs associated with facility
restructuring and related inventory impairments, the Company had a
loss of $1,452,000 for the third quarter of 2019. For the third
quarter of 2018, the Company reported a loss from continuing
operations of $2,922,000 or $0.19 per diluted share on a higher
level of sales.
Unusual expenses during the period included $1.1
million in restructuring related expenses including facility
consolidations related to the relocation of our west coast
distribution center, inventory write downs for Atlas white dyeable
products, and severance expenses. Other unusually high expenses
during the period were medical costs associated with our
traditional preferred provider network plans. Both of these medical
plans were replaced in the third and early fourth quarter of this
year.
Early in the fourth quarter of 2019, we sold our
Susan Street facility and signed a lease with options for a period
of up to twenty years. The gain on the sale is approximately $25
million, or over $1.50 per share. Our senior credit facility was
paid down by $36 million as a result of the sale. Our total debt
reduction from the third quarter of 2018 through the completion of
this transaction is $55 million. Our total debt, after the
completion of the sale of the Susan Street facility, was $86
million. Our equity, after the completion of this transaction, has
risen by over 50%. Total accessible borrowing availability,
subsequent to our closing of the sale of Susan Street, was $22
million.
Commenting on the results, Daniel K. Frierson,
Chairman and Chief Executive Officer, said, “Our residential carpet
product sales were down 10.9% for the quarter as compared to the
prior year. Our residential carpet sales, without our mass merchant
channel, were lower for the third quarter year over year period by
5.1%, thus significantly stronger than our mass merchant
channel.
Our EnVision 6,6™ program continues gaining
traction in the market. We continue to expand this program which
brings exceptional value to the customer. We have seen growth in
our west coast offering through both Masland California Classics
and the Dixie Home Pacific Living Quick Ship Collection. Both of
these programs are serviced out of our Santa Ana, California
facility, providing shorter delivery times for our west coast
marketplace.
Our residential luxury vinyl flooring and wood
sales experienced a greater than 40% increase in sales in the third
quarter of the current fiscal year as compared to the same period
in the prior year. During the third quarter of 2019, we had great
traction with our new TRUCOR™ SPC offering, including placement of
over 2,000 displays in the retail community, and by the end of the
quarter, TRUCOR™ represented a significant percentage of our total
luxury vinyl sales. During the fourth quarter of 2019, we are
expanding our TRUCOR™ line with the addition of TRUCOR Prime™, a
WPC construction, offered by our Dixie Home and Masland sales
forces. By the end of 2019, we anticipate having over 4,800
TRUCOR™ and TRUCOR Prime™ displays in the market. During the first
quarter of 2020, we are expanding our TRUCOR™ rigid core offering
with 47 new innovative products in the SPC and WPC constructions.
To further drive growth in this segment, during the fourth quarter
of 2019 and the first quarter of 2020, we are making investments in
talent by adding hard surface sales people in key
markets. These investments in product and talent will
accelerate our hard surface growth going forward.
Our commercial carpet product sales in the third
quarter were down less than 1% while the industry we believe was
down in the low single digits as compared to the same period in the
prior year. Our commercial luxury vinyl flooring sales were up over
40% comparing the third quarter of 2019 with the same quarter in
2018.
Our commercial division has launched a number of
new offerings for 2019 with particular emphasis on modular carpet
tile offerings. We are especially excited about the launch of our
Sustaina™ modular tile backing system. This system is a PVC and
polyurethane free cushion modular carpet tile backing with very
high recycled content. The product is breathable and able to
be installed in environments up to 99% relative humidity and up to
a pH of 12 when utilizing our custom formulated Sustaina™ 99
adhesive. The product provides the cushion backing benefits of
increased under foot comfort, appearance retention and sound
absorption. We have just launched “Crafted” with our
Sustaina™ backing system. This product has an 81.5% total recycled
content, the highest available on the market today. These unique
products, differentiating us in the market place and fulfilling the
needs of our discerning environmentally conscious customers, will
accelerate our growth.
The sale of our Susan Street facility has
restored our balance sheet, dramatically lowered our debt and
increased funds available under our senior credit facility. We feel
this transaction puts us on solid footing as we head into 2020 with
a complete floorcovering product line for the discerning consumer
in both our residential and commercial markets,” Frierson
concluded.
Our gross profit for the third quarter of 2019
was 22.1% of net sales as compared to a gross profit of 21.5% in
the third quarter of 2018. Included in our cost of sales for the
period was $82 thousand in inventory write downs related to our
restructuring.
Selling and administrative expenses for the
third quarter of 2019 were 22.0% of net sales, a decrease of 0.7
percentage points from our level of 22.7% in the third quarter of
2018. The decrease in our selling and administrative costs is
primarily due to the Profit Improvement Plan we initiated in the
fourth quarter of 2017 as we consolidated our two commercial
management businesses.
We had $1.125 million in expenses related to our
Profit Improvement Plan during the period. The facility
restructuring as a result of the Profit Improvement Plan is nearing
completion. We anticipate approximately $600 thousand in added
expenses in the fourth quarter, the bulk of that from dropping
additional products as we continue to rationalize our commercial
white dyeable product offering.
Our receivables increased $2.4 million since the
beginning of the year due to our normal seasonal pattern.
Inventories decreased $6.7 million since the beginning of the year
due to better management of inventories. For the first three
quarters of 2019 our capital expenditures, including those financed
through capital leases, were $3.1 million as compared to
depreciation and amortization of $8.8 million. Our capital
expenditures for the year of 2019 are planned at a maintenance
level of approximately $4 million.
Interest expense for the year to date was up due
to higher interest rates from a year ago. Our debt decreased $3.0
million during the quarter and $3.9 million for the year to
date.
Our sales excluding sales to the mass merchant
channel for the first 5 weeks of the quarter are approximately 3.9%
behind the same period in 2018.
A listen-only Internet simulcast and replay of
Dixie's conference call may be accessed with appropriate software
at the Company's website at www.thedixiegroup.com/investor/. The
simulcast will begin at approximately 10:00 a.m. Eastern Time on
November 7, 2019. A replay will be available approximately two
hours later and will continue for approximately 30 days. If
internet access is unavailable, a telephonic conference will be
available by dialing 877-355-1003 and entering 2141978 at least ten
minutes before the appointed time. A seven day telephonic replay
will be available two hours after the call ends by dialing
855-859-2056 and entering 2141978 when prompted for the access
code.
The Dixie Group (www.thedixiegroup.com) is a
leading marketer and manufacturer of carpet and rugs to higher-end
residential and commercial customers through the Fabrica
International, Masland Carpets, Dixie Home, Atlas | Masland
Contract and Dixie International brands.
This press release contains forward-looking
statements. Forward-looking statements are based on estimates,
projections, beliefs and assumptions of management and the Company
at the time of such statements and are not guarantees of
performance. Forward-looking statements are subject to risk factors
and uncertainties that could cause actual results to differ
materially from those indicated in such forward-looking statements.
Such factors include the levels of demand for the products produced
by the Company. Other factors that could affect the Company's
results include, but are not limited to, availability of raw
material and transportation costs related to petroleum prices, the
cost and availability of capital, integration of acquisitions,
ability to attract, develop and retain qualified personnel and
general economic and competitive conditions related to the
Company's business. Issues related to the availability and price of
energy may adversely affect the Company's operations. Additional
information regarding these and other risk factors and
uncertainties may be found in the Company's filings with the
Securities and Exchange Commission. The Company disclaims any
obligation to update or revise any forward-looking statements based
on the occurrence of future events, the receipt of new information,
or otherwise.
THE DIXIE GROUP, INC.Consolidated
Condensed Statements of Operations(unaudited; in
thousands, except earnings per share)
|
Three Months Ended |
Nine Months Ended |
|
September 28, 2019 |
|
September 29, 2018 |
September 28, 2019 |
|
September 29, 2018 |
|
|
|
|
|
|
|
NET SALES |
$ |
95,447 |
|
|
$ |
101,562 |
|
$ |
284,448 |
|
|
$ |
306,858 |
|
Cost of sales |
74,373 |
|
|
79,675 |
|
220,962 |
|
|
238,247 |
|
GROSS PROFIT |
21,074 |
|
|
21,887 |
|
63,486 |
|
|
68,611 |
|
Selling and administrative expenses |
21,036 |
|
|
23,033 |
|
63,810 |
|
|
69,954 |
|
Other operating expense (income), net |
37 |
|
|
(845 |
) |
145 |
|
|
421 |
|
Facility consolidation and severance expenses, net |
1,043 |
|
|
529 |
|
4,859 |
|
|
936 |
|
Impairment of assets |
— |
|
|
349 |
|
3 |
|
|
349 |
|
OPERATING LOSS |
(1,042 |
) |
|
(1,179 |
) |
(5,331 |
) |
|
(3,049 |
) |
Interest expense |
1,648 |
|
|
1,664 |
|
5,085 |
|
|
4,840 |
|
Other income, net |
(4 |
) |
|
(3 |
) |
(42 |
) |
|
— |
|
Loss from continuing operations before taxes |
(2,686 |
) |
|
(2,840 |
) |
(10,374 |
) |
|
(7,889 |
) |
Income tax (benefit) provision |
(109 |
) |
|
82 |
|
25 |
|
|
(110 |
) |
Loss from continuing
operations |
(2,577 |
) |
|
(2,922 |
) |
(10,399 |
) |
|
(7,779 |
) |
Income (loss) from
discontinued operations, net of tax |
23 |
|
|
(40 |
) |
(43 |
) |
|
94 |
|
NET LOSS |
$ |
(2,554 |
) |
|
$ |
(2,962 |
) |
$ |
(10,442 |
) |
|
$ |
(7,685 |
) |
|
|
|
|
|
|
|
BASIC EARNINGS (LOSS) PER
SHARE: |
|
|
|
|
|
|
Continuing operations |
$ |
(0.16 |
) |
|
$ |
(0.19 |
) |
$ |
(0.66 |
) |
|
$ |
(0.49 |
) |
Discontinued operations |
0.00 |
|
|
(0.00 |
) |
(0.00 |
) |
|
0.01 |
|
Net loss |
$ |
(0.16 |
) |
|
$ |
(0.19 |
) |
$ |
(0.66 |
) |
|
$ |
(0.48 |
) |
|
|
|
|
|
|
|
DILUTED EARNINGS (LOSS) PER
SHARE: |
|
|
|
|
|
|
Continuing operations |
$ |
(0.16 |
) |
|
$ |
(0.19 |
) |
$ |
(0.66 |
) |
|
$ |
(0.49 |
) |
Discontinued operations |
(0.00 |
) |
|
0.00 |
|
(0.00 |
) |
|
0.01 |
|
Net loss |
$ |
(0.16 |
) |
|
$ |
(0.19 |
) |
$ |
(0.66 |
) |
|
$ |
(0.48 |
) |
|
|
|
|
|
|
|
Weighted-average shares
outstanding: |
|
|
|
|
|
|
Basic |
15,899 |
|
|
15,786 |
|
15,864 |
|
|
15,754 |
|
Diluted |
15,899 |
|
|
15,786 |
|
15,864 |
|
|
15,754 |
|
|
|
|
|
|
|
|
THE DIXIE GROUP, INC.Consolidated
Condensed Balance Sheets(in
thousands)
|
September 28, 2019 |
|
December 29, 2018 |
ASSETS |
(Unaudited) |
|
|
Current Assets |
|
|
|
Cash and cash equivalents |
$ |
19 |
|
|
$ |
18 |
|
Receivables, net |
44,980 |
|
|
42,542 |
|
Inventories, net |
98,507 |
|
|
105,195 |
|
Prepaids and other current assets |
7,174 |
|
|
5,204 |
|
Total Current Assets |
150,680 |
|
|
152,959 |
|
|
|
|
|
Property, Plant and Equipment,
Net |
78,594 |
|
|
84,111 |
|
Operating Lease Right-Of-Use
Assets |
7,795 |
|
|
— |
|
Other Assets |
17,140 |
|
|
15,708 |
|
TOTAL ASSETS |
$ |
254,209 |
|
|
$ |
252,778 |
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS'
EQUITY |
|
|
|
Current Liabilities |
|
|
|
Accounts payable |
$ |
21,192 |
|
|
$ |
17,779 |
|
Accrued expenses |
33,724 |
|
|
30,852 |
|
Current portion of long-term debt |
7,100 |
|
|
7,794 |
|
Current portion of operating lease liabilities |
1,821 |
|
|
— |
|
Total Current Liabilities |
63,837 |
|
|
56,425 |
|
|
|
|
|
Long-Term Debt |
117,049 |
|
|
120,251 |
|
Operating Lease
Liabilities |
6,390 |
|
|
— |
|
Other Long-Term
Liabilities |
19,039 |
|
|
17,118 |
|
Stockholders' Equity |
47,894 |
|
|
58,984 |
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
$ |
254,209 |
|
|
$ |
252,778 |
|
Use of Non-GAAP Financial
Information:(in thousands)
The Company believes that non-GAAP performance
measures, which management uses in evaluating the Company's
business, may provide users of the Company's financial information
with additional meaningful bases for comparing the Company's
current results and prior period results, as these measures reflect
factors that are unique to one period relative to the comparable
period. However, the non-GAAP performance measures should be viewed
in addition to, not as an alternative for, the Company's reported
results under accounting principles generally accepted in the
United States. In considering our supplemental financial measures,
investors should bear in mind that other companies that report or
describe similarly titled financial measures may calculate them
differently. Accordingly, investors should exercise appropriate
caution in comparing our supplemental financial measures to
similarly titled financial measures reported by other
companies.
Non-GAAP Summary |
|
|
Three Months Ended |
|
September 28,2019 |
September 29,2018 |
Net loss as reported |
$ |
(2,554 |
) |
$ |
(2,962 |
) |
Income
(loss) from discontinued operations |
23 |
|
(40 |
) |
Loss from
continuing operations |
(2,577 |
) |
(2,922 |
) |
Inventory
write-downs related to Profit Improvement Plan |
82 |
|
963 |
|
Facility
consolidation and severance expenses, net |
1,043 |
|
529 |
|
Impairment of
assets |
— |
|
349 |
|
Tax
effect |
— |
|
— |
|
Profit
Improvement Plan related expenses |
1,125 |
|
1,841 |
|
Loss |
$ |
(1,452 |
) |
$ |
(1,081 |
) |
Diluted
shares |
15,899 |
|
15,786 |
|
Adjusted loss per
diluted share |
$ |
(0.09 |
) |
$ |
(0.07 |
) |
|
|
|
|
|
|
|
Further non-GAAP reconciliation data are available at
www.thedixiegroup.com under the Investor Relations section.
Sale of Susan Street Facility |
|
October 22,2019 |
Approximate Gain on Sale of Susan Street Facility |
$ |
25,000 |
|
Weighted Average Shares
Outstanding for the Quarter |
15,899 |
|
Gain
Per Share |
$ |
1.57 |
|
CONTACT: |
|
Jon Faulkner |
|
|
Chief Financial Officer |
|
|
706-876-5814 |
|
|
jon.faulkner@dixiegroup.com |
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