The Dixie Group, Inc. (NASDAQ: DXYN) today reported financial
results for the quarter ended September 29, 2018. For the third
quarter of 2018, the Company had net sales of $101,562,000 as
compared to $102,650,000 in 2017. The Company’s third quarter net
sales were down 1.1% as compared to the same period in 2017 while
the industry, we estimate, was up low single digits. For the third
quarter of 2018, the Company had a loss from continuing operations
of $2,922,000 or $0.19 per diluted share as compared to a loss of
$547,000 or $0.03 per diluted share in the third quarter of 2017.
On a non-GAAP basis, as shown on the attached
schedule, the results from continuing operations would have been a
loss of $0.07 per share adjusted for the impact of the Profit
Improvement Plan.
Commenting on the results, Daniel K. Frierson,
Chairman and Chief Executive Officer, said, “The first phase of our
Profit Improvement Plan was focused on consolidating our Atlas and
Masland Contract businesses. Most of the management was
consolidated late last year and early this year. The sales forces
were combined in the third quarter and the manufacturing
consolidation will be essentially complete over the next four
months. The consolidation into one commercial carpet business will
significantly reduce costs and complexity. During the third quarter
and through the remainder of the year we are focused on
implementation of the Profit Improvement Plan for the entire
Company. We closed our tufting plant in Chickamauga, Georgia
in the third quarter and are phasing out tufting in our Commerce,
California plant and will move that production to our plant in
Atmore, Alabama.
As our productivity, service and quality have
improved, we are in a position to reduce staffing in many of our
facilities. We began the reduction in June with our Atmore
operations moving from a 7-day to a 5-day schedule. With the
reductions already implemented and the ones recently announced, we
will have reduced our employment by over 15% when completed early
in 2019. These reductions represent a Company-wide effort to reduce
costs and complexity, with approximately two thirds of the
reduction coming from our commercial business and one third from
our residential business. Our improved productivity enabled us to
improve service and reduce inventories in excess of $2.5 million in
the third quarter.
Our residential product sales were up 5.6% for
the quarter. Our residential soft surface floor covering continued
to grow market share, while the residential replacement segment, we
estimate, was down slightly as compared to the prior year. Through
the quarter, we saw very strong sales in our new STAINMASTER®
carpet introductions, including both PetProtect® and Luxerell®
segments. Also in the quarter, we began shipping our newly revamped
Masland eNergy™ main street commercial product line. Masland
eNergy™ is an upscale, modern take on the traditional main street
commercial segment. Our eNergy™ products are well styled and
feature type 6,6 nylon delivering the performance required by the
most demanding segments of the commercial market. We have seen
ready acceptance of our new displays by the market. Late in the
quarter, we began shipment of our new EnVision 6,6™ collection.
This new program is an extension of our Dixie Home product line
with nicely styled products at moderate price points to reach a
wide range of consumers. These products are made with type 6,6
nylon to ensure the highest quality and performance standards. We
began shipment of our Fabrica Fine Wood Flooring line, a
sophisticated collection of refined “best in class” decors. The
wood product line includes French oak, maple and birch-with a style
and quality consistent with the Fabrica brand promise.
Our commercial product sales in the third
quarter were down 16.1%. Our soft surface commercial sales were
down while the industry, we believe, was up in the low single
digits. We have been slower in adapting to the transition in the
marketplace from broadloom to modular carpet tile as well as the
shift from piece dyed product to solution dyed yarn systems.
To respond to these trends and improve our speed to market with
newer more relevant products, we announced the unification of our
two commercial brands, Atlas and Masland Contract, into one
operating division of the Company in the fourth quarter of 2017.
The final phase of this Profit Improvement Plan, announced in the
third quarter, includes the integration of our west coast
commercial manufacturing into our Atmore, Alabama commercial
facility.
The consolidation of Atlas and Masland Contract
provides an exciting opportunity for us to become a greater
resource to our customers in the competitive commercial flooring
market. This unification also includes our creative team which will
relocate to our Design Studio in Saraland, Alabama. With all of
these functions performed in our Alabama operations, it will give
us the synergies and lower cost needed to provide outstanding
product and world class service to the industry. The combined
product portfolios of our two great brands leverage a diversity in
technologies, premium yarn systems, style and price positioning.
Atlas | Masland has now become a comprehensive resource to the
commercial flooring customer.
Our custom capabilities are unparalleled,
providing for unlimited possibilities. Whether a project calls for
broadloom carpet, modular carpet tile, area rugs, walk off material
or luxury vinyl flooring, we have the product and expertise to
service our targeted specified commercial market segments. This
combined approach recognizes designers time constraints and the
variety of products today’s commercial projects utilize. By
expanding the sales coverage of our products, such as with the
sustainable design of our Masland Contract’s Tops collection,
incorporating Thrive® by Universal Fibers® solution dyed nylon with
75% recycled content, we anticipate higher sales through the
unified sales force.
We have already benefited from the merger of the
management of the two commercial brands, announced in the fourth
quarter of 2017, with lower commercial selling and administrative
expenses during the third quarter of 2018," concluded Frierson.
Our gross profit for third quarter of 2018 was
21.6% of net sales as compared to a gross profit of 24.2% in
2017. Excluding the inventory write-downs associated with the
announced closure of our two tufting operations under the Profit
Improvement Plan, our gross profit would have been 22.5%. The lower
gross profit was impacted by the very low sales volume in our
commercial business during the period, thus leading to high
unabsorbed fixed cost.
We implemented a residential price increase late
in the third quarter primarily to offset higher labor, material and
other operational costs. We continue to adjust staffing levels in
our manufacturing operations to better align staffing with
demand.
Selling and administrative expenses for the
quarter were 22.7% of net sales, a decrease of 0.7 percentage
points from our level of 23.4% in the third quarter of 2017. The
decrease in our selling and administrative costs is primarily due
to the Profit Improvement Plan we initiated in the fourth quarter
of last year as we consolidated our two commercial management teams
under the leadership of David Hobbs.
Expenses contributing to the loss during the
period included several charges related to the Company's previously
announced Profit Improvement Plan. The Plan included our decisions
to fully exit the Chickamauga, Georgia and Commerce, California
tufting operations. The charges in the third quarter for the Plan
included $529 thousand in facility consolidation expenses,
principally to reduce and consolidate sales forces, $349 thousand
in asset impairments, and $963 thousand in inventory write downs,
embedded in the cost of sales. The total charges related to the
Profit Improvement Plan for the period were $1.8 million. Including
inventory write downs and asset impairment, the total cost of the
Plan is now estimated to be $5.4 million and total expense
reductions are anticipated to be in excess of $11.1 million once
fully implemented in mid-2019. Through the third quarter of 2018,
including inventory write downs, the cost of the plan was
approximately $2.9 million with annualized expense reductions of
$3.2 million. The bulk of the anticipated expense reductions will
be realized by the end of the first quarter of 2019. We anticipate
that our total headcount will have been reduced by approximately
15% by the time we complete implementation of the Plan. Most of the
anticipated headcount reductions will occur in the period from June
2018 through December 2018.
Our receivables decreased $397 thousand due to
our reduction in sales for the period. Net inventories declined
$4.2 million during the quarter which included a reduction in gross
inventories of $2.6 million, inventory impairment write down of
$963 thousand, and additional reserve adjustments of $605 thousand.
Our accounts payable declined by $7.2 million, primarily due to
seasonal factors. Our capital expenditures for the full year of
2018 are planned at a maintenance level of approximately $5.3
million. For the year to date through third quarter end 2018, our
capital expenditures, including those financed through capital
leases, were $3.1 million as compared to depreciation and
amortization of $9.4 million. Interest expense was up due to higher
levels of debt and higher interest rates from a year ago. Our debt
increased $3.1 million during the quarter.
Our floorcovering sales for the first 5 weeks of
the quarter are down mid-single digits versus the same period in
2017. Sales for our residential business are up for the first
5 weeks while our commercial business is behind compared to this
same period last year. We are pleased with the progress we are
making with our Profit Improvement Plan and anticipate the bulk of
the savings to be in place by the end of the first quarter in
2019.
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 1:30 p.m. Eastern Time on
November 8, 2018. 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 2236637 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 2236637 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 Carpet Mills,
Masland Contract, Masland Hospitality 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, 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 29, 2018 |
|
September 30, 2017 |
|
September 29, 2018 |
|
September 30, 2017 |
|
|
|
(As Adjusted) |
|
|
|
(As Adjusted) |
NET SALES |
$ |
101,562 |
|
|
$ |
102,650 |
|
|
$ |
306,858 |
|
|
$ |
307,378 |
|
Cost of sales |
79,675 |
|
|
77,793 |
|
|
238,247 |
|
|
228,934 |
|
GROSS PROFIT |
21,887 |
|
|
24,857 |
|
|
68,611 |
|
|
78,444 |
|
Selling and administrative expenses |
23,033 |
|
|
24,049 |
|
|
69,954 |
|
|
73,802 |
|
Other operating (income) expense, net |
(845 |
) |
|
46 |
|
|
421 |
|
|
84 |
|
Facility consolidation and severance expenses,
net |
529 |
|
|
— |
|
|
936 |
|
|
— |
|
Impairment of assets |
349 |
|
|
— |
|
|
349 |
|
|
— |
|
OPERATING (LOSS) INCOME |
(1,179 |
) |
|
762 |
|
|
(3,049 |
) |
|
4,558 |
|
Interest expense |
1,664 |
|
|
1,486 |
|
|
4,840 |
|
|
4,205 |
|
Other (income) expense, net |
(3 |
) |
|
4 |
|
|
— |
|
|
22 |
|
Income (loss) from continuing operations
before taxes |
(2,840 |
) |
|
(728 |
) |
|
(7,889 |
) |
|
331 |
|
Income tax provision (benefit) |
82 |
|
|
(181 |
) |
|
(110 |
) |
|
227 |
|
Income (loss) from continuing operations |
(2,922 |
) |
|
(547 |
) |
|
(7,779 |
) |
|
104 |
|
Income (loss) from discontinued operations, net of tax |
(40 |
) |
|
(11 |
) |
|
94 |
|
|
(163 |
) |
NET LOSS |
$ |
(2,962 |
) |
|
$ |
(558 |
) |
|
$ |
(7,685 |
) |
|
$ |
(59 |
) |
|
|
|
|
|
|
|
|
BASIC EARNINGS (LOSS) PER SHARE: |
|
|
|
|
|
|
|
Continuing operations |
$ |
(0.19 |
) |
|
$ |
(0.03 |
) |
|
$ |
(0.49 |
) |
|
$ |
0.00 |
|
Discontinued operations |
(0.00 |
) |
|
(0.00 |
) |
|
0.01 |
|
|
(0.01 |
) |
Net Loss |
$ |
(0.19 |
) |
|
$ |
(0.03 |
) |
|
$ |
(0.48 |
) |
|
$ |
(0.01 |
) |
|
|
|
|
|
|
|
|
DILUTED EARNINGS (LOSS) PER SHARE: |
|
|
|
|
|
|
|
Continuing operations |
$ |
(0.19 |
) |
|
$ |
(0.03 |
) |
|
$ |
(0.49 |
) |
|
$ |
0.00 |
|
Discontinued operations |
(0.00 |
) |
|
0.00 |
|
|
0.01 |
|
|
(0.01 |
) |
Net Loss |
$ |
(0.19 |
) |
|
$ |
(0.03 |
) |
|
$ |
(0.48 |
) |
|
$ |
(0.01 |
) |
|
|
|
|
|
|
|
|
Weighted-average shares outstanding: |
|
|
|
|
|
|
|
Basic |
15,786 |
|
|
15,707 |
|
|
15,754 |
|
|
15,696 |
|
Diluted |
15,786 |
|
|
15,707 |
|
|
15,754 |
|
|
15,814 |
|
|
|
|
|
|
|
|
|
|
|
|
|
THE DIXIE
GROUP, INC.Consolidated Condensed Balance
Sheets(in thousands) |
|
|
|
|
|
|
|
|
September 29, 2018 |
|
December 30, 2017 |
|
|
|
(As Adjusted) |
ASSETS |
(Unaudited) |
|
|
Current Assets |
|
|
|
Cash and cash equivalents |
$ |
14 |
|
|
$ |
19 |
|
Receivables, net |
49,011 |
|
|
46,480 |
|
Inventories, net |
118,212 |
|
|
113,657 |
|
Prepaids and other current assets |
8,589 |
|
|
4,669 |
|
Total Current Assets |
175,826 |
|
|
164,825 |
|
|
|
|
|
Property, Plant and Equipment, Net |
86,788 |
|
|
93,785 |
|
Goodwill and Other Intangibles |
5,621 |
|
|
5,850 |
|
Other Assets |
18,939 |
|
|
19,447 |
|
TOTAL ASSETS |
$ |
287,174 |
|
|
$ |
283,907 |
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
Current Liabilities |
|
|
|
Accounts payable and accrued expenses |
$ |
52,225 |
|
|
$ |
49,901 |
|
Current portion of long-term debt |
8,578 |
|
|
9,811 |
|
Total Current Liabilities |
60,803 |
|
|
59,712 |
|
|
|
|
|
Long-Term Debt |
132,707 |
|
|
123,446 |
|
Other Long-Term Liabilities |
19,535 |
|
|
21,486 |
|
Stockholders' Equity |
74,129 |
|
|
79,263 |
|
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY |
$ |
287,174 |
|
|
$ |
283,907 |
|
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 an additional meaningful basis for comparing the Company's
current 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.
|
Three Months Ended |
|
Nine Months Ended |
Non-GAAP Income (Loss) From Continuing
Operations |
September 29, 2018 |
|
September 30, 2017 |
|
September 29, 2018 |
|
September 30, 2017 |
Net Income (Loss) as Reported |
$ |
(2,962 |
) |
|
$ |
(558 |
) |
|
$ |
(7,685 |
) |
|
$ |
(59 |
) |
Income (Loss) from Discontinued Operations, Net of Tax |
(40 |
) |
|
(11 |
) |
|
94 |
|
|
(163 |
) |
Income (Loss) from Continuing Operations |
(2,922 |
) |
|
(547 |
) |
|
(7,779 |
) |
|
104 |
|
Inventory Write Down as Part of Facilities Exit |
963 |
|
|
|
|
963 |
|
|
|
Facility Consolidation and Severance Expenses, Net |
529 |
|
|
— |
|
|
936 |
|
|
— |
|
Impairment of Assets |
349 |
|
|
— |
|
|
349 |
|
|
— |
|
Workers Compensation Claim |
— |
|
|
— |
|
|
450 |
|
|
— |
|
California Legal Settlement |
— |
|
|
— |
|
|
1,514 |
|
|
— |
|
Tax Effect of Above |
— |
|
|
— |
|
|
— |
|
|
— |
|
Non-GAAP Adjusted Income (Loss) From
Continuing Operations (Note 1) |
$ |
(1,081 |
) |
|
$ |
(547 |
) |
|
$ |
(3,567 |
) |
|
$ |
104 |
|
|
|
|
|
|
|
|
|
Adjusted Diluted Earnings (Loss) Per Share from Continuing
Operations |
$ |
(0.07 |
) |
|
$ |
(0.03 |
) |
|
$ |
(0.23 |
) |
|
$ |
0.01 |
|
Weighted-Average Diluted Shares Outstanding |
15,786 |
|
|
15,707 |
|
|
15,754 |
|
|
15,814 |
|
|
|
|
|
|
|
|
|
NOTE 1 -The Company defines Adjusted Income (Loss)
from Continuing Operations as Net Income (Loss) less loss from
discontinued operations, net of tax, plus manufacturing integration
expenses of new or expanded operations, plus facility consolidation
and severance expenses, plus direct acquisition expenses, plus
impairment of assets, plus unusual items so defined. |
|
CONTACT:
Jon FaulknerChief Financial
Officer706-876-5814jon.faulkner@dixiegroup.com
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