The Dixie Group, Inc. Wednesday reported financial results for the second quarter of 2015 ended June 27. Sales for the second quarter were $109,957,000 as compared to $107,926,000 in the same quarter a year ago. Profit from continuing operations was $516,000, or $0.03 per diluted share, versus a loss of $509,000, or $0.04 per diluted share, for the same quarter last year.
Commenting on the results, Daniel K. Frierson, chairman and chief executive officer, said, “Sales in the second quarter started off strong but moderated throughout the period. Our sales of $110 million were 1.9% ahead of the same quarter last year while the industry overall was down slightly. Excluding Atlas Carpet Mills, our sales growth for the quarter on a year-over-year basis was 4.6 percent.
“Sales for residential products declined 0.4 percent compared to the same quarter in the prior year, while the industry was down mid to low single digits. Sales of residential products started stronger in April but slowed down during the quarter relative to our performance a year ago. However, we anticipate the residential remodeling market to have marginal growth for the remainder of the year. Our increase in commercial product sales was 6.7 percent compared to the same period last year, and as compared to industry growth, we estimate, in the low single digits. Our Masland Commercial products had a sales increase of 17.7 percent on a year-over-year basis. The efforts at Masland were helped by the creation of Masland Hospitality late in 2014, assisted by our acquisition of CYP technology in the fall of 2014. We continue to see a healthy commercial market throughout 2015. Atlas was still underperforming relative to the prior year, as we were delayed in getting out our new product introductions in 2014 due to issues related to delivery of new technology in 2014, as well as integration issues relative to the Atlas purchase. We are pleased with the new Atlas products we have introduced so far in 2015. Atlas order entry has continued to improve as we enter the third quarter of 2015 relative to earlier in the year.
“Gross profit for the quarter was 26.7 percent of net sales as compared to 24.7 percent the same quarter in the prior year and 24.3 percent in the first quarter of 2015. Gross profit improved as a result of improved operations following our restructuring, and income of $459,000 from an adjustment to estimated acquisition-related contingent payments that was offset by continued higher-than-normal levels of quality, training and waste costs. We anticipate continued improvements in waste, training and quality costs in the third and fourth quarters. Operating income was $2.2 million for the quarter as compared to $588,000 for the second quarter of 2014. Selling and administrative costs were 23.8 percent of net sales for the quarter as compared to 22.5 percent for the same quarter of 2014. We have higher sampling costs in both our residential and commercial businesses this year. The planned launch of new products for Atlas Carpet Mills were delayed in 2014, so we have a very robust line of new products being introduced in 2015. In addition, our residential business has an unusually high sample expense from several additional national product launches in 2015.
“Facility consolidation and asset impairment expenses during the period were $875,000 as compared to $1.7 million a year ago. We have completed our west coast consolidation plan. The only remaining significant east coast manufacturing consolidation activities are in our Atmore and Saraland facilities. Other restructuring-related expenses, reflected in our higher cost of sales, were higher than the normal levels of training, quality and waste costs for the period. These costs improved relative to the first quarter and we expect them to further decline in the second half of the year. We are announcing the consolidation of three of our existing divisional and corporate offices to a single facility located in Dalton. The consolidation plan is estimated to cost $716,000. The majority of the costs primarily relate to lease cancellation charges for the facilities we are vacating. Those planned charges, as well as the remaining costs of our manufacturing consolidation plans are detailed in the attached table. Our plan is to continue to improve costs through emphasis on training and process improvements, thus regaining the quality and waste levels we had before the restructuring.
“Other impacts during the quarter were in the areas of higher medical costs. In the second quarter of 2015, we continued to experience significantly higher costs associated with our self-insured group medical plans. We have taken additional actions, besides those described in the first quarter report, in plan design, incentives to utilize disease management services and additional rate increases to our associates that we believe will mitigate future costs. Further, we will introduce an all new self-insured medical plan in 2016 to better control costs going forward. We anticipate sampling costs to decline in 2016 and return to historical levels at that time. Our tax rate, at 44 percent, was higher due to truing up the tax expense for the year. Going forward, we anticipate a tax rate of 35 percent at normal levels of profitability. We have improved operating margins from both the first quarter and a year ago but still are not satisfied with our performance.
“Current assets increased $5.4 million during the quarter, primarily due to higher levels of inventory and trade receivables. Current liabilities increased $3.3 million during the quarter, mostly due to higher advanced customer deposits for custom goods. Capital equipment acquisitions, including those funded by cash and financings were $2.6 million. Depreciation and amortization was $3.7 million for the quarter. We anticipate capital expenditures of $13.5 million for the year of 2015 and depreciation and amortization of $14.5 million. We ended the quarter with $133.8 million in debt and availability of $35.3 million.
“Sales for the first four weeks of the third quarter are ahead of the same quarter last year by 5 percent, while our carpet sales are ahead of last year by over 6 percent on a year-over-year basis. The new home building segment is stronger and we have recently seen home resales at higher levels. Therefore, the remodeling market should be helped by a tightening housing market. We see continued opportunities in the residential market. Specific opportunities are in the growth of our wool broadloom and rug businesses, our Stainmaster PetProtect products and the continued development of beautiful patterns to service the upper-end residential market utilizing both our ColorPoint and iTuft tufting technologies. The commercial market, and especially the hospitality sector, continues to see good growth. We have continued our growth in our modular tile offerings in both the Masland Contract and Atlas markets. Further, we are pleased with the activity we are seeing in Masland Hospitality as we leverage our investment in custom computerized yarn placement tufting technology. We want to thank our associates for their hard work and dedication during this period as we transition our facilities to be specifically focused on specific end markets. As always, we continue to be dedicated to supplying our customers with the most advanced style and design products of the highest quality,” Mr. Frierson concluded.
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. The simulcast will begin at approximately 11:30 a.m. on Wednesday. A replay will be available approximately two hours later and will continue for approximately 30 days. If Internet access is unavailable, a listen-only telephonic conference will be available by dialing 913.312-0863 and entering 6508802 at least 10 minutes before the appointed time. A seven-day telephonic replay will be available two hours after the call ends by dialing 719.457-0820 and entering 6508802 when prompted for the access code.