The Dixie Group, Inc. (DXYN) Earnings Call Transcript & Summary

Good day, and welcome to The Dixie Group, Inc. 2025 First 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.

Thank you, Rob, and welcome, everyone, to our first quarter 2025 conference call. I have with me Allen Danzey, our CFO. Our safe harbor statement is included by reference both to our website and press release. For the first quarter of 2025, the company had net sales of $62,990,000 as compared to $65,254,000 in the same quarter of 2024. The company had an operating income of $11,000 in the first quarter of 2025 compared to an operating loss of $857,000 in the first quarter of 2024. The net loss from continuing operations in the first quarter of 2025 was $1,582,000 or $0.11 per diluted share. In 2024, the net loss from continuing operations for the first quarter was $2,410,000 or $0.16 per diluted share. The industry continues to experience weak market conditions driven by low existing home sales and lower consumer confidence. Our first quarter net sales were down 3.5% from the same period a year ago. Sales of our soft floor-covering products again outperformed our hard surface products, and we continued to gain market share in the soft surface category. Just as in the previous quarter, premium products performed better than the market in all categories. Despite the lower sales volume, our gross margins in the first quarter were favorable to prior year at $16,902,000 or 26.8% of net sales compared to $15,800,000 or 24.2% of net sales in the prior year. The improvements are primarily the result of our continued focus on cost reductions and operating efficiencies throughout the company. At this time, Allen will review our financial results, after which I'll have additional comments regarding our results.

Thank you, Dan. As Dan commented, we're very pleased to see the strong improvements in the year-over-year gross margins, and that's despite the lower sales volume. The is a result of our ongoing initiatives to reduce costs and materials and throughout our production processes. The selling and administrative expenses in 2025 were $500,000 or about 3.1% higher than prior year and that increase was partially driven by higher professional fees in our administrative areas during the quarter. Our first quarter operating income was $11,000 and that compared to an operating loss in 2024 of $857,000. The 2025 operating income included income from our leasing of available warehouse space to other tenants and the year-over-year reductions in facility consolidation expenses. Our interest expense on the year was $1.5 million that compared closely to the interest expense in the same period of the prior year. The net loss on the year 2024 was $1.7 million compared to a net loss of $2.5 million in the prior year first quarter. On our balance sheet, our year-end receivables of $27.9 million was up from our seasonally low year-end balance of $23.3 million. Our net inventory balance at the end of the first quarter was $66.7 million, and that compared to a net inventory balance of $75 million in the first quarter of the previous year. We had a planned reduction in inventory in the fourth quarter of last year and we continue to manage inventory at lower levels, while maintaining timely service to our customers. Accounts payable and accrued expenses were $41 million compared to $39 million in the same period of the previous year. Net property, plant and equipment decreased by $1.2 million from prior year-end. And that decrease was driven by $1.3 million in depreciation during the quarter, offset by $74,000 in capital expenditures. The planned capital expenditures for 2025 totals $2.5 million, and depreciation is expected to be $5.4 million. Within the quarter, we were pleased to announce the closure on our new $75 million senior credit facility with MidCap Financial. Proceeds from this facility were used to pay off and close our former senior credit facility with Fifth Third Bank. This new agreement is for a 3-year term. The debt on our balance sheet increased by $2.3 million from year-end. As part of our new loan agreement, we now have restricted cash of $4.3 million to secure our letters of credit. Under our former loan agreement, this amount for the letters of credit was a reduction of our loan availability. The increase in debt includes the additional borrowing to cover this restricted cash that was held for letters of credit. Our availability yesterday under our new senior credit facility was $12.3 million, which is subject to a $6 million excess availability requirement. Our investor presentation will be available on our website at www.dixiegroup.com. Ben?

Thank you, Allen. Low consumer confidence was further impacted during the quarter by the uncertainty around the announcement of tariff increases. We had previously minimized the amount of our products being imported from China and we have worked with all of our suppliers of imported products to reduce the impact of tariffs on the cost of our products. The situation is very volatile at this time and it is difficult, if not impossible, to predict what the impact of increased tariffs will be on imported product. At this time, several industry players have already announced price increases to impact -- excuse me, to mitigate the impact of increased tariffs and/or potential tariffs. We were pleased by the success of the first quarter trade show, including services where we showcased 25 new styles of carpet across our nylon, polyester and decorative collections. Our focus continues to be on creating differentiated styles for the residential market, with an emphasis on color, pattern and textural visuals. This includes our Step Into Color campaign where we offer the best and broadest color lines in the industry, including custom color offerings in our white dyeable nylon collections produced through our nylon extrusion operation that began production last year. We also showcased 8 hard surface collections with new visuals and innovations and 10 new colors in our Fabrica wood program, which were all very well received and will continue to fuel growth in this program. In our TRUCOR brand, we are focused on simplification of our product line and consumer-friendly messaging. We featured new visuals and constructions in several of our SPC, WPC and laminate programs. The residential remodeling market continues its multiyear slump, and no one knows for sure when the market dynamics will change. Until that happens, we will continue to manage our business to reflect the current conditions. We have seen continued improvements in our operations with major strides being made in productivity, quality and raw material utilization. We've also had reductions in inventory and with better service to our customers. We are continuing to minimize expenses and capital expenditures, reduce overhead costs and lower operating costs, thereby improving gross margin. As Allen noted, during the first quarter, we closed on a new 3-year $75 million credit facility. First quarter, we completed the first year of our extrusion operation, which has contributed to our margin improvement and supports our commitment to [ piece ] dyeable nylon fiber, which enables us to operate broad talent of color to our discriminating customers, which we are promoting with our Step Into Color marketing campaign. Sales for the first 5 weeks of the second quarter are running slightly behind the year ago period, but sequentially about 10% above the first quarter level. We believe that the actions we have taken to improve our results during the current difficult environment also position us for the eventual upturn, which we will inevitably experience. The actions we have taken have been done with an eye on the future. When interest rates recede and housing rebounds, we will be in a great position to take advantage of a prolonged upturn in existing home sales and a strong residential remodeling market. At this time, we would like to open the call to questions.

[Operator Instructions] And we have a question from the line of Barry Blank with J.H. Darbie.

It was a good quarter. A couple of questions. Previously, you mentioned there was a stock buyback program. Is that program still in effect? And if so, how much have you used of the allocation?

Barry, that program is not in effect anymore. We ceased that during the latter part of last year.

Okay. My second question is due to this downturn, are you seeing much consolidation in the industry, companies either merging or going out of business?

In terms of manufacturers, no. We have not seen much consolidation at all, much consolidation activity. At the retail level, there have been some smaller retailers who have gone out of business. But -- and I think that will -- there's always churn there because there are so many retailers or floor-covering product. But no, we have not seen at the manufacturing or distribution level much consolidation.

And my last question is, have you seen much of a change in the buying habits between people going to the big box stores versus the more, I guess, boutique kind of places that you would buy flooring from? Or is it pretty much the same?

Well, as I've tried to point out in my comments, I think in every flooring category, the premium products are performing better than the market for those products overall. We certainly have seen that in the soft floor-covering market in spades. Our Fabrica brand has done exceptionally well and is obviously premium products. I think you're seeing that overall, but that's not uncommon in a downturn. As a matter of fact, the only downturn I can remember when that didn't happen was in 2008 and '09 during the great recession.

With no further questions in the queue, I'll turn the call back to Dan Frierson for any additional or closing remarks.

Rob, thank you very much, and we appreciate everybody being with us for the first quarter conference call. We're looking forward to you being with us again in about 3 months for our second quarter conference call. Thank you.

This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.