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The Dixie Group(DXYN) - 2023 Q2 - Earnings Call Transcript
DXYNThe Dixie Group(DXYN)2023-08-04 18:26

Financial Data and Key Metrics Changes - For Q2 2023, net sales were approximately 74million,downfrom74 million, down from 83.7 million in Q2 2022, reflecting a year-over-year decline [1][6] - Operating income improved to 253,000comparedtoalossof253,000 compared to a loss of 2.9 million in the same quarter of the prior year [1][8] - Gross margin for Q2 2023 was 26.7% of net sales, significantly improved from the low 19% range in the prior year [7] - Net loss for the quarter was 1.7million,animprovementfromanetlossof1.7 million, an improvement from a net loss of 4.5 million in the same period last year [9] Business Line Data and Key Metrics Changes - The decrease in sales was partially due to a loss of volume in the mass merchant channel, which was affected by the customer's shift to lower price point offerings [2][10] - Excluding mass merchant sales, net sales were down 9.1% for the quarter [10] - Selling and administrative expenses were lower in dollars than the same period in the prior year but higher as a percentage of net sales due to lower sales volume [23] Market Data and Key Metrics Changes - The residential flooring market remains weak due to limited supply, high interest rates, and inflation, with the carpet market down in the mid-teens [21] - Multifamily and new housing segments were stronger than the residential replacement segment [21] Company Strategy and Development Direction - The company is focused on reducing total costs by over 35millionthisyearandhasinvestedheavilyinthehardsurfacemarketanddecorativeproducts[10][11]−Facilityconsolidationshavebetteraligneddemandandcapacity,leadingtooperationalimprovements[26]−Thecompanylaunched11newproductsinsyntheticsoftsurfacebrandsandcontinuedexecutingitsgrowthstrategywith23newintroductionsindecorativebrands[27]ManagementCommentsonOperatingEnvironmentandFutureOutlook−Managementnotedthattheflooringindustryisexperiencingacyclicaldownturn,buttheyarepreparingforafuturereboundbycuttingcostsandimprovingoperations[13][28]−ThereisoptimismregardingorderentryforJuly,whichwasslightlyaheadofthepreviousyear,indicatingpotentialmomentumfromnewproductlaunches[28]OtherImportantInformation−Interestexpenseforthequarterwas35 million this year and has invested heavily in the hard surface market and decorative products [10][11] - Facility consolidations have better aligned demand and capacity, leading to operational improvements [26] - The company launched 11 new products in synthetic soft surface brands and continued executing its growth strategy with 23 new introductions in decorative brands [27] Management Comments on Operating Environment and Future Outlook - Management noted that the flooring industry is experiencing a cyclical downturn, but they are preparing for a future rebound by cutting costs and improving operations [13][28] - There is optimism regarding order entry for July, which was slightly ahead of the previous year, indicating potential momentum from new product launches [28] Other Important Information - Interest expense for the quarter was 1.8 million, up from 1.1millioninQ22022,drivenbyincreasedborrowingsandhigherinterestrates[4]−Thecompanyincurred1.1 million in Q2 2022, driven by increased borrowings and higher interest rates [4] - The company incurred 719,000 in expenses related to facility consolidation during Q2 2023 [8] - Capital expenditures for the quarter totaled 238,000,withaplannedtotalof238,000, with a planned total of 3 million for the year [24] Q&A Session Summary Question: What is the normalized SG&A number going forward? - Management expects SG&A to be several percentage points lower as a percent of sales [15] Question: How did order entry play out in Q2? - Order entry improved throughout the quarter, with July showing slight growth compared to the previous year [16][37] Question: Will the company be operating cash flow positive in the second half? - Management is optimistic about operating cash flow positivity based on first half results and projections [18] Question: How is market share quantified? - Market share is measured through quarterly sales data received from industry organizations, specifically in the soft surface market [40]