Earnings call transcript: Dixie Group's Q4 2024 results show revenue dip

Dixie Group Inc., a carpet and flooring company, reported its financial results for the fourth quarter of 2024, revealing a decline in net sales and a significant net loss for the fiscal year. Despite these challenges, the company made strategic moves to reduce costs and expand its product offerings. The company's stock experienced a notable increase of 13.91% following the earnings release, closing at $0.49, reflecting investor optimism about its cost-cutting measures and product innovation efforts. According to InvestingPro analysis, the company is currently trading at an attractive Price/Book ratio of 0.39, suggesting potential undervaluation despite recent challenges.

Key Takeaways

• Dixie Group's Q4 2024 net sales decreased to $64.4 million from $66.7 million in the previous year.
• The company reported a net loss of $13 million for fiscal 2024.
• A $10 million cost reduction plan for 2025 is underway.
• The stock surged 13.91% in reaction to the earnings report.
• New product innovations and marketing campaigns were highlighted.

Company Performance

Dixie Group's performance in Q4 2024 reflected ongoing challenges in the flooring industry, with net sales declining compared to the previous year. The company has faced a tough market environment, marked by a significant drop in existing home sales and a decline in carpet demand. Despite these hurdles, Dixie Group managed to gain market share by expanding its high-end wool and decorative product offerings.

Financial Highlights

• Revenue: $64.4 million in Q4 2024, down from $66.7 million in Q4 2023.
• Fiscal Year 2024 Net Sales: $265 million, compared to $276 million in 2023.
• Net Loss: $13 million or $0.88 per diluted share for fiscal 2024.
• Gross Profit Margin: 24.7%, a decrease from 26.7% in the prior year.
• Selling and Administrative Expenses: Reduced by $4.3 million.

Outlook & Guidance

Dixie Group anticipates a flat year in 2025 as it continues to focus on cost reduction efforts and product innovation. The company has secured a new $75 million senior credit facility with an EBITDA threshold of $9 million, providing additional financial flexibility. Management is also monitoring potential tariff impacts, which could affect future performance. InvestingPro data shows a Financial Health Score of 1.51 (Weak), suggesting the importance of these strategic initiatives for improving the company's financial position.

Executive Commentary

CEO Dan Frierson highlighted the company's strategic focus, stating, "We have been stewards of our working capital and reduced inventories by $16 million over the last two years." He also emphasized the need for continued cost reductions until demand improves: "Until demand improves, we will continue reducing costs."

Risks and Challenges

• Market Demand: The decline in existing home sales poses a significant challenge for the flooring industry.
• Tariff Impacts: Potential changes in tariffs could affect the cost structure and pricing strategies.
• Competitive Pressure: The need to maintain market share amidst declining industry demand.
• Supply Chain: Managing costs and efficiency in a challenging supply chain environment.
• Economic Conditions: Broader macroeconomic pressures that could impact consumer spending.

Dixie Group's strategic focus on cost reduction and product innovation aims to navigate these challenges, with the company's recent stock performance suggesting investor confidence in its approach. However, InvestingPro data reveals a concerning six-month price decline of 56%, highlighting the importance of monitoring the company's turnaround efforts. For comprehensive analysis including Fair Value estimates and growth projections, explore the detailed Pro Research Report available on InvestingPro.

Full transcript - The Dixie Group Inc (DXYN) Q4 2024:

Shamali, Conference Call Operator: Good day, and welcome to the Dixie Group Inc twenty twenty four earnings conference call.

Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to the Chairman and Chief Executive Officer, Dan Frierson. Please go ahead.

Dan Frierson, Chairman and Chief Executive Officer, Dixie Group Inc: Thank you, Shamali. Welcome, everyone, to our fourth quarter twenty twenty four 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. In the fourth quarter of twenty twenty four, net sales were approximately $64,400,000 compared to $66,700,000 in the fourth quarter of the prior year.

The net loss for the fourth quarter of twenty four was $7,198,000 compared to $3,160,000 in the fourth quarter of twenty twenty three, which included an $8,198,000 gain on the sale of assets. For the fiscal year twenty twenty four, net sales for the company were 265,000,000 as compared to 276,000,000 for the fiscal year twenty twenty three. The net loss from continuing operations on the year was $12,210,020.24 or 83¢ per diluted share compared to a net loss of a million $952,000 or 13¢ per diluted share previous year. The net loss on the year was 13,000,000 or 88¢ per diluted share compared to a net loss of $2,718,000 or $0.18 per diluted share in 2023. At this time, Alan Dansey will review our financial results, after which I will have additional comments.

Alan Dansey, Chief Financial Officer, Dixie Group Inc: Alright. Thank you, Dan. As Dan mentioned, net sales for the fiscal year twenty twenty four were 4.1% down from the prior year. High interest rates and low consumer confidence have delayed consumer decisions around large discretionary spending that includes home purchasing and remodeling, which are big drivers for our business. The lower sales volume and fourth quarter planned inventory reduction resulted in underabsorbed fixed costs in our manufacturing plants.

In addition, significant unusually high charges related to utility expenses in our California operations, both expenses under our self insured medical plan and write downs of inventory all had an unfavorable impact on our gross margin. Gross profit margin in 2024 was 24.7% of net sales compared to 26.7% prior year. Selling and administrative expenses in 2024 were reduced from 2023 by $4,300,000 or 5.8% of net sales. This was the result of year over year planned cost cutting initiatives, particularly in our sample areas where we were able to reduce costs and still continue to service our customers and do product introductions. For comparative purposes and our other operating income and expense, twenty twenty three fourth quarter results benefited from an $8,200,000 gain in sale of assets, as shown in other operating expenses.

Facility consolidation expenses, which include the residual costs of our East Coast manufacturing consolidation plan, were $2,500,000 lower than the prior year, and that included $238,000 in additional write down of idled assets for the quarter of twenty twenty four. Our interest expense on the year was $6,400,000 compared to $7,200,000 in 2023, a decrease primarily driven by lower interest rates in the current year. The net loss on the year 2024 was $13,000,000 compared to a net loss of $2,700,000 prior year. From our balance sheet, our year end receivables of $23,300,000 is slightly below or 1.5% down from the prior year end balance of 3.7. Our net inventory balance at the end of twenty twenty four was $66,900,000 This was a $9,300,000 or 12.3% below the inventory balance of 2023.

That reduction again was primarily achieved in the fourth quarter as we implemented our plan to reduce inventories, and we continue to maintain timely service to our customers. Accounts payable and accrued expenses were slightly down 1.9% than the same period of prior year with lower year over year cost inventory related areas driving that reduction. Net property, plant, and equipment increased by 2,400,000.0 from the prior year end. This increase included cash purchases of 2,100,000 during the year, and prior year deposits were moved in down to $6,500,000 related to our extrusion operation. These additions to PP and E were offset by approximately $6,500,000 in depreciation.

Year over year, the debt was relatively flat at point 200,000.0 or $200,000 lower in current total. We are we wanna point out we are pleased to have closed subsequent to year end on our new $75,000,000 senior credit facility. The timing of closing of the facility did delay our filing of 10 k as we had to reschedule our normal audit activity. So so as as the facility closed, we were able to resume our audit activity and close shortly after the filing was filed. Our borrowing availability under this new credit facility is approximately 12,200,000 current.

Our investor presentation will be available on our website at www.dixiegroup.com. Dan?

Dan Frierson, Chairman and Chief Executive Officer, Dixie Group Inc: Thank you, Alan. Existing home sales, which tend to be the catalyst for our industry improvement, continued to be subdued during last year. Existing home sales over the last three years have declined dramatically from over 6,000,000 homes per year to under 4,000,000. The interest rate reductions, which we were were projected for earlier in the year, did not come about until late twenty twenty four. Even though the economy has avoided a recession, our industry has been in a recession for several years, and existing home sales were at the lowest point since 1995.

And at that time, our population was 25% lower, which means the weak existing home sales numbers are even more impactful today. Actual square yards of carpet chips in the last three year years are down 25%. Despite having gained market share during this period, we have had to take significant action to lower cost, restructure facilities, and streamline operation. Since the end of the year, we have successfully renegotiated our existing asset backed loan for a new three year period. This transact this transaction puts us in a stronger position to weather storms in the future and enhanced our ability to grow our business.

During 2023, we reduced costs by over $35,000,000 as a result of our restructuring plan to better align capacity and cost with current volume. And '24, we further reduced cost by over $10,000,000 and are taking action which will again reduce cost by over $10,000,000 20 20 5. We have also been stewards of our working capital and reduced inventories by $16,000,000 over the last two years. The reduction in business has also necessitated reducing our number of associates by approximately 28% over the last three year period. Our capital expenditures have been maintained at a very low level other than the investment in extrusion equipment, which was made to not only provide us with lower cost raw material, but ensure a consistent supply if additional suppliers were to exit the business, which took place in late twenty twenty four with the exit of Ascend from the marketplace.

Our extrusion equipment started up in late first quarter of last year and is now running at capacity. Our commitment to piece diable nylon fiber enables us to offer a larger palette of color for our discriminating customer, which we are promoting with our Step Into Color campaign. This allows our designers to create unlimited color off for every market as well as offering custom color to our most returning customers upon demand. During this period of poor business, we have continued to invest in additional products through our commitment to several initiatives, are enhancing our customer relationship, helping us gain market share in a difficult period. Our initial our initiative to grow our hard surface business centered around our TrueCore brand, which we continue to add new offerings.

These products of wood, stone, and tile visuals provide waterproof, easy to clean solutions for today's residential The Fabrica high end wood program has performed well, and it's consistent with Fabrica's best in class reputation. By expanding our significant wool offering with the introduction of a wider variety of decorative products through 1866 by Madeline and decor by Fabrica, we have enhanced our position in the high end of the floor covering mark, gained market share in the current environment. This investment in products and displays should help make us more important to the design community. In 2024, we continued expanding our DuraSilk solution dye, best solution, polyester offering. This expansion reinforces our dedication to diversify our Dixie Homes Floors product portfolio and has made a positive contribution to our market share gain.

By incorporating our well known style and design capability at price points we cannot reach with nylon products, we have broadened our differentiated offering to our customers and the ultimate consumer. Our marketing initiatives have included folk continued focus on expanding our digital marketing efforts, which has resulted in increased lead generation, sample order activity from our websites, and improved capabilities for online product visualization. We also saw strong growth from retail stores where we have placed our premier flooring center program. Investment, samples, merchandising, and training in these stores have provided returns of increased business and greater market share. The recent actions taken by The US to implement tariffs on the rest of the world has created a sense of uncertainty regarding the cost of imported imported product.

At this point, we are endeavoring to ascertain what the impact will be from each of our source. The impact the potential impact on us would be primarily felt by our hard surface business and the decorative products we import. Our broadloom carpet business, basically serviced from our US operations, would not be significantly impacted. It appears industry participants will need to raise prices to mitigate the impact of tariffs if these tariffs are not negotiated away. This is a volatile time, and we will take appropriate action once the fog has cleared.

Our sales so far this year have in 2025 have followed the same pattern as last year. The highest end soft surface sales are up, and overall soft surface are near year ago level, while the hard surface product categories are down from previous year. Until demand improves, we will continue reducing costs. We've already implemented a cost reduction plan for this year, which exceeds $10,000,000, and we're also continuing to reduce inventory to reflect the level of the bank. At this time, we will open the meeting to your questions.

Shamali, Conference Call Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove yourself from the queue.

If participants use the speaker equipment, Our first question comes from the line of Mike Hughes, a private investor. Please proceed with your question.

Mike Hughes, Private Investor: Good morning. Thanks for taking my questions. First, on the hard surfaces side of the business, what percent of that product is imported from China? What other countries do you import, and how quickly could you potentially pivot to other countries outside of China?

Dan Frierson, Chairman and Chief Executive Officer, Dixie Group Inc: At this point, very little is imported from China, and that would be practically none very soon. We do import from Thailand, Cambodia, Vietnam, and some from Europe.

Mike Hughes, Private Investor: Okay. So as of today, the hard surfaces side of the business would face the the the 10% tariff. I I I know it's a dynamic situation and it could change. Is it is that correct?

Dan Frierson, Chairman and Chief Executive Officer, Dixie Group Inc: That is correct. Other than China, yes.

Mike Hughes, Private Investor: Okay. And then how quickly can you pass along price on that side of the business? Is there a little bit of a period where you have to absorb the higher costs?

Dan Frierson, Chairman and Chief Executive Officer, Dixie Group Inc: That's that's still up in the air, Mike. And several companies have announced price increases, but that was based on the first initial in increases in tariffs. So it it's a little unclear at this time, but, basically, I think the industry will eight 81% of the LVT sold in this country is imported. So I I think it's very likely that very quickly as these tariffs become impactful, they will be passed on.

Mike Hughes, Private Investor: And and do you know are your competitors or any of them more over indexed importing from China more more reliant on China, or is everyone pretty much active in China at this point like like your company has?

Dan Frierson, Chairman and Chief Executive Officer, Dixie Group Inc: I would say everybody worked diligently to take China, and I think today is a fraction of what it was a couple years.

Mike Hughes, Private Investor: Okay. And then I may have missed this in the prepared comments, but did you say what the the amount of the 4Q inventory write down was? And then maybe you could just provide a little bit of color on it.

Alan Dansey, Chief Financial Officer, Dixie Group Inc: Yeah. Let me

Dan Frierson, Chairman and Chief Executive Officer, Dixie Group Inc: Yeah.

Alan Dansey, Chief Financial Officer, Dixie Group Inc: Our in the fourth quarter, as we mentioned, the overall reduction in inventory of $9,800,000, We had put in that net increase in our LIFO reserve of $456,000 on the year, but

Mike Hughes, Private Investor: there

Alan Dansey, Chief Financial Officer, Dixie Group Inc: was a peer liquidation in the fourth quarter that did result in a $381,000 gain. As far as the right now on the assets, our investments reserve increased by $1,300,000 in q four, and it was a $822,000 increase year over year.

Mike Hughes, Private Investor: Okay. And that that was just a result of doing the physical inventory and kinda aging the inventory. Is that right?

Alan Dansey, Chief Financial Officer, Dixie Group Inc: Yeah. As we worked on our plan, a reduction of inventory and identified areas where we had some excess inventory. We did make an additional reserve in the third quarter, excuse the fourth quarter for that amount, and that gives us the opportunity to move that inventory out and generate cash flow from that in 2025.

Mike Hughes, Private Investor: Okay. And then you you talk about an incremental $10,000,000 in cost takeouts. How soon will you be at that that run rate of taking 10,000,000 out of the cost structure?

Dan Frierson, Chairman and Chief Executive Officer, Dixie Group Inc: I would say we're very close to that level today. Most of that was planned some months ago.

Mike Hughes, Private Investor: Okay. And then on the new credit facility, it looks like it has minimum EBITDA thresholds. And I think the number for the twelve months ended 12/27/2025 is $9,000,000. So that that seems like a really high hurdle given, I think, the adjusted number in the fourth quarter. My adjustment, which may be incorrect, is a loss of about a million and a half to 2,000,000 of EBITDA excluding the inventory write down.

The help me get to that $9,000,000 number. What what needs to happen to revenue? Does the revenue does the top line need to start to grow again for that to happen?

Alan Dansey, Chief Financial Officer, Dixie Group Inc: No. We we work closely with our new partner on the senior credit facility as we work through the covenant, particularly as it related to the dot. We feel comfortable with the amount that was calculated even in an expectation of a generally flat year. We did have, as we talked about, a number of items this year that we're not expecting to referring from an unfavorable standpoint as well as the cost savings that Dan talked about in 2025, and for a greater part is in place at this time. So we felt like, and I believe our partner felt well, that amount that was provided was a reasonable amount that we believe was achievable and projecting for for them.

Mike Hughes, Private Investor: Okay. And then you talk about reducing the inventory further. You ended the year at 66.9. How much more can you take out of the inventory?

Dan Frierson, Chairman and Chief Executive Officer, Dixie Group Inc: We don't make projections. So that but we we feel like we've already reduced the inventory some this year.

Mike Hughes, Private Investor: Okay. And then two two final questions for you. On the soft side of the business, is there any potential benefit from the tariffs or because you you you compete at the high end, there there are fewer imports there? Just talk through that dynamic.

Dan Frierson, Chairman and Chief Executive Officer, Dixie Group Inc: It depends on where the tariffs end up. Yeah. Whether it's the punitive ones or the 10% or or something something else is negotiated. We're not looking at that as a a potential windfall, but for the for the domestic tufted carpet business, imports are not a major factor.

Mike Hughes, Private Investor: Okay. Then last question, the liquidity, I just wanna be make sure I'm clear because I read the credit agreement and I thought there was an incremental sort of a carve out of 6,000,000 that had to be avail left available. So are are you saying that 12,200,000.0 is available to borrow? That full amount is available?

Alan Dansey, Chief Financial Officer, Dixie Group Inc: That includes the 6,000,000. So the 12,000,000 is the full availability, like, this is the $6,000,000 excess. So 6,000,000 plus 6.2.

Mike Hughes, Private Investor: Okay. Super. Thank you very much.

Alan Dansey, Chief Financial Officer, Dixie Group Inc: Alright. Thank you. Always do. Bye.

Shamali, Conference Call Operator: Thank you. With no further questions in the queue, I will turn the call back to Dan Frierson for any additional or closing remarks.

Dan Frierson, Chairman and Chief Executive Officer, Dixie Group Inc: Thank you, Shamali, and thank everyone for joining us today. Sorry we're a little late this quarter. We anticipate being timely with our first quarter results. And we'll look forward to talking with you then. Thank you.

Shamali, Conference Call Operator: Ladies and gentlemen, that will conclude today's conference. Thank you again for your participation.

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