The Dixie Group, Inc. (DXYN) on Q1 2021 Results - Earnings Call Transcript
Operator: Good day, and welcome to the Dixie Group, Inc. 2021 First Quarter Earnings Conference Call. A question-and-answer session will follow the formal presentation. 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.
Dan Frierson: 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 and I reference to our press release. Our first quarter started on December the 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.
Allen Danzey: Thank you, Dan. As Dan just mentioned, our first quarter sales volume of $86.3 million in 2021, that’s 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 one-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're 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.
Dan Frierson: 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 six to nine 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 with 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.
Operator:
Dan Frierson: 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.
Operator: Ladies and gentlemen, that will conclude today' teleconference. Thank you again for your participation.
