In Q2, Dixie Group Earnings Improved on Declining Sales

Dalton, GA, July 27, 2016—The Dixie Group, Inc. reported Q2 2016 net sales of $105,316,000, 4.2% below second quarter of 2015 sales of $109,957,000.

Income from continuing operations was $1,615,000, or $0.10 per fully diluted share, for the second quarter of 2016 as compared to income from continuing operations of $516,000, or $0.03 per fully diluted share, in the second quarter of 2015.

Commenting on the results, Daniel K. Frierson, chairman and chief executive officer, said, “April orders were seasonally stronger but lagged behind last year. Orders weakened further in May and June. Total carpet sales for the quarter were down 4.4% on a comparative year over year basis. In particular our commercial product sales were 8.1% below the prior year. We believe the commercial market was down slightly on a year over year basis. Residential product sales were 2.3% 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 low single digits. We have seen modest improvements in housing activity and continue to anticipate some increase in demand from demographic forces. We have not seen a corresponding improvement in the floorcovering market and continue to carefully evaluate our expectations for future sales growth. Our carpet sales over the first four weeks of the third quarter are down 11.9% as compared with the same period in the prior year. We believe that the entire floorcovering market has recently been impacted by what we believe is a temporary drop in consumer confidence. The University of Michigan when reporting a drop in its July 2016 Index of Consumer Sentiment stated, 'Prior to the Brexit vote, virtually no consumer thought the issue would have the slightest impact on the U.S. economy. Following the Brexit vote, it was mentioned by record numbers of consumers, especially high-income consumers.'”

"Despite the drop in sales compared to the year ago period, our operating margins improved slightly to 26.8%. Furthermore, our operating margins improved 5.0% from the first quarter to the second quarter of 2016. We have lowered our cost structure through better running conditions as a result of moving production in house. Comparing the second quarter of 2016 to the first quarter of this year, we increased internal production by 23% even though we only had a total production increase of 18%. We have lower quality costs through tighter manufacturing tolerances in operations. We have improved material yields as we have improved quality and reduced waste. We have reduced medical expenses as a result of our new plan design. We continue to reduce staffing levels to increase our efficiency and respond to the lower sales volumes. Our selling and administrative costs improved from 23.8% of sales in the second quarter of last year to 23.1% of sales in the second quarter of 2016 due to cost reductions in all areas of sales and administration.”

According to Floor Focus estimates, the residential carpet market is down roughly 3% in Q2 2016 compared to Q2 2015.