Dixie Group Inc (DXYN) 2012 Q1 法說會逐字稿

Good day and welcome to The Dixie Group Inc. first-quarter 2012 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, sir.

Thank you. Welcome to our first-quarter conference call. Our Safe Harbor statement is included by reference to our website and press release.

As you know, the first quarter typically is the slowest and most difficult for our higher end business. Adjusting for a 13-week versus 14-week fiscal period last year, our sales improved by 2.6%. The improvement was led by the residential business, which had a 5.7% increase. This increase was in the higher end products of our Fabrica, Masland and Dixie Home brands. However, we did have a decline in our mass merchant business.

All three of our residential brands had double-digit growth relative to the year ago period. The commercial business, however, declined 8% compared to a strong sales period a year ago. Jon Faulkner will review our first-quarter results, after which I will comment further on business conditions.

Thank you, Dan. Looking at our sales, first-quarter sales were $62.9 million, down 4.7% on a fiscal period basis, but up 2.6% on a comparable 13-week period basis versus last year. The first quarter of 2011 had 14 weeks. I have adjusted these numbers for comparability.

For the quarter in dollars on a comparable 13-week basis, our sales were up 2.6%, while the industry is up low single digits. Commercial products were down 8%, while the industry was up low single digits. Residential products were up 5.7%, while the industry is up again in low single digits.

For the quarter, Fabrica, Masland Residential and Dixie Home retail were up double digits, while Dixie Home mass merchants business was down. The mass merchant category was affected by a drop in this business as compared with prior year's quarter.

Our commercial sector was down against a strong quarter in 2011. Sales have noticeably slowed since the second half of 2011. For the quarter gross profit margin of 25% was 1/10 of 1% decline from the same quarter a year ago. SG&A at 24% of sales was above last year's at 23.3%.

We were impacted by a higher sample expense of $0.5 million above last year. We are investing heavily in SolarMax, one of three suppliers to the industry to have this fiber; TruSoft, one of two suppliers to the industry to have this fiber; and Permaset, the only supplier with process offering unlimited color selection in wool.

Operating income in the quarter of $620,000 was below the prior year by $1 million; however, we had one less week of sales. Our interest expense of $726,000 for the quarter reflected lower interest rates and one less week as compared to $932,000 in this prior year quarter. Our effective income tax rate for the quarter is 5%. This is due to the final expenses associated with our 2009 prior IRS tax audit, which is now complete. Our normal rate going forward at reasonable levels of profitability should be in the 32% range. Earnings from continuing operations in the quarter was a loss of $181,000 or $0.01 per diluted share.

Looking at our balance sheet, receivables increased $1.2 million during the quarter. Inventories increased $3.5 million during the first quarter, a normal seasonal occurrence. Capital leases and expenditures were $1.1 million for the quarter, while depreciation and amortization was $2.4 million. We anticipate capital leases and expenditures for 2012 of $6 million and depreciation and amortization of $9.5 million. Our debt has increased $5.3 million for the quarter, and we ended the quarter with availability under our loan agreements of $18.1 million.

Our updated investor presentation is on our website at www.thedixiegroup.com. Dan?

In the first quarter, the residential business got off to a strong start due to much more favorable weather conditions than the previous year and the announcement of a carpet price increase. The latter part of the quarter was not as strong but continued at a decent pace. Our results for the quarter were adversely impacted by raw material price increases and investment in new product. Our price increase should be in place for the second quarter, but our investment in new products will continue to be above the level of last year.

We have several unusual opportunities which will influence these numbers. As Jon pointed out, we are one of three suppliers of the new Stainmaster SolarMax product, which has inherent stain and fade resistant. We are also one of two suppliers introducing Stainmaster TruSoft products, which we think is the new standard in nylon softness. These products will be introduced in most of the markets we serve and represent a real opportunity to outperform the marketplace.

We are also introducing a number of new piece dyed wool products, which offer our customers a much wider variety of coloration. As the year progresses, our sample costs will come more in line with historical expenditures, and we should see the topline benefit of these new products in the last half of the year and beyond.

Our commercial business was down from year ago levels. We believe the 100% bonus depreciation tax incentive implemented last year may have influenced the increasing business last year and the subsequent decline from that level this year.

That having been said, we are experiencing an increase in sample activity and are hopeful the commercial business will improve. We are also pleased with the response to our newly launched and award-winning Chrome Collection.

The commercial business did not have a price increase in the first quarter, but due to an announced fiber increase, we will now have an increase in carpet prices during the quarter. While we are not satisfied with our financial results during the first quarter, we do feel we are building a solid foundation for the future. We are continuing our focus on reducing costs, improving quality and efficiency in our operations while maintaining outstanding service. Our capital expenditures continue to be less than our level of depreciation, and we have experienced a significant reduction in interest costs.

Through our investment in differentiated equipment, talented people and beautiful products, we believe we can continue to grow faster than the industry in general. At this time, we would be happy to open up the call for questions.

(Operator Instructions). Sam Darkatsh, Raymond James.

This is Josh filling in for Sam. A couple of quick questions here.

First, I appreciate the color on how the quarter progressed. Could you talk about how each of the end markets are doing in April and May?

I think during April, it is very much like February and March. It is decent level of business, but the first part of the quarter was the strongest part in the first quarter. We are seeing a little seasonal increase as we normally do in the second quarter, particularly in the residential area. The commercial area has continued for us to be slower.

Okay. And then you -- I am sorry if I did not quite catch all this, but you said the sampling expenses were expected to normalize through the year. Could you give a little bit more detail about how that might progress?

Well, I think you will see the sample expenses in the second quarter be above last year's level comparable to the first quarter, the third quarter maybe not quite as much, and the fourth quarter may well be under last year's level.

Back to your first question, what we really continue to see is that our upper end business -- the Fabrica brand, the Masland brand and Dixie Home at the retail level -- are continuing to be above last year's levels. However, our mass merchant business is under last year's level of activity.

Okay. I appreciate the additional color. Thank you.

(Operator Instructions). Mr. Dan Frierson, there are no additional signals at this time, sir.

Thank you very much, and we appreciate everyone joining us for the first-quarter conference call, and look forward to the second quarter. Thank you.

This concludes today's conference. Thank you for your participation.