The Dixie Group has reported first quarter financial results.
The company reported a loss from continuing operations of $4,757,000 for the first quarter as compared to a loss from continuing operations of $2,380,000 in the first quarter of 2015.
“Though the first quarter of the year is historically our weakest quarter, this year our sales were substantially weaker as compared to the same period in 2015," said Daniel Frierson, Dixie's chairman and CEO. “Sales of residential products decreased 4.8% in the first quarter of 2016 versus the same period in 2015, similar to what we believe the industry was off for the year over year period. Though there have been modest improvements in housing activity, we have not seen a corresponding improvement in the soft floor covering market we serve and continue to evaluate our expectations for future sales growth. Our commercial product sales decreased 8.5% in 2016 versus 2015 while the industry sales, we believe, were off only slightly. Our commercial backlog has improved significantly, up 24% from year end to the end of the first quarter. We have introduced new products with an emphasis on modular carpet tile in both Masland Contract and Atlas to increase our offerings in this important category.
Our cost structure has been impacted by very low production levels in the plants as we had both low sales volume and low productivity from product development activities. We accelerated the initial manufacturing of our new product introductions, getting these offerings to market quicker and thus helping future sales, but in turn this lowered our efficiencies in the plants during the first quarter. Our internal production was down 17% from the same period in 2015. The fourth quarter of 2015 had modest sales growth relative to our expectations, resulting in higher than normal inventories at year end, which reduced production during the first quarter. The resulting unabsorbed fixed costs from the lower sales and production activities had a major impact on our results for the period. We had high waste costs during the period as we have continued the process of evaluating our inventory manufactured during the restructuring period for specific items that do not meet our quality expectations. However, we have seen a reduction in our customer related quality costs during the first quarter of 2016.
In response to our poor performance during the quarter, we have chosen to reduce our capital expenditure budget by approximately half. Further, we have initiated actions to lower our operating costs including implementing plans to vacate a smaller rented facility, continuing to bring production in house, reducing staff and cutting overtime. Our headcount is down by 33 associates since the beginning of 2016 and 72 associates since our peak in 2015. We have seen positive results from our efforts to control our medical costs through both plan redesign and associate premium increases. We will continue to implement appropriate cost reductions as we refine our sales expectations for this year.
To complete our Warehousing, Distribution and Manufacturing Consolidation Plan, we moved our Saraland rug operation from an expiring leased building to an owned facility in March. We will incur approximately $235,000 additional costs in our second quarter of 2016 as we complete the assembly of the machinery in April. In addition, as a result of eliminating our dyeing operations in Atmore, Ala., we removed our waste water treatment plant in 2014. Subsequently, after extensive testing, it was determined that we still have some contaminants above background levels and that we will need to install a soil cap. We have reserved $690,000 to finalize the cleanup of the site of our former waste water treatment plant.
Our interest expense for the quarter was $1.3 million as compared to $1.2 million in the first quarter of 2015. We had an income tax benefit rate of 33.7% for the quarter. For the first quarter of 2016, our receivables decreased by $5.1 million on lower sales activity. Our inventories were down $6.3 million, of which $2.9 million was due to consuming higher inventories we had brought in late last year from a supplier that was going through a year-end software conversion. Capital equipment acquisitions, including those funded by cash and financings, totaled $1.2 million for the quarter. Depreciation and amortization for the period was $3.5 million. We have budgeted capital expenditures for 2016 of approximately $5 million and depreciation and amortization of approximately $13.5 million. Availability under our credit lines was at $11.2 million as of the end of the quarter and is currently $13.4 million. Our debt stood at $125.6 million at the end of the quarter, virtually the same as at year-end 2015.
In the residential market we have seen the normal seasonal uptick in customer activity relative to the first quarter. Our residential sales for the first five weeks of the second quarter were down low single digits as compared to the same period last year. In the commercial market our sales for the first five weeks of the quarter are behind the same period last year by approximately 10%. Our commercial backlog dollars, however, are up 27% at the end of the first five weeks as compared to year end and approximately the same as this time last year. Overall, our sales over the first five weeks of the second quarter are down mid-single digits as compared with the same period in the prior year. Our internal production for the first five weeks of the quarter is up 29% over our average weekly production for the first quarter of this year and approximately the same as the first five weeks of the second quarter a year ago.
We are celebrating the 150th anniversary of our Masland brands with a series of anniversary sales and other promotional events. We are pleased with our 2016 offerings, both residentially and commercially. We continue to have success with our expanded line of Stainmaster PetProtect products. Commercially, our Atlas brand has introduced the Metropolitan Collection, a collaboration with Robert A.M. Stern Architects. Our Masland Contract brand has successfully launched a new category of products around Distressed Solutions, an offering for the corporate marketplace. Masland Hospitality has released a new catalog with its Fleur de Lis Collection, taking design elements from traditional to abstract. Specifiers will find several looks to add movement to current hospitality interiors. As we look ahead at the remainder of 2016, we have continued emphasis on improving our results and continuing to provide beautiful products to our customers.”
For more information, visit thedixiegroup.com.