Q1 2024 Dixie Group Inc Earnings Call

Participants

Daniel Frierson; CEO & Chairman of the Board; The Dixie Group, Inc.

Allen Danzey; VP & CFO; The Dixie Group, Inc.

Chris Riemenschneider; Analyst; Morgan Stanley Smith Barney LLC

Presentation

Daniel 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 $65,254,000 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 million 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 in 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 and 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, Alan will review our financial results, after which I'll have additional comments regarding our results.

Allen Danzey

Thank you, Dan. As Anders pointed out, our net sales in the first quarter of 2024 were 2.7% below the same period in the prior year. As we 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.
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. The 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.
So we maintain inventory at low levels in line with demand during the quarter. And accordingly, we expect to have seasonally we end the year. We continue to maintain inventories at low levels in line with demand. The second quarter, we did see some started 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 desk because 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 489,000. 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 introduction 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.

Daniel Frierson

And thank you, Alan. 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. The industry should experience better business for a sustained period of time. 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. The end of the quarter and the month of March. Net sales were slightly ahead of the same month last year.
And as Alan 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 point double now on, which allows us to present long beautiful color lines that stand out in a residential market that has moved to a solution that 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 fabric Fabrica, but also available in our other salts service division. We launched 14 new carpet sales in the first quarter, including 11 Envision now on styles in our high end divisions are Masila and 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 Agiliti share a common color line of 50 colors, which were named after key fabric styles from the last 50 years. I am sure these beautiful styles will become go to style 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 now during the quarter, we continued to add products to our Duracell 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 controllables 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 and 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 quarter end and stronger than in the first quarter due to seasonality and our new products hitting retail floors. This morning, we announced that on May first, 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 Securities and Exchange Act subject to the requirements of the rule, 10b5-1 purchase plan would permit the purchase of up to 2.8 million of the Company's shares beginning or on or about May eighth and continuing for about a year. At this time, we'd be happy to open the meeting two questions.

Question and Answer Session

Operator

(Operator Instructions) Chris Riemenschneider Morgan Stanley.

Chris Riemenschneider

Good morning.

Daniel Frierson

Good morning, chris.

Allen Danzey

Good morning.

Chris Riemenschneider

My remarks, you mentioned that you believe once interest rates come back down the housing market, we'll boost the remodeling activity. But 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 about $10 million. Can you be profitable in this environment?

Allen Danzey

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 I will say, obviously a rising tide would certainly be appreciated and helpful, but we've got to get there, whether that it rises or not what's the time horizon for the $10 million savings over the next 12 months or the remainder of the year. That is the $10 million is distributed over the 12 months of the year. We accomplished a good sum 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 a book and do you have an extension on that?

Daniel Frierson

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.

Allen Danzey

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.

Daniel 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 and activity levels sequentially in the second quarter is certainly better than it was in the first. And we certainly hope and believe that if we can exercise the $10 million cost reduction plan and look forward to visiting with you at the end of second quarter, thank you.