The Dixie Group (ticker not provided) reported its financial results for the first quarter of 2024, indicating a challenging economic environment characterized by high interest rates and inflation. Net sales for the quarter were $65.254 million, a decrease from approximately $67 million in the same quarter of the previous year.
The company experienced an operating loss of $857,000 and a net loss from continuing operations of $2.41 million, or $0.16 per diluted share, which was higher than the previous year's net loss of $1.551 million, or $0.11 per diluted share. Despite the downturn, The Dixie Group managed to reduce inventories and maintain low inventory levels in line with demand.
Key Takeaways
- The Dixie Group's net sales decreased by 2.7% year-over-year to $65.254 million.
- The operating loss for Q1 2024 was $857,000 compared to an operating income of $306,000 in Q1 2023.
- Net loss from continuing operations was $2.41 million or $0.16 per diluted share.
- High interest rates and inflation negatively impacted the housing and home remodeling markets, reducing consumer demand.
- The company has launched new products and is implementing a cost reduction plan to manage the current economic conditions.
Company Outlook
- The Dixie Group anticipates that lower interest rates, when they occur, will stimulate improved business conditions.
- They have begun to experience normal seasonal improvement in business by the end of Q1.
- The company has launched a color marketing campaign and introduced new carpet styles to differentiate in the market.
- An additional cost reduction plan of $10 million is being implemented to manage controllable aspects of the business.
Bearish Highlights
- The industry was estimated to be down approximately 8%, with The Dixie Group's sales only 2.7% lower.
- The company's gross profit margin decreased to 24.2% of net sales from 26.6% in the prior year due to lower production volumes.
- Operating loss and net loss were reported for Q1 2024, indicating a challenging economic period.
Bullish Highlights
- Net sales in March were slightly ahead of the same month last year, with margins returning to expected levels.
- The Dixie Group has diversified its product supply and began extruding its own raw materials, potentially reducing costs and ensuring supply.
- New product launches and a marketing campaign are expected to strengthen the company's position in the market.
Misses
- The company did not meet its net sales and profitability targets for Q1 2024.
- Inventory levels were reduced, which also contributed to under-absorbed fixed costs.
Q&A Highlights
- Dan Frierson expressed confidence in the company's ability to be profitable despite the current economic conditions by continuing to cut costs.
- The $10 million cost savings plan is distributed over the 12 months of the year, with some already achieved in Q1.
- The Dixie Group has an extension through September for the NASDAQ listing deficiency notice regarding the stock price being under $1.
In summary, The Dixie Group faced a difficult first quarter in 2024, with reduced net sales and increased net losses. However, the company is actively managing its challenges through cost reduction strategies and product innovation. The management remains cautiously optimistic about seasonal improvements and the potential for better business conditions with future interest rate changes.
InvestingPro Insights
The Dixie Group's recent financial performance reflects the broader challenges in the economic environment, with notable impacts on their Q1 2024 results. Here are some insights from InvestingPro that could further frame the company's current standing and future prospects:
- The company is trading at a low Price / Book multiple of 0.34, suggesting its market value is relatively modest compared to the book value of its assets. This could indicate that the stock is potentially undervalued, which may attract value investors.
- A significant return over the last week, with a price total return of 18.37%, shows a recent uptick in investor confidence or market reaction to company or industry-specific events.
- Despite the challenges outlined in the article, The Dixie Group's valuation implies a strong free cash flow yield, which could be a positive sign for investors looking for companies with the potential to generate cash.
InvestingPro Tips for The Dixie Group also highlight that the stock generally trades with high price volatility and that the company has not been profitable over the last twelve months. These factors are crucial for investors to consider when assessing the risk and stability of their investments.
For those interested in a deeper dive into The Dixie Group's performance and potential investment opportunities, InvestingPro offers additional insights and metrics. By using the coupon code PRONEWS24, readers can receive an additional 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking access to even more valuable information. There are 7 more InvestingPro Tips available for The Dixie Group, which could provide a more comprehensive understanding of the company's financial health and investment potential.
Full transcript - The Dixie Group (DXYN) Q1 2024:
Dan Frierson: 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 million 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 2024 was $2.41 million or $0.16 per diluted share. In 2023, the net loss from continuing operations for the first quarter was $1.551 million 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 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 first quarter as our lower volume reserve resulted in under-absorbed fixed cost 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.
Allen Danzey: Thank you, Dan. As Dan just pointed out, our net sales in the first quarter of 2024 were 2.7% below the same period in the prior year. As he said, the primary driver on that was a favorable impact from the higher interest rates and inflationary concerns, which did impact the consumer confidence and we saw that reflected in the home and remodeling activity. The gross profit margin in the first quarter of 2024, which was at 24.2% of net sales compared to 26.6% in the same quarter of the prior year. The gross profit margin was negatively impacted by lower production volumes in our manufacturing plant in the earlier part of the quarter. Production volume was higher in the month of March and the gross margin in that interim period returned to a level more in line with prior year and expectations. Selling and administrative expenses in the first quarter of 2024 were closely aligned with the prior year, but higher as a percent of lower net sales in 2024 at 25.1% compared to 24.5% in the prior year period. Our interest expense for the quarter was $1.5 million compared to $1.9 million in 2023. This decreased interest expense was driven by lower levels of debt in the current year. Our net loss on the year was $2.5 million compared to a net loss in the prior year period of $1.8 million. Looking at our balance sheet, our quarter-end receivables increased by $4.5 million from the prior year end balance. The increase was driven by higher billings to customers during the last months of the current period as compared to the seasonally lower December timeframe. Our inventory was down from prior year end balance by $1.2 million. We have maintained inventory levels at low -- we have maintained inventory at low levels, in line with demand during the quarter and accordingly, we expect to -- excuse me, we continue to maintain inventories at low levels in line with demand. The second quarter we did see -- at the end of the first quarter, our accrued payables and accrued expenses were increased by $8.7 million, primarily due to raw materials on order and that’s compared to the end of the year 2023. Property, plant, and equipment increased by $6.3 million in the quarter. This increase included cash purchases within the quarter of $499,000. It also included deposits moved PP&E in the amount of $6.5 million plus accruals and adjustments during the quarter. These additions were offset by $1.5 million in depreciation. Our debt increased by $1.9 million from the end of 2023, mainly driven by operating results and the investments in samples and other costs associated with product introductions in the first part of the year. At quarter end, our unused borrowing availability under the revolving credit facility was $15 million. Our investor presentation is available on our website at www.dixiegroup.com. Dan?
Dan Frierson: Thank you, Allen. As we entered the first quarter, we felt we were at the bottom of a down cycle but had hopes of lower interest rates later in the year, which would be the catalyst for improved business conditions. It now appears the lowering of interest rates will be longer coming than we had originally anticipated. When housing starts and home resales do begin to improve, beneficiary experience better business for a sustained period of time. The first quarter typically is the slowest period of the year. So it certainly felt as if we were bumping along the bottom of a downturn. But we did begin to experience normal seasonal improvement in our business as the quarter progressed. By the end of the quarter in the month of March, net sales were slightly ahead of the same month last year. And as Allen pointed out, our margins for the month were more in line with prior year and our expectation. As a reminder, we have spent the last several years recovering from our major share supplier investors abrupt and abusive exit from the business. We now have ample supply of product from four major sources and in the first quarter began extruding our own raw materials, which gives us not only lower cost material but availability of supply for the future, even if there are other major changes in the industry impacting fiber supply Our initial focus has been on extruding white, dyeable nylon which allows us to present long, beautiful color lines that stand out in a residential market that has moved to a solution dyed polyester sea of sameness. In support of this, we launched a color marketing campaign, Step Into Color, which connects retailers and consumers with a world of color options, including custom colors that are prevalent in Fabrica, but also available in our other soft surface divisions. "We launched 14 new carpet styles in the first quarter, including 11 EnVision Nylon styles in our high-end divisions. Our Masland introductions are a great mix of high fashion and mid-price points to drive volume in the current challenging market conditions. In our Fabrica brand, we launched a trio of styles paying tribute to the brand's 50 year history. Homage, Tribute, and Adulation share a common color line of 50 colors which are named after key Fabrica styles from the last 50 years. These beautiful styles are available at a sharp price point and will become go to styles for Fabrica for years to come. DH floors has continued to broaden its polyester product offering by incorporating our style and design capabilities at price points we cannot reach with Nylon. During the quarter, we continued to add products to our DuraSilk collection and sales have reflected the strong acceptance of these looks. The remainder of our solved and our true core hard service introductions for 2024 will be released in the second quarter. In addition, last year we embarked on a plan and successfully implemented a $35 million cost reduction program, this year without additional sales volume, we're in the process of implementing an additional cost reduction plan of $10 million by continuing to better manage the controllable aspects of our business During the first quarter, we were able to achieve that. We also plan on continuing to reduce inventories until we experienced sales growth. In the first four weeks of the second quarter this year, net sales are approximately 4% above the comparable period in the prior year. And that order entry is approximately 8% below and the same from the same period a year ago. Second quarter is typically our strongest quarter and first and stronger than the first quarter due to seasonality and our new products hitting retail floors. This morning, we announced that on May 1, the Company's Board of Directors approved the repurchase of up to $2.8 million of the Company's common stock. Such purchases would be under a plan pursuant to Rule 10B5-1 of the Securities and Exchange Act. Subject to the requirements of the rule 10B5-1, the purchase plan would permit the purchase of up to $2.8 million of the Company's shares beginning on or about May 8 and continuing for about a year. At this time, we'd be happy to open the meeting to questions.
Operator: Thank you. We would now conduct a question-and-answer session. [Operator Instructions] Our first question comes from Chris Riemenschneider with Morgan Stanley (NYSE:MS). Please proceed.
Chris Riemenschneider: Good morning.
Dan Frierson: Good morning, Chris.
Allen Danzey: Good morning. Chris.
Chris Riemenschneider: 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?
Dan Frierson: Chris, obviously, we think it is going to be a while before business improved significantly. On the other hand, the upper end of the market is doing better than the market overall, and we're certainly seeing that with our brands. But we've got to continue cutting costs. And yes, we think we can be profitable at these levels. But it -- I will say, obviously, a rising tide would certainly be appreciated and helpful, but we've got to get there whether the tide rises or not.
Chris Riemenschneider: What's the time horizon for the $10 million savings is that over the next 12 months or the remainder of the year?
Dan Frierson: That is -- the $10 million is distributed over the 12 months of the year. We accomplished a good -- some of that in the first quarter. We will continue -- it will impact quarterly as we go.
Chris Riemenschneider: Any update on the NASDAQ list? I mean, the listing regarding the stock being under $1. And do you have an extension on that?
Allen Danzey: 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.
Chris Riemenschneider: Okay. Thank you.
Dan Frierson: Thank you, Chris.
Operator: Thank you. With no further questions, I would like to turn the call back to Dan Frierson for any additional or closing comments.
Dan Frierson: Latonya, thank you, and we thank all of you for being with us this quarter. Obviously, this is the slowest quarter of the year. 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 second quarter. Thank you.
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