Dixie Group Inc (DXYN) 2021 Q1 法說會逐字稿

Good day, and welcome to the Dixie Group, Inc. 2021 First Quarter Earnings Conference Call. (Operator Instructions) As a reminder, 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.

Thank you, Daryl, and welcome, everyone, to our first quarter conference call. I have with me Allen Danzey, our CFO. Our safe harbor statement is included by reference to our press release.

Our first quarter started on December 27, 2020, resulting in a slow start for our fiscal -- new fiscal year. However, business continued to strengthen into February and March and finished much stronger than January and stronger than last year. The recovery of sales in the residential markets, which began in the second quarter of 2020, has continued through the first quarter of 2021. Sales volume in the commercial markets has continued to be at lower levels. Many of the cost reductions implemented in the second quarter of 2020 as part of our COVID-19 recovery plan have been made permanent even as sales volumes improve.

During the first quarter of 2021, our net sales increased 7.1% compared with the first quarter of 2020. Our residential product sales were up 23% for the quarter as compared with the prior year, while the industry, we believe, was up approximately 20%. Commercial products sales decreased 37% versus the prior year quarter, while the industry, we believe, experienced a decrease of approximately 18%.

Allen will review our first quarter results, after which, I will comment on current business conditions. Allen?

Thank you, Dan. As Dan just mentioned, our first quarter sales volume of $86.3 million in 2021 is up 7.1% from our $80.6 million in the prior year with that growth coming primarily from our residential products, driven by the strong demand in the residential market.

The gross profit margin on the first quarter of 2021 was 22.6% of net sales comparing against 23.6% in the first quarter of 2020. This 1-point reduction in margin year-over-year was primarily the result of higher material costs that were not offset by increased pricing until later in the quarter. Inefficiencies in our commercial market -- excuse me, our commercial plants and higher labor-related costs also contributed to the lower margins. We have implemented price increases and realignment to manufacturing to bring our margins back in line.

Our selling and administrative costs in the first quarter of 2021 ended at $20.1 million or $300,000 below those of the same period in 2020. The reduction in selling and administrative expenses was primarily the result of cost-saving initiatives, including permanent headcount reductions implemented as part of our COVID-19 response plan in 2020.

For the current quarter, we incurred $1.3 million in interest expense, which was flat when compared to $1.3 million in the first quarter of 2020. The 2021 interest expense includes approximately $180,000 for the recognition of deferred expenses related to the de-designation of an interest rate swap in 2020.

We ended the quarter with a loss from continuing operations of $2 million compared to a loss of $2.6 million in the same period of 2020. We were able to decrease our long-term debt, including the current portion by $2.1 million during the quarter. The reduction was partially aided by increases in accrued expenses at quarter end.

Looking at our balance sheet at the end of March 2021. Net receivables increased $2.9 million over the year-end 2020 balance. The increase in receivables was a result of higher sales volume. Capital equipment acquisitions, including those funded by cash and financing, was $364,000 on the quarter.

Depreciation and amortization during the quarter was $2.6 million. We anticipate capital expenditures for 2021 to be approximately $5 million and depreciation and amortization of approximately $10 million. At quarter end, our borrowing availability under our long-term credit agreement was approximately $44 million.

Our investor presentation is on our website at investor.dixiegroup.com. This time, I'll hand it back to Dan for additional comments and closing remarks.

Thank you, Allen. As a country and a company, we are all trying to assess the impact of COVID on our business environment. So far, the commercial business has been adversely impacted since the pandemic began, but we're now seeing signs of increased sample and project activity. This type of activity is normally followed by improved business in the next 6 to 9 months. Our back order position also has begun to grow again as orders outpaced shipments during the first quarter.

The improvement in the commercial business is welcome, but we believe the recovery will be longer coming and not as dynamic as the residential market recovery. On the other hand, the residential business had a V-shaped recovery and appears to be benefiting from the reaction to COVID. Strong new housing and remodeling activity have boosted floorcovering sales in general and particularly carpet sales. The reaction to being quarantined for an extensive period of time has been positive for higher-end carpet. It's difficult to predict how long this will last, but the many constraints in the pipeline speak for better business for a significant period of time. One of the few negatives is the continued cost increases with which the industry has been faced, and these increases have necessitated additional price increases.

Building on the momentum from late 2020, the first quarter provided a very strong start to the year for our residential business. Our soft surface business grew 18%, and our hard surface residential business grew 70% in comparison to the same period in the prior year. For the month of March, order entry in sales for residential products were both up over 40% compared to the prior year period. Business is strengthening even further in the second quarter of 2021, and we're working very hard to maintain the great service levels for our customers.

We're excited to launch our high-end TECHnique collection in 2021. We introduced 3 styles during the first quarter, and we'll launch 3 additional styles in the second quarter. This collection features the industry's latest tufting innovation and offers beautiful multicolor patterns with precise yarn placement and woven-like visuals. TECHnique products were made with the EnVision 6,6 nylon or strong will -- wool and will be featured in our Masland and Fabrica soft surface product portfolios.

Another major change for our industry has been the purchase of Stainmaster by Lowe's. The impact of this transaction will be phased in over the next several months and will mean the end of the Stainmaster brand at retail. While this will create confusion for a while, we believe it provides additional opportunities for our residential business through our EnVision 6,6, nylon offering.

Our EnVision 6,6 nylon program is allowing us to reach additional price points and expand our consumer base. The program continued to deliver significant growth for us during the first quarter, doubling in volume versus the prior year. We expanded our EnVision 6,6 product offering with 8 new styles during the first quarter and are expanding further in the second quarter with 12 additional styles across all 3 soft surface divisions. We also launched 4 decorative styles during the first quarter and have an additional 8 decorative styles planned for later this year.

Our hard surface programs continued to outpace the market with TRUCOR luxury vinyl segment, posting 70% growth for the quarter. Notable growth came from our TRUCOR Prime XL/XXL collection, featuring 10x84 widest, longest WPC plank on the market. We also saw tremendous growth from our TRUCOR Tile, IGT, a collection of large tile visuals with the grout joint engineered into the locking system.

We're excited to continue our innovation pipeline in 2021, with 2 new innovations launching during the second quarter. TRUCOR 3DP will launch with 16 SKUs. It is a digitally-printed product, delivering very realistic, high-resolution visuals, virtually eliminating pattern repeat and offers superb abrasion and scratch resistance with an AC5 commercial rating. TRUCOR Applause is a new opening price point for TRUCOR, and we'll have 8 SKUs produced in the U.S.A.

On the Fabrica wood program, we're expanding our market penetration, introducing 14 new SKUs and are offering a handsome new retail display, which will accommodate the entire line.

On April 17, 2021, the company identified that devices in its network were encrypted with ransomware. Company immediately initiated its response protocols and launched an investigation, and a forensic firm was engaged. The company also notified law enforcement and is working to support its investigation. The manufacturing and distribution activities of the company were substantially restored within the first week after the incident and were completely restored within 10 days. The company's website and e-mail servers remain off-line as the restoration efforts and forensic investigation continue. Despite this instance -- incident, we have been able to service our customers with relatively few interruptions.

To summarize where we are today, in the first quarter of 2021, we reduced debt by $2 million, bringing our total debt reduction to $62 million over the last 33 months. Borrowing availability stood at $44 million under our senior revolving credit facility. Our residential division has continued to gain market share and built momentum during the first quarter. Early 2021 shows continued strength with sales of residential products trending approximately 23% of the -- over the prior year. We implemented a price increase on April 1, 2021, to offset increases in raw materials, transportation and people costs.

For 2021, we are investing in new product and talent. We are introducing over 40 new soft surface styles and over 60 new hard surface SKUs. We have hired a retail channel leader, a decorative segment leader and additional hard surface salespeople.

For the month of March only, residential order entry and sales were both up over 40% compared to the prior year period. Business has continued to strengthen in the second quarter as we would normally expect due to seasonality. We also are announcing a price increase of approximately 5% on residential and commercial products for late in the second quarter.

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

(Operator Instructions) There are no questions at this time. I would like to turn the call back to Dan Frierson for any closing or additional comments.

Daryl, thank you very much, and thank you for being with us today. We look forward to getting the ransomware situation behind us and working through the Stainmaster -- the purchase of the Stainmaster brand by Lowe's in the marketplace. Thank you. Talk to you next quarter.

Ladies and gentlemen, that will conclude today's teleconference. Thank you again for your participation.