Transcript
Good day, and welcome to the Dixie Group Inc. 2024 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 Chairman and Chief Executive Officer, Dan Frierson. Please go ahead, sir.
Thank you, Latania, and welcome, everyone, to our first quarter conference call. I have with me Allen Danzey, who will be giving you information shortly. Our safe harbor statement is included by reference both to our website and press release. For the first quarter of 2024, the company had net sales of $65,254,000 as compared to roughly $67 million in the same quarter the previous year. The company had an operating loss of $857,000 compared to an operating income of $306,000 in the first quarter of 2023. The net loss from continuing operations in the first quarter of '24 was $2,410,000 or $0.16 per diluted share. In 2023, the net loss from continuing operations for the first quarter was $1,551,000 or $0.11 per diluted share. Our net sales for the quarter were negatively impacted by high interest rates affecting the housing and home remodeling market and the impact on the economy from continued inflation. Overall, our net sales during the quarter were 2.7% below prior year, while the industry, we believe, was down approximately 8%. Due to this lower demand, we saw less favorable margins in the first quarter as our lower volume resulted in under-absorbed fixed costs in our manufacturing plants. We also were able to reduce inventories, which had the same impact. At this time, Allen will review our financial results, after which I'll have additional comments regarding our results.
Thank you, Dan. As mentioned, our net sales in the first quarter of 2024 decreased by 2.7% compared to the same period last year. The main reason for this decline was the positive effect of higher interest rates and inflation concerns, which affected consumer confidence, particularly in home and remodeling activities. The gross profit margin for the first quarter of 2024 was 24.2% of net sales, down from 26.6% in the same quarter the previous year. This decrease in margin was mainly due to lower production volumes at our manufacturing plant early in the quarter, although production increased in March, resulting in a gross margin that aligned more closely with last year's expectations. Selling and administrative expenses for the first quarter of 2024 were similar to the previous year, but they represented a higher percentage of lower net sales at 25.1%, compared to 24.5% from the prior year. Our interest expense for the quarter was $1.5 million, down from $1.9 million in 2023, mainly due to reduced debt levels this year. Our net loss was $2.5 million, an increase from a net loss of $1.8 million in the same period last year. Reviewing our balance sheet, receivables at the end of the quarter rose by $4.5 million from the end of the previous year, driven by higher customer billings in the last month of the current period compared to the lower December period. Our inventory decreased by $1.2 million from the previous year-end balance, as we maintained low inventory levels in line with demand throughout the quarter. As a result, we expect to continue keeping inventories low according to demand. In the second quarter, we observed an increase in accrued payables and accrued expenses by $8.7 million, primarily due to raw materials on order, compared to the end of 2023. Additionally, property, plant, and equipment rose by $6.3 million during the quarter, including cash purchases of $499,000 and the transfer of $6.5 million in deposits to PP&E, along with accruals and adjustments, offset by $1.5 million in depreciation. Our debt increased by $1.9 million from the end of 2023, primarily due to operating results and investments in samples and other costs related to product introductions early in the year. At the end of the quarter, we had $15 million available under our revolving credit facility. Our investor presentation can be found on our website at www.dixiegroup.com. Dan?
Thank you, Allen. As we began the first quarter, we believed we were at the lowest point of a downturn but were hopeful that lower interest rates later in the year would help improve business conditions. It now seems that the decrease in interest rates will take longer than we initially expected. When housing starts and home sales start to pick up, the industry should see better business for a prolonged period. The first quarter is usually the slowest time of the year, so it felt like we were just struggling through the downturn, but we started to notice the usual seasonal improvements in our business as the quarter went on. By March, our net sales were slightly higher than in the same month last year. Additionally, our margins for that month aligned better with the previous year and our expectations. We have spent the last few years recovering from the sudden exit of our major supplier Invista. We now have a good supply of products from four main sources and have started producing our own raw materials, which not only reduces material costs but also ensures we have a steady supply for the future, even if there are significant changes affecting fiber supply. Our initial focus has been on producing white, dyeable nylon, enabling us to offer long, attractive color lines that contrast with a residential market dominated by a similar range of solution-dyed polyester. To support this, we launched a color marketing campaign called Step Into Color, which connects retailers and consumers to a wide range of color options, including custom colors found in Fabrica and our other soft service divisions. In the first quarter, we introduced 14 new carpet styles, including 11 EnVision Nylon styles in our premium divisions. Our Masland introductions combine high fashion with mid-range prices to boost volume in the current difficult market. From the Fabrica brand, we debuted a trio of styles celebrating the brand's 50-year history, named Homage, Tribute, and Adulation, featuring a common color palette of 50 colors named after notable fabric styles from the last five decades. I am confident that these stunning styles will become staples for Fabrica. DH Floors has expanded its polyester product range by leveraging our design capabilities at price points we cannot achieve with nylon. During the quarter, we continued to enhance our DuraSilk collection, with sales reflecting the positive reception of these designs. The rest of our soft products and TruCor hard surface introductions for 2024 will be unveiled in the second quarter. Additionally, last year, we launched a successful plan to reduce costs by $35 million. This year, without additional sales volume, we are implementing a new cost reduction plan of $10 million by continuing to effectively manage the controllable aspects of our operations. We successfully achieved this during the first quarter. We also plan to keep reducing inventories until we see sales growth. In the first four weeks of the second quarter and so far this year, net sales are about 4% higher than the equivalent period last year, but order entry is around 8% lower compared to the same time last year. The second quarter is usually our strongest quarter, outperforming the first due to seasonal factors and new products reaching retail shelves. This morning, we announced that on May 1, the Board of Directors approved a plan to repurchase up to $2.8 million of the company's common stock under a strategy compliant with Rule 10b5-1 of the Securities and Exchange Act. Subject to Rule 10b5-1 requirements, this plan would allow for the purchase of up to $2.8 million of the company's shares starting around May 8 and ongoing for about a year. We are now open to questions.
Thank you. Our first question comes from Chris Riemenschneider with Morgan Stanley.
In the remarks, you mentioned that you believe once interest rates come back down, the housing market will boost the remodeling activity. It looks like it's kind of evident that rates aren't coming down anytime soon. How are you going to navigate that? You saved $35 million last year, you're going to save another $10 million. Can you be profitable in this environment?
Chris, we believe it will take some time before there is significant improvement in the business. However, the top segment of the market is performing better than the overall market, which we are seeing with our brands. We need to continue to reduce costs. We believe profitability is achievable at these levels. That being said, it would certainly be beneficial if the market conditions improved, but we must find a way to succeed regardless of external factors.
What's the time horizon for the $10 million savings, is that over the next 12 months or the remainder of the year?
The $10 million is spread out over the 12 months of the year. We achieved some of that in the first quarter. We will see an impact each quarter as we move forward.
Any update on the NASDAQ list? I mean, the listing regarding the stock being under $1. And do you have an extension on that?
We do have the extension from the initial deficiency notice that we received at the fourth quarter of last year. The extension is through September of this year. We continue to stay focused on that, and we'll continue to make efforts to address that as we go forward.
With no further questions, I would like to turn the call back to Dan Frierson for any additional or closing comments.
Latania, thank you, and we thank all of you for being with us this quarter. Obviously, this is the slowest quarter of the year. Our business activity level sequentially in the second quarter is certainly better than it was in the first. And we certainly hope and believe that we can exercise the $10 million cost reduction plan and look forward to visiting with you at the end of the second quarter. Thank you.
Ladies and gentlemen, that will conclude today's conference. Thank you again for your participation. Have a great day.