The Dixie Group, Inc. (NASDAQ:DXYN) on Wednesday reported financial results for the quarter ended June 25, including a drop in sales, but a rise in income over the same quarter a year ago.
The company’s second quarter 2016 net sales were $105,316,000, 4.2 percent below second quarter of 2015 sales of $109,957,000. Income from continuing operations was $1,615,000, or $0.10 per fully diluted share, for the second quarter of 2016 as compared to income from continuing operations of $516,000, or $0.03 per fully diluted share, in the second quarter of 2015.
On a non-GAAP basis, which excludes restructuring expenses, the company earned $0.12 per share for the second quarter of 2016 as compared to $0.07 per fully diluted share in the second quarter of 2015.
Commenting on the results, Daniel K. Frierson, chairman and chief executive officer, said, “April orders were seasonally stronger but lagged behind last year. Orders weakened further in May and June. Total carpet sales for the quarter were down 4.4 percent on a comparative year over year basis. In particular our commercial product sales were 8.1 percent below the prior year. We believe the commercial market was down slightly on a year over year basis. Residential product sales were 2.3 percent below the prior year period.
"Though our residential business was down as compared to the prior year’s quarter, we believe that we outperformed the residential market which we believe was down mid to low single digits. We have seen modest improvements in housing activity and continue to anticipate some increase in demand from demographic forces. We have not seen a corresponding improvement in the floorcovering market and continue to carefully evaluate our expectations for future sales growth. Our carpet sales over the first four weeks of the third quarter are down 11.9% as compared with the same period in the prior year. We believe that the entire floorcovering market has recently been impacted by what we believe is a temporary drop in consumer confidence. The University of Michigan when reporting a drop in its July 2016 Index of Consumer Sentiment stated, 'Prior to the Brexit vote, virtually no consumer thought the issue would have the slightest impact on the U.S. economy. Following the Brexit vote, it was mentioned by record numbers of consumers, especially high-income consumers.'
"Despite the drop in sales compared to the year ago period, our operating margins improved slightly to 26.8 percent. Furthermore, our operating margins improved five percent from the first quarter to the second quarter of 2016. We have lowered our cost structure through better running conditions as a result of moving production in house. Comparing the second quarter of 2016 to the first quarter of this year, we increased internal production by 23 percent even though we only had a total production increase of 18 percent. We have lower quality costs through tighter manufacturing tolerances in operations. We have improved material yields as we have improved quality and reduced waste. We have reduced medical expenses as a result of our new plan design. We continue to reduce staffing levels to increase our efficiency and respond to the lower sales volumes. Our selling and administrative costs improved from 23.8 percent of sales in the second quarter of last year to 23.1 percent of sales in the second quarter of 2016 due to cost reductions in all areas of sales and administration.
"We incurred $401,000 in final restructuring costs in the quarter and our restructuring is now complete. Our interest costs were up as we have longer term fixed interest rates that are slightly higher than we had in place a year ago. Discontinued operations showed a slight profit as we collected a contingent payment from a previous sale of assets. We held capital expenditures for the second quarter, including those funded by cash and financings, to $1 million and anticipate a total of $5 million in capital expenditures for 2016 compared to depreciation and amortization of $13.5 million for 2016. Accessible availability under our credit lines was $19.1 million at the end of the second quarter while debt stood at $117.8 million at the end of the second quarter, a reduction of $7.8 million in the quarter. The reduction in debt was largely driven by reduced inventories and lower capital expenditures. We continue to move more production in house to maintain better running schedules but expect slight increase in inventory levels as we prepare for the fall selling season.
"Masland Contract is making a move to become a more complete resource to the commercial specifier with the introduction of Calibre High Performance LVT Flooring. After extensive research, Masland is preparing to launch a comprehensive offering of Wood and Abstract looks for use in various markets. The market targets include Corporate, Senior Housing, Multi Family, Higher Education, Retail and Hospitality. The combination of Masland Contracts Calibre LVT Collection, Custom Rug capabilities, Modular & Broadloom signature styles and Customs, make Masland Contract a producer that can be a complete solution for the commercial specifier to create beautiful and high performance interiors. In the third quarter Atlas Carpet Mills, our premium commercial brand, will be introducing the Ville Des Lumiéres Collection, an Antron Lumena Ultraweave featuring four standard patterns offered in seventeen colors. The collection also contains nine additional make to order patterns. The collection is available in broadloom, modular carpet tile and area rugs.
"In the residential market our Dixie Home, Masland and Fabrica brands provide a ‘good, better, best’ for consumers looking for unique, quality carpets and rugs. Our investment in tufting technology allows us to provide distinctive products to support the success of flooring dealers and interior designers. Each brand speaks to the customer and addresses their personal tastes, whether traditional, transitional or urban modern. For example, Masland Carpets has recently launched Batik and Lynx which create an artistic texture with edgy styling, bold patterns that produce the look of an Artisan hand-crafted fabric for the floor. The sleek styling and playful randomness are formed from the tonal effect of the cut and loop construction. The bold shapes of these patterns are perfectly suited in traditional and contemporary settings offering distinct personality to any room.
"As we move into the second half of 2016, we continue our emphasis on providing high quality, unique and beautiful products to our customers.”
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 Avant brands.