Dixie Group Inc (DXYN) 2018 Q4 法說會逐字稿

Good day, and welcome to the Dixie Group Inc. 2018 Fourth Quarter 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 Chairman and Chief Executive Officer, Dan Frierson. Please go ahead.

Thank you, Sarah, and welcome, everyone, to our fourth quarter and year-end conference call. I have with me today Jon Faulkner, our Chief Financial Officer.

Our safe harbor statement is included by reference both to our website and press release.

For 2018, the company had net sales of approximately $405 million as compared to $412 million in 2017. The loss from continuing operations for 2018 was $21,479,000 or $1.36 per share as compared to a loss from continuing operations in 2017 of $9,322,000. On a non-GAAP basis, as shown in our press release, the results from continuing operations would have been a loss of $0.44 per share, adjusted for the impact of the Profit Improvement Plan.

Our residential business has continued to gain market share as we have expanded our footprint throughout the retail environment. Residentially, our operational focus this year has been on taking advantage of our increased productivity as we lower our labor and other input costs.

Beginning in late 2017, when we brought our 2 commercial floorcovering businesses under the leadership of David Hobbs, we have been methodically combining our operations, culminating with the complete integration of our management, support functions, sales forces and commercial facilities by the end of this quarter, the first quarter of 2019.

Commercially, we've been driving our product offering towards solution to add modular carpet, while we reorganize the commercial business to bring it into a sustained profitability.

The residential business soft -- residential soft surface business line grew by 2%, while the industry we believe was flat. Our residential hard surface sales tripled during this same period. In the residential market in 2018, we had our largest product launch ever. We launched over 150 new products, including 67 carpet styles and 86 hard surface designs.

Our focus in 2018 was to enhance our importance to our residential dealer network and to gain floorspace by broadening our product offering as we expanded our main street commercial and mill branded soft floorcovering product selection.

We're especially pleased with our new Masland Energy in-store display with 20 exciting main street commercial products. The high-style main street commercial is developed by Masland in the mid-2000s, and we're reinvigorating this line with new products, designs and an updated selling vehicle. The eNergy line is a complete selection of broadloom and modular carpet tile designed for the commercial market service to our dealer network.

We began shipments of our new EnVision 6,6 soft floorcovering collection. This new program is an extension of our Dixie Home product line with nicely styled carpet products at moderate price points to reach a wider range of consumers. These products are made with type 6,6 nylon to ensure the highest quality and performance standards.

In addition, we launched the Fabrica wood line, initially with selective distribution in the southeast, but later expanded across the United States. The Fabrica collection features best-in-class unique flooring looks, including French oak, maple and birch, with a style and quality consistent with the high-end quality of Fabrica's brand.

We expanded our luxury vinyl flooring offering and placement by 40%, while offering more product selection with both plank and tile offerings in our Stainmaster PetProtect line. For 2019, we're building on the momentum we gained by tripling our residential hard surface business in 2018 with the launch of TruCor, our new SPC luxury vinyl flooring line. This latest addition to our rigid core vinyl -- rigid core luxury vinyl flooring offering is designed to create an extremely durable and waterproof luxury vinyl flooring product with a broader range of price points to meet the needs of various consumers.

To facilitate this growth, we're expanding our distribution of hard surface products to our West Coast distribution center as well as our East Coast service center.

Our results in the commercial market have been impacted by the restructuring that we've been undergoing since late 2017. Our commercial sales for the year were down over 13%, while the commercial soft floorcovering market, we believe, was down marginally.

We expanded our product offering in luxury vinyl flooring and our sales -- with our sales doubling through our Calibrè line of luxury vinyl flooring products. We have introduced a new collection of modular carpet tile products in '18, such as Top Notch, using Thrive by Universal Fibers, a solution-dyed type 6,6 nylon that stands alone as the most environmentally conscious solution dye high-performance nylon 6,6 carpet fiber in the world with the highest level of recycled material.

As we have merged the 2 commercial sales forces into Atlas | Masland Contract, we are positioned with our newly formulated footprint and complete line of broadloom carpet, modular carpet tile, luxury vinyl flooring and commercial rugs to service our customers with excellent service and cutting-edge design from our focused operational facilities dedicated to the commercial marketplace.

This time, I'd like to call on Jon Faulkner to review our financial results for 2018.

Thank you, Dan. Looking at sales for the year, the sales were $405 million, a 1.8% decrease over sales of $412.5 million in 2017. Our commercial products were down 13.2%, while the industry was down slightly. Our residential products were up 3.6%, while the industry we believe was flat.

Gross profit for the year was 21.5% of net sales as compared to 24.5% in 2017. For the year of 2018, our sales and costs were negatively impacted by lower sales in our commercial business contributing to under-absorbed costs in our manufacturing operations.

The gross profit margin for the year was impacted by $2.7 million in inventory expense relative to writing down inventories as a result of decisions, close our Chickamauga, Georgia and our Commerce, California tufting operations, all a part of our Profit Improvement Plan.

Selling and administrative expense for the year was 22.8% as compared to 23.3% in 2017. Other items in the year included -- including the $2.7 million in inventory impairments, $1.5 million in legal settlement, $3.2 million in facility consolidation and severance expenses, $1.2 million in asset impairments, and $5.5 million impairment of goodwill and intangibles. All restructuring-related expenses, including the inventory impairment expense, including our cost of goods sold, the write-down of goodwill and legal settlement totaled $14.1 million.

Our total expense reduction for the Profit Improvement Plan, once fully implemented later in 2019, is approximately $17 million in savings on an annualized basis, with an operating loss of $15.8 million for 2018, compared to an operating profit of $4 million in 2017.

Our interest expense for 2018 was $6.5 million versus $5.7 million in 2017. A higher interest expense was due to higher interest rates and higher levels of debt. We had a tax credit of $832,000 in 2018.

Diluted loss per share from continuing operations was $1.36 for the year.

Looking at our balance sheet at the end of the year, our receivables were down $3.9 million during the year on lower sales. Our inventory decreased $8.5 million during 2018. Capital equipment acquisitions including those funded by cash and financing was $4.4 million for the year. Depreciation and amortization for the year was $12.6 million.

We anticipate capital expenditures for 2019 of approximately $6 million and depreciation and amortization of approximately $12.5 million.

Our debt stood at $128 million at the end of the year, decreasing by $5.2 million for the year. Accessible availability under lines of credit at the end of the year was $15.4 million. After the end of the year, we did an $11.5 million sale leaseback of our Saraland facility, increasing our availability by approximately $6 million.

Our investor presentation, including our non-GAAP information, is on our website at www.thedixiegroup.com.

Dan?

Thank you, Jon. Our Profit Improvement Plan has captured the many efforts we have implemented to improve operations during 2018. We began the structural consolidation of our commercial business with the closure of the Chickamauga tufting plant as we moved the equipment to other facilities. This plant closure completed at the end of 2018 lowered our cost and improved our response time to -- of the marketplace. We began the process of exiting our Commerce, California Atlas tufting facilities this past fall, and we'll be completely out of these commercial tufting operations by the end of the first quarter of 2019.

The bulk of the Atlas equipment was transferred to our Atmore, Alabama commercial tufting operation with various other items being moved to our Santa Ana, California plant and Eton, Georgia operations.

We moved our commercial rug operation and commercial sample support from California to our Saraland facility near Mobile. We reduced our staffing to better mass production to meet our demand in our Atmore, Eton, Adairsville and Roanoke facilities as we were able to take advantage of the increased productivity of our associates in these operations. In addition to the physical movement of equipment and inventory, we consolidated our commercial design functions in Saraland as well as consolidated our entire sales support functions.

Our sales forces were merged to create Atlas | Masland Contract, now equipped with a much broader product line in providing modular carpet tile, broadloom carpet, luxury vinyl flooring and commercial wool and nylon rugs.

The combined sales force have the added benefit of not only a broad product line, but distinct design capabilities in custom CYP or Tapistron products. We have done a department-by-department review of all of our operations and functions within the company, from manufacturing through sales. Though we're sad to lose many fine members of the Dixie team, we feel we're strongly -- stronger after having reduced our headcount by over 330 associates or 18% of our workforce from the beginning of 2018. During this process we have identified many cost reductions, and we'll continue to cut costs wherever advantageous.

Our combined expenses of the plan include -- including inventory write-downs, restructuring and severance expenses and related asset impairments were $9.2 million during 2018.

However, our total cost reductions on an annualized basis are over $17 million once fully implemented during 2019. In addition, we have now written off all of our intangible and goodwill assets.

As we complete the Profit Improvement Plan this quarter, we should be well positioned to improve results going forward. We continue to focus on internal improvements as well and thereby continue to improve service, quality and cost.

In summary, we consolidated our 2 commercial brands into Atlas | Masland Contract, under one management, sharing operations in marketing, product development, manufacturing and consolidation of sales forces.

We're progressing with our Profit Improvement Plan and anticipate the bulk of the savings to be in place by the third quarter of 2019.

We're launching TruCor, an SPC luxury vinyl flooring line in early this year. We've placed over 2,200 displays of Stainmaster PetProtect and TruCor luxury vinyl flooring through our Masland and Dixie Home residential brands.

We began shipping of our EnVision 6,6 soft floorcovering collection. We're pleased with the reception to our newly revamped Masland Energy main street commercial product line.

Due to the dip in the stock market late last year and the subsequent decrease in consumer confidence as well as weather conditions in the last several months, spring seems to be coming later this year, but is now being felt.

Our floorcovering sales for the first 9 months -- first 9 weeks of the quarter are down high-single digits versus the same period in 2018. Our orders, however, are only slightly behind compared to the same period last year.

At this time, we would like to open up the call to questions.

(Operator Instructions) All right, it looks like we have no questions in the queue at this time. I would now like to turn the call back to Dan Frierson for any additional or closing remarks.

Sarah, thank you very much, and I want to thank all of you that are with us today for being on the call, and look forward to talking with you in the future.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone, have a great day.