Earnings call transcript: Dixie Group Q2 2025 shows improved margins

Dixie Group Inc. reported its second-quarter 2025 earnings, showcasing a notable improvement in financial performance. The company achieved an earnings per share (EPS) of $0.07 and reported revenue of $68.57 million, reflecting robust operational efficiencies. According to InvestingPro analysis, the stock appears undervalued based on its Fair Value calculations, despite facing significant challenges with a -4.28% revenue decline over the last twelve months. The stock experienced a slight decline, with a 0.79% drop in its last trading session. The company also outlined its strategic initiatives and cost-saving measures aimed at navigating current market challenges.

Key Takeaways

• Gross profit margin increased to 29.2% from 28.1% in 2024.
• Operating income rose to $3.2 million, up from $2.3 million the previous year.
• Net income doubled to $1.2 million compared to the previous year.
• The flooring industry faces challenges from high interest rates and low consumer confidence.

Company Performance

Dixie Group demonstrated strong performance in Q2 2025, with significant improvements in key financial metrics compared to the same period last year. The company’s gross profit margin increased to 29.2%, and operating income saw a notable rise. This performance is set against a backdrop of a challenging flooring industry, which is dealing with high interest rates and declining consumer confidence.

Financial Highlights

• Revenue: $68.57 million
• Earnings per share: $0.07
• Gross profit margin: 29.2% (up from 28.1% in 2024)
• Operating income: $3.2 million (up from $2.3 million in 2024)
• Net income: $1.2 million (doubled from $600,000 in the previous year)
• Year-to-date net loss reduced to $537,000 from $1.2 million

Market Reaction

Despite the positive earnings report, Dixie Group’s stock price experienced a slight decline, closing at $0.504, a 0.79% decrease. This movement is relatively minor and reflects broader market challenges rather than company-specific issues. The stock remains within its 52-week range of $0.383 to $1.05.

Outlook & Guidance

Dixie Group maintains a cautious outlook for the near term, with expectations that sales and orders will remain slightly behind last year’s figures. The company anticipates that improvements in consumer confidence and mortgage rates could lead to a market rebound similar to the growth experienced after the 2008 recession.

Executive Commentary

CEO Dan Frierson emphasized the company’s commitment to cost reduction and strategic growth initiatives. "Doing more with less has meant reducing costs over the last three years by well over $50,000,000 while improving quality and service," Frierson stated. He also expressed optimism about future market conditions, saying, "We believe our cost reductions and growth initiatives will be in excellent position to take advantage of the changed market dynamics when they occur."

Risks and Challenges

• High interest rates and low consumer confidence continue to pose challenges for the flooring industry.
• Existing home sales have declined, impacting demand for flooring products.
• The company is adapting to supplier exits and market disruptions.
• Maintaining market share amid competitive pressures requires ongoing strategic investments.

Q&A

During the earnings call, analysts inquired about the potential impact of interest rate reductions on sales. The company confirmed that approximately 85% of its sales were not impacted by tariffs and that no significant raw material inflation was observed. The cost savings program is on track to achieve its $12.6 million target, providing a buffer against current market challenges.

Full transcript - The Dixie Group Inc (DXYN) Q2 2025:

Conference Operator: Greetings. Welcome to the Dixie Group Q2 twenty twenty five Conference Call. Please note this conference is being recorded. I would now like to turn the call over to Dan Frierson, Chief Executive Officer. Thank you.

You may begin.

Dan Frierson, Chief Executive Officer, Dixie Group: Thank you, Devin, and welcome, everyone, to our second quarter conference call. I have with me Alan Dansey, our Chief Financial Officer. Our safe harbor statement is included by reference both to our website and press release. The gross profit margin for the 2025 was 29.2% of sales compared to twenty eight point one percent in the 2024. Operating income in the ’25 was 3,200,000.0 compared to 2,300,000.0 in the second quarter of the prior year.

The company had net income of 1,200,000.0 in the 2025 compared to net income of $600,000 in the same period of the prior year. Additionally, significant reduction in net debt took place during the last six months. Despite lower year over year sales volume, we were able to produce stronger gross op gross margins at 29.2% of net sales compared to 28.1 in the quarter of the prior same quarter of the prior year. We also reduced our year over year selling and administrative expenses. These favorable results in 2025 are primarily the results for our cost reduction plan, which is for this year, which is estimated to produce $12,600,000 and reduce spending year over year.

Weak market conditions continued to negatively negatively impact floor flooring industry sales in the 2025, with the high interest rates and low consumer confidence being key factors leading to slow existing home sales and weak home remodeling numbers. Our soft surface sales outpaced the market in the second quarter as we were relatively flat year over year, where the industry, we believe, was down approximately 7%. A key growth segment in our soft surface products was our DuraSilk collection, which continues to gain share of the polyester market. Also, growth of our high end decorative segment resulted in one of our strongest quarters for the sales of our decorative products. At this time, Alan will review our financial results.

Alan Dansey, Chief Financial Officer, Dixie Group: Thank you, Dan. As Dan discussed, we are pleased to announce the positive results for the quarter despite the lower year over year sales volume. Through our ongoing company wide cost reduction initiatives, we have been able to reduce costs and materials and reduce expenses within our production processes. This helped lead to strong gross margins of 29.2% of net sales in the current quarter compared to 28.1% in the prior year and 28.1% on the year to date with a comparison of 26.2% in the prior year. Selling and administrative expenses in our second quarter were $600,000 or 3.4% below the same quarter of the prior year and slightly lower on the year to date.

With the launch in prior years of product initiatives for hard surfaces, decorative and polyester substantially complete, ongoing selling and marketing expenses are being maintained at a level to support our new product introductions and sample replenishment. Our interest expense on the year was $3,400,000 compared to the 2024 to date interest expense of $3,200,000 Higher internal interest rates and amortization of financing fees contributed to this difference. The net income on the quarter was $1,200,000 compared to a net income of $600,000 in the prior year. For the fiscal year to date June, we had a net loss of $537,000 compared to a net loss of $1,200,000 in the prior year. On our balance sheet, our June month end receivables of $28,900,000 was up from our seasonally low year end balance of $23,300,000 Net increase was driven by the comparatively higher sales volume in the second quarter.

Our net inventory balance at the end of the quarter was $67,400,000 compared to a net inventory balance of $76,100,000 in the second quarter of the previous year. We had a planned reduction of inventory in the fourth quarter of last year and we continue to manage our inventory at lower levels while maintaining timely service to our customers. Accounts payable and accrued expenses were $41,000,000 compared to $37,000,000 in the same period of the prior year. Net property, plant and equipment decreased by $2,400,000 from prior year end. This decrease was primarily the result of $2,600,000 in depreciation with an offset of $155,000 in capital expenditures.

We do plan to hold our capital expenditures at a maintenance level of approximately $800,000 for 2025, and depreciation is estimated to be $5,200,000 The net balance of our senior debt and cash on the balance sheet at the end of the second quarter was $45,600,000 or $4,400,000 lower than the same total of $50,000,000 at prior year end. The remaining portion of our term debt decreased by $3,200,000 from year end. At the end of the quarter, borrowing availability under our new senior credit facility was $13,100,000 which was subject to a $6,000,000 excess availability requirement. Our investor presentation is available on our website at vixiegroup.com. Dan?

Dan Frierson, Chief Executive Officer, Dixie Group: Thank you, Alan. Over the last three years, the external environment for the floor covering business has continued to be difficult. We have experienced declining sales as mortgage rates have remained at elevated levels. Existing home sales have declined to the 4,000,000 unit level, and consumer confidence has been at historically low levels. As a company, we’ve been adjusting to these realities, but we’re also faced with two of our major suppliers exiting the business in a disruptive manner.

These conditions have meant we had to restructure our operations and product offering in a most turbulent environment. To improve our results and restructure our operations, we have embraced a cost production plan that is focused on virtually every phase of our business. Doing more with less has meant reducing costs over the last three years by well over $50,000,000 while improving quality and service. We have also invested in our growth initiatives over the last four years. We have enhanced our hard surface business, particularly our Fabrica wood program, which has resulted in growth of nearly 10% in the second quarter.

We’ve also invested in our decorative offering through additions to Masland’s 1866 offering and Fabrica’s decor line. We have also broadened our DH home offering by introducing more highly styled DuraSilk polyester products. These actions and activities have helped us to continue growing market share in the soft floor covering market. Thankfully, we also believe soft floor covering is no longer ceding significant market share to hard surface products. From a marketing standpoint, we continued our new TDG rewards plus program with new benefits and bonus tiers for our most loyal retail sales associates, and we continued our partnerships with Roonvo and Broadlink in the digital space.

These programs, we continue to see increased lead generation, online sampling ordering, and room visualizations. These metrics are promising as today’s consumer is searching for floor covering products online, and we must meet them where they are. Our premier flooring center retail partners continue to be a strong point for the company. This program includes a selling system which supports better goods and higher end products, along with training, unique promotional opportunities, and other benefits. The evolving tariff situation is adding to the current economic uncertainty.

The major impact on Dixie is with hard surface products and decorative products. When the earlier tariffs were implemented in April, the industry and we implemented price adjustments and supply chain changes to mitigate mitigate the impact of the initial tariffs. We no longer source from China, but we will adjust pricing again as it becomes necessary depending on the rates which you’re finally implementing. The near term outlook is very much the same we’ve experienced for the first half of the year. Sales and orders continue to run slightly behind last year in total, but soft surface products are virtually the same as last year.

We continue to reduce costs by improving productivity, conserving energy, and expanding our operational cost initiatives. Looking longer term, at some point, consumer confidence will improve and mortgage rates will decline and the market will improve. Today, family formations are outpacing home construction. Home equity is at an all time high, and there’s pent up demand for more housing. The industry will the industry has a history of a prolonged growth period when it exits a prolonged downturn, just as it did after the two thousand eight, nine great recession.

After that recession, the next four years experienced 8% compounded annual growth. We believe our cost reductions and growth initiatives in place will be an excellent we will be in excellent position to take advantage of the changed market dynamics when they occur. At this time, we would like to open the meeting to your questions.

Conference Operator: Thank you. We will now be conducting a question and answer session. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Our first question comes from the line of Barry Blank H. Darby and Company. Please proceed with your question.

Barry Blank, Analyst, H. Darby and Company: Hi, good morning, Dan. Good I quarter that you got one question that’s a little difficult, but I don’t and I don’t know if there is an answer to it. But, historically, every 1% drop in interest rate, what would that equal usually in percentage of increase in sales if you could answer that?

Dan Frierson, Chief Executive Officer, Dixie Group: Barry, I wish I could give you a definitive answer to that. Obviously, I think any, reduction in mortgage, interest rates would have a positive impact, but, I I don’t think I can give you a a definitive number.

Barry Blank, Analyst, H. Darby and Company: Is there a lag time? What if interest rates should come down, is there usually a lag time from when that comes down to when a business would pick up?

Dan Frierson, Chief Executive Officer, Dixie Group: Yes. I think there is because floor covering is not the first thing that goes into a house. However, with existing home sales, a lot of time people fix up a home before they sell it, and others fix it up after they buy it to to put their stamp on it or their their look. So it is not it it is not a a long period of time, but I think I would look at consumer confidence at the same time. If consumer confidence is coming in up, I think it would be fairly quickly.

Barry Blank, Analyst, H. Darby and Company: Thank you very much.

Dan Frierson, Chief Executive Officer, Dixie Group: Thank you, Barry.

Conference Operator: Our next question comes from the line of Mike Hughes, a Private Investor. First,

Mike Hughes, Private Investor: on the tariffs, I would assume with the gross margin you put up in the quarter a little north of 29%, there wasn’t much of an impact from the tariffs in the June. First, can you confirm that? And then do you think the pricing you’ve put in place will fully cover you in the third quarter? Or should we expect little bit of a delayed negative impact on the tariff front?

Dan Frierson, Chief Executive Officer, Dixie Group: Mike, as you know, the whole tariff situation has been very volatile, and a lot is happening today. But to answer your questions, first of all, probably about 85% of our sales are not impacted at all by tariffs because we manufacture our goods in The United States. The only thing we import is hard surface and some decorative products. So and having said that, we did increase prices that that we felt covered the cost of the April round of tariffs. And the industry had had an industry wide increase in inductive products and in hard surface products.

I would anticipate that the industry will do the same thing once it’s really determined what what these rates are. And each country, obviously, is a little different, and it it’s difficult to project. But, no, there wasn’t a major impact in the second quarter, nor do we expect a major impact in the third quarter because of the price increase.

Mike Hughes, Private Investor: Okay. Makes sense. And then, outside of tariffs, can you just comment on your cost of goods sold, raw material inputs, what what you’re seeing on on that front?

Dan Frierson, Chief Executive Officer, Dixie Group: Basically, we have not seen any inflation in raw materials yet. I say yet, but we still are seeing some reductions in in raw materials, basically, and that has obviously helped with the, our gross margin.

Mike Hughes, Private Investor: Okay. So just on that front, was there a LIFO credit in the quarter that helped the the gross margin number?

Alan Dansey, Chief Financial Officer, Dixie Group: Yeah. We adjust our LIFO each quarter and then in line with cost reductions as well. The cost reductions in the period did result in lower cost of our inventory, which we adjusted through to LIFO. We adjust our we look at our LIFO at a year end basis and adjust if needed for any LIFO related changes that would be pushed through the income statement. Those would only be specific to a tier reduction.

The gross margins would reflect LIFO based costing, so we absorb that or recognize that through the year based on changes to our inventory values.

Mike Hughes, Private Investor: Okay. And then the cost savings program, how much incremental savings is in front of you?

Alan Dansey, Chief Financial Officer, Dixie Group: We are anticipating or planning 12,600,000.0 over the course of the year. We have achieved and have identified approximately half of that through the first six months. So we feel very good about being able to achieve that goal. We’ll continue to look for other cost savings throughout the remainder of the year to try and improve upon that.

Mike Hughes, Private Investor: Okay. So there’s a little over 6,000,000 left on an annualized basis on that program. Right?

Alan Dansey, Chief Financial Officer, Dixie Group: Yeah. Actually, maybe a little less than that. We’ve we’ve been very successful through the first half of the year, so we’re we’re running well very well on track to achieve our goal.

Mike Hughes, Private Investor: Okay. Great. And then my last question. Some commentary in the press release. Part of the hard flooring business did well, and then the other part was challenged.

It sounds like maybe those challenges are behind you. Can you just comment on that part of the business if you expect better better performance in the second half?

Dan Frierson, Chief Executive Officer, Dixie Group: The the wood part of our business is what did do exceptionally well. That is the very high end fabric of wood program. We think that we anticipate that will continue to do well. The SPC and, WPC luxury vinyl tile products are more challenged. There’s more competition there, and and, I think it’s gonna depend on how much inventory is out there, and and how some respond to tariffs.

So that that’s a little more problematic and has not been as good for us as as the wood business has.

Mike Hughes, Private Investor: Okay. So the the hard flooring business, I think, is roughly 20% of revenue. Is that is that correct in rough terms?

Dan Frierson, Chief Executive Officer, Dixie Group: I would say it’s less than 15% today.

Mike Hughes, Private Investor: Okay. Okay. Can you just, in rough terms, break out the part that’s performing well, what percentage that is, and then the more challenged piece?

Dan Frierson, Chief Executive Officer, Dixie Group: Mike, unfortunately, we don’t don’t break out those numbers publicly.

Mike Hughes, Private Investor: Okay. I had to try. I I appreciate all your time. I don’t blame

Dan Frierson, Chief Executive Officer, Dixie Group: I don’t blame you.

Mike Hughes, Private Investor: Thank you very much.

Dan Frierson, Chief Executive Officer, Dixie Group: Thank you. Thank you, Mike.

Conference Operator: Thank you. As a reminder, ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad. It appears we have no further questions at this time. I’d like to turn the floor back over to Dan Frierson for additional comments.

Dan Frierson, Chief Executive Officer, Dixie Group: Thank you all for joining us for this quarterly meeting. We’re we’re happy to report net income and reduction of debt. Both are important parts of our position and going forward. We hope you’ll join us next quarter. Thank you.

Conference Operator: Ladies and gentlemen, that will conclude today’s conference. Thank you for your participation, and have a wonderful day.

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