The Dixie Group Reports Third Quarter 2019 Operating Results
Dalton, Ga. -- The Dixie Group, Inc. reported financial results for the quarter, which ended Sept. 28, 2019. For the third quarter of 2019, the company had net sales of $95,447,000, compared to $101,562,000 in the same period in 2018, a decrease of 6.0%. In the third quarter of 2019 sales, excluding sales through the mass merchant channel, were down 1.5% relative to the third quarter of 2018. Dixie Group has seen changes in its mass merchant sales as this channel has shifted more to hard surface flooring products, and therefore, the company did not repeat a large initial stocking order to this channel which occurred during the same period in 2018.
For the third quarter of 2019, the company had a loss from continuing operations of $2,577,000 or $0.16 per diluted share; however, adjusting for costs associated with facility restructuring and related inventory impairments, the company had a loss of only $1,452,000 for the third quarter of 2019. For the third quarter of 2018, the company reported a loss from continuing operations of $2,922,000 or $0.19 per diluted share on a higher level of sales.
Gross profit for the third quarter of 2019 was 22.1% of net sales as compared to a gross profit of 21.5% in the third quarter of 2018. Included in cost of sales for the period was $82 thousand in inventory write downs related to restructuring. Sales excluding sales to the mass merchant channel for the first 5 weeks of the quarter are approximately 3.9% behind the same period in 2018.
Unusual expenses during the period included $1.1 million in restructuring related expenses, including facility consolidations related to the relocation of Dixie's west coast distribution center, inventory write downs for Atlas white dyeable products, and severance expenses. Other unusually high expenses during the period were medical costs associated with our traditional preferred provider network plans. Both of these medical plans were replaced in the third and early fourth quarter of this year.
The company's residential carpet product sales were down 10.9% for the quarter as compared to the prior year. Residential carpet sales, without our mass merchant channel, were lower for the third quarter year over year period by 5.1%, thus significantly stronger than the company's mass merchant channel. Dixie's EnVision 6,6 program continues gaining traction in the market, and the company continues to expand the program, which brings exceptional value to the customer. The company has seen growth in its west coast offering through both Masland California Classics and the Dixie Home Pacific Living Quick Ship Collection. Both of these programs are serviced out of its Santa Ana, California facility, providing shorter delivery times for the west coast marketplace.
The company's residential luxury vinyl flooring and wood sales experienced a greater than 40% increase in sales in the third quarter of the current fiscal year as compared to the same period in the prior year. During the third quarter, Dixie had great traction with its new TRUCOR SPC offering, including placement of over 2,000 displays in the retail community. By the end of the quarter, TRUCOR represented a significant percentage of the company's total luxury vinyl sales.
During the fourth quarter, Dixie is expanding its TRUCOR line with the addition of TRUCOR Prime, a WPC construction, offered by Dixie Home and Masland. By the end of 2019, the company anticipates having over 4,800 TRUCOR and TRUCOR Prime displays in the market. During the first quarter of 2020, the company plans on expanding its TRUCOR rigid core offering with 47 new products in SPC and WPC constructions. To further drive growth in this segment, during the fourth quarter of 2019 and the first quarter of 2020, Dixie is making investments in talent by adding hard surface sales people in key markets. These investments in product and talent aim to accelerate hard surface growth.
Commercial carpet product sales in the third quarter were down less than 1% as compared to the same period in the prior year. Dixie's commercial luxury vinyl flooring sales were up over 40% comparing the third quarter of 2019 with the same quarter in 2018. Dixie's commercial division has launched a number of new offerings for 2019 with particular emphasis on modular carpet tile offerings. The company is especially excited about the launch of its Sustaina modular tile backing system. The recently-launched Crafted collection is available with the Sustaina backing system, and has an 81.5% total recycled content. These products differentiate Dixie in the market place and fulfill the needs of environmentally conscious customers.
The sale of Dixie's Susan Street facility restored the company's balance sheet, dramatically lowered its debt and increased funds available under its senior credit facility. The company reported that it felt this transaction put it on solid footing, moving into 2020 with a complete floorcovering product line for the discerning consumer in both our residential and commercial markets.
Selling and administrative expenses for the third quarter of 2019 were 22.0% of net sales, a decrease of 0.7 percentage points from 22.7% in the third quarter of 2018. The decrease in selling and administrative costs is primarily due to the Profit Improvement Plan Dixie initiated in the fourth quarter of 2017 to consolidate two commercial management businesses.
Dixie had $1.125 million in expenses related to its Profit Improvement Plan during the period. The facility restructuring as a result of the Profit Improvement Plan is nearing completion. The company anticipates approximately $600 thousand in added expenses in the fourth quarter, the bulk of that from dropping additional products as the company continue to rationalize its commercial white dyeable product offering.
Receivables increased $2.4 million since the beginning of the year due to normal seasonal pattern. Inventories decreased $6.7 million since the beginning of the year due to better management of inventories. For the first three quarters of 2019, Dixie capital expenditures, including those financed through capital leases, were $3.1 million as compared to depreciation and amortization of $8.8 million. The company's capital expenditures for the year of 2019 are planned at a maintenance level of approximately $4 million. Interest expense for the year to date was up due to higher interest rates from a year ago. Dixie's debt decreased $3.0 million during the quarter and $3.9 million for the year to date.
For more information, visit www.thedixiegroup.com.