The Dixie Group has reported financial results for the third quarter.
The company’s third quarter 2016 net sales were $100,297,000, 7.9% below third quarter of 2015 sales of $108,908,000. Income from continuing operations was $573,000, or $0.04 per fully diluted share, for the third quarter of 2016 as compared to income from continuing operations of $84,000, or $0.01 per fully diluted share, in the third quarter of 2015.
Commenting on the results, Daniel Frierson, chairman and CEO, said, “The third quarter started off very slowly but improved throughout the quarter. Carpet sales for the quarter were down 6% on a comparative year over year basis. In particular our commercial product sales were 13% below the prior year. We believe the commercial market was down slightly on a year over year basis. Residential product sales were 2% below the prior year period. Though our residential business was down as compared to the prior year’s quarter, we believe that we outperformed the residential market which we believe was down mid to high single digits. For the first four weeks of October floorcovering sales are off high single digits versus the same period a year ago. We have seen modest decline in residential replacement housing activity during the summer months. We believe that the entire floorcovering market has been impacted by a drop in consumer expectations and political uncertainty this year.
"Despite the drop in sales compared to the year ago period, our operating margins improved slightly to 25.8%. We continue to closely monitor our production schedules in an effort to minimize cost. We have lower quality costs, medical expenses and improved operating efficiencies versus the same period a year ago; however, these gains have been substantially offset by the unabsorbed fixed cost due to the lower sales volume. We continue to reduce expenses to increase our efficiency and respond to the lower sales volumes. We have reduced our headcount by 75 associates versus this same time period last year. Despite $1.5 million lower selling and administrative costs, our selling and administrative percent of net sales increased from 23.2% in the third quarter of last year to 23.7% of sales in the third quarter due to the lower sales volume.
"For the third quarter we had no restructuring expense, as that is now complete, as compared to an expense of $614,000 in the year ago quarter.
"Our interest costs were up as we have longer term fixed interest rate swap contracts that are at slightly higher rates than we had in place a year ago. During the quarter we refinanced our senior credit facility, extending the maturity to 2021. We held capital expenditures for the third quarter, including those funded by cash and financings, to $1.4 million and anticipate a total of $6 million in capital expenditures for 2016 compared to depreciation and amortization of $13.5 million for 2016. At the end of the third quarter our debt was $115.6 million while our accessible availability under our credit lines was $25.3 million. We have reduced our debt by $10.4 million for the year to date period and $14.7 million over the last 12 months. The reduction in debt has largely been driven by reduced working capital and lower capital expenditures.
"From a marketing perspective, this period has been busy with Masland Contract introducing the Calibre High Performance line of luxury vinyl tile (LVT) flooring. We believe this offering of wood and abstract looks for use in various markets will further improve our service to our customers. The market targets include corporate, senior housing, multi family, higher education, retail and hospitality. The combination of Masland Contracts Calibre LVT Collection, custom rug capabilities, modular and broadloom signature styles and custom products, make Masland Contract a producer that can be a complete solution for the commercial specifier to create beautiful and high performance interiors.
"Atlas Carpet Mills has introduced Metáfora, a gentle nod to the 1970s that will play well in any decor. Constructed on Atlas’ unique Interloop technology utilizing 100% Antron Lumena type 6.6 nylon, this collection of 13 patterns in 17 colorways is available as broadloom, carpet tile and area rugs. Fabrica has introduced Petit Point, a newly interpreted classic woven pin dot design. Made with 100% New Zealand wool, the 16 colorations have been refined to reflect the subtle changes in neutrals and accents that today’s design savvy customer desires.
"As we move into the fourth quarter, we continue our emphasis on providing high quality, unique and beautiful products to our customers,” Frierson concluded.
For more information, visit thedixiegroup.com.