Dixie Group Inc. reported a 3.5% decline in net sales for Q1 2025 compared to the same period last year, yet managed to improve its operating income and gross margins. Despite the net sales dip, the company’s stock price increased by 4.48% to $0.70, reflecting investor optimism about operational improvements and strategic positioning for future market recovery. According to InvestingPro analysis, the stock is currently trading near its Fair Value, with a notably high beta of 2.73, indicating significant price volatility compared to the broader market.
Key Takeaways
- Q1 2025 net sales decreased by 3.5% year-over-year.
- Operating income turned positive with $11,000, compared to a loss last year.
- Stock price rose by 4.48% following the earnings release.
- Gross margins improved to 26.8% from 24.2%.
- Inventory levels were successfully reduced.
Company Performance
Dixie Group demonstrated resilience in Q1 2025, with a focus on operational efficiency leading to positive operating income, despite challenges in the overall market. The company continues to navigate a sluggish residential remodeling market, yet benefits from its premium product offerings which have been outperforming in the soft surface category.
Financial Highlights
- Revenue: $62.99 million, a 3.5% decrease from Q1 2024.
- Operating Income: $11,000, compared to a loss of $857,000 in Q1 2024.
- Net Loss: $1.582 million, or $0.11 per diluted share.
- Gross Margin: 26.8%, up from 24.2% last year.
- Inventory: Reduced to $66.7 million from $75 million in the previous year.
Outlook & Guidance
Dixie Group is positioned for potential market recovery, particularly when interest rates decrease. Although sales in the first five weeks of Q2 are slightly behind the previous year, they are 10% above Q1 levels, indicating potential improvement. The company continues to focus on product innovation and operational efficiency.
Executive Commentary
CEO Dan Frierson emphasized the company’s strategic positioning, stating, "We believe that the actions we have taken to improve our results during the current difficult environment also position us for the eventual upturn." He also noted, "When interest rates recede and housing rebounds, we will be in a great position to take advantage of a prolonged upturn."
Risks and Challenges
- Weak market conditions due to low home sales.
- Continued slump in the residential remodeling market.
- Potential impact of economic factors such as interest rates and tariffs.
- Maintaining competitive advantage amidst industry challenges.
Dixie Group’s strategic initiatives and operational improvements have garnered a positive response from investors, as reflected in the stock’s recent performance. The company remains focused on navigating current market conditions while preparing for future growth opportunities.
Full transcript - The Dixie Group Inc (DXYN) Q1 2025:
Rob, Conference Call Moderator: Good day, and welcome to the Dixie Group Incorporated’s twenty twenty five First Quarter Earnings Conference Call. 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, Chairman and Chief Executive Officer, Dixie Group: Thank you, Rob, and welcome, everyone, to our first quarter twenty twenty five conference call. I have with me Alan Dansey, our CFO. Our Safe Harbor statement is included by reference both to our website and press release. For the first quarter of twenty twenty five, the company had net sales of $62,990,000 as compared to $65,254,000 in the same quarter of 2024. The company had an operating income of $11,000 in the first quarter of twenty twenty five compared to an operating loss of $857,000 in the first quarter of twenty twenty four.
The net loss from continuing operations in the first quarter of twenty twenty five was $1,582,000 or $0.11 per diluted share. In 2024, the net loss from continuing operations for the first quarter was $2,410,000 or $0.16 per diluted share. The industry continues to experience weak market conditions driven by low existing home sales and lower consumer confidence. Our first quarter net sales were down 3.5% from the same period a year ago. Sales of our soft floor covering products again outperformed our hard surface products and we continued to gain market share in the soft surface category.
Just as in the previous quarter, premium products performed better than the market in all categories. Despite the lower sales volume, our gross margins in the first quarter were favorable to prior year at $16,902,000 or 26.8% of net sales compared to 15.8 or 24.2% of net sales in the prior year. The improvements are primarily the result of our continued focus on cost reductions and operating efficiencies throughout the company. At this time, Alan will review our financial results, after which I’ll have additional comments regarding our results.
Alan Dansey, Chief Financial Officer, Dixie Group: Thank you, Dan. As Dan commented, we’re very pleased to see the strong improvements in the year over year gross margins and that’s despite the lower sales volume. This is a result of our ongoing initiatives to reduce costs and materials and throughout our production processes. The selling and administrative expenses in 2025 were $500,000 or about 3.1% higher than prior year and that increase was partially driven by higher professional fees in our administrative areas during the quarter. Our first quarter operating income was $11,000 and that compared to an operating loss in 2024 of $857,000 The 2025 operating income included income from our leasing of available warehouse space to other tenants and the year over year reductions in facility consolidation expenses.
Our interest expense on the year was $1,500,000 that compared closely to the interest expense in the same period of the prior year. The net loss on the year 2024 was $1,700,000 compared to a net loss of $2,500,000 in the prior year first quarter. On our balance sheet, our year end receivables of $27,900,000 was up from our seasonally low year end balance of $23,300,000 Our net inventory balance at the end of the first quarter was 66,700,000 and that compared to a net inventory balance of $75,000,000 in the first quarter of the previous year. We had a planned reduction of inventory in the fourth quarter of last year and we continue to manage inventory at lower levels while maintaining timely service to our customers. Sales, sustainable and accrued expenses were $41,000,000 compared to $39,000,000 in the same period of the previous year.
Net property, plant and equipment decreased by $1,200,000 from prior year end and that decrease was driven by $1,300,000 in depreciation during the quarter offset by $74,000 in capital expenditures. Planned capital expenditures for 2025 totals $2,500,000 and depreciation is expected to be $5,400,000 Within the quarter, we were pleased to announce the closure on our new $75,000,000 senior credit facility with MidCap Financial. Proceeds from this facility were used to pay off and close our former senior credit facility with Fifth Third Bank. This new agreement is for a three year term. The debt on our balance sheet increased by $2,300,000 from year end.
As part of our new loan agreement, we now have restricted cash of $4,300,000 to secure our letters of credit. Under our former loan agreement, this amount for the letters of credit was a reduction of our loan availability. The increase in debt includes the additional borrowing to cover this restricted cash that was held for letters of credit. Our availability to expand our new senior credit facility was $12,300,000 which is subject to a $6,000,000 excess availability requirement. Our investor presentation will be available on our website at www.dixiegroup.com.
Ben?
Dan Frierson, Chairman and Chief Executive Officer, Dixie Group: Thank you, Alan. Low consumer confidence was further impacted during the quarter by the uncertainty around the announcement of tariff increases. We had previously minimized the amount of our products being imported from China and we have worked with all of our suppliers of imported products to reduce the impact of tariffs on the cost of our products. The situation is very volatile at this time and is difficult if not impossible to predict what the impact of increased tariffs will be on imported products. At this time several industry players have already announced price increases to mitigate the impact of increased tariffs and or potential tariffs.
We were pleased by the success of the first quarter trade show, including Surfaces, where we showcased 25 new styles of carpet across our nylon, polyester and decorative collections. Our focus continues to be on creating differentiated styles for the residential market with an emphasis on color, pattern and textual visuals. This includes our Step into Color campaign where we offer the best and broadest color lines in the industry, including custom color offerings. And our white dyable nylon collections produced through our nylon extrusion operation that began production last year. We also showcased eight hard surface collections with new visuals and innovations and 10 new colors in our Fabrica wood program, which were all very well received and will continue to fuel growth in this program.
In our TrueCore brand, we are focused on simplification of our product line and consumer friendly messaging. We featured new visuals and constructions in several of our SPC, WPC and laminate programs. The residential remodeling market continues its multiyear slump and no one knows for sure when the market dynamics will change. Until that happens, we will continue to manage our business to reflect the current conditions. We have seen continued improvements in our operations with major strides being made in productivity, quality and raw material utilization.
We’ve also had reductions in inventory and with better service to our customers. We are continuing to minimize expenses and capital expenditures, reduce overhead costs and lower operating costs thereby improving gross margin. As Alan noted, during the first quarter, we closed on a new three year seventy five million dollars credit facility. First quarter, we completed the first year of our extrusion operation, which contributed to our margin improvement and supports our commitment to peace diable nylon fiber, which enables us to operate broad pallet of color to our discriminating customers, which we are promoting with our Step Into Color marketing campaign. Sales for the first five weeks of the second quarter are running slightly behind the year ago period, but sequentially about 10% above the first quarter levels.
We believe that the actions we have taken to improve our results during the current difficult environment also position us for the eventual upturn, which we will inevitably experience. The actions we have taken have been done with an eye on the future. When interest rates recede and housing rebounds, we will be in a great position to take advantage of a prolonged upturn in existing home sales and a strong residential remodeling market. At this time, we would like to open the call to questions.
Rob, Conference Call Moderator: Thank you. We’ll now be conducting a question and answer session. Session. Thank you. Thank you.
And we have a question from the line of Barry Blank with D. H. Tarvey. Please proceed with your question.
Barry Blank, Analyst, D. H. Tarvey: Good morning, guys. It was a good quarter. A couple of questions. Previously, you mentioned there was a stock buyback program. Is that program still in effect?
And if so, how much have you used of the allocation?
Dan Frierson, Chairman and Chief Executive Officer, Dixie Group: Barry, that program is not in effect anymore. We ceased that during the latter part of last year.
Barry Blank, Analyst, D. H. Tarvey: Okay. My second question is due to this downturn, are you seeing much consolidation in the industry, companies either merging or going out of business?
Dan Frierson, Chairman and Chief Executive Officer, Dixie Group: In terms of manufacturers, no. We have not seen much consolidation at all, much consolidation activity. At the retail level, there have been some smaller retailers who have gone out of business, but and I think that will there’s always churn there, because there are so many retailers of floor covering product. But no, we have not seen at the manufacturing or distribution level much consolidation.
Barry Blank, Analyst, D. H. Tarvey: And my last question is, have you seen much of a change in the buying habits between people going to the big box stores versus the more, I guess, boutique kind of places that you would buy flooring from or is it pretty much the same?
Dan Frierson, Chairman and Chief Executive Officer, Dixie Group: Well, as I’ve tried to point out in my comments, I think in every flooring category that the premium products are performing better than the market for those products overall. We certainly have seen that in the soft core covering market in spades, our Fabrica brand has done exceptionally well and is obviously premium products. I think you’re seeing that overall, but that’s not uncommon in a downturn. Matter of fact, the only downturn I can remember when that didn’t happen was in 02/2008 and 02/09 during the Great Recession.
Barry Blank, Analyst, D. H. Tarvey: Thank you very much.
Dan Frierson, Chairman and Chief Executive Officer, Dixie Group: Thank you, Barry.
Rob, Conference Call Moderator: Thank you. With no further questions in the queue, I’ll turn the call back to Dan Freyerson for any additional or closing remarks.
Dan Frierson, Chairman and Chief Executive Officer, Dixie Group: Bob, thank you very much and we appreciate everybody being with us for the first quarter conference call. We’re looking forward to your being with us again in about three months for our second quarter conference call. Thank you.
Rob, Conference Call Moderator: This will conclude today’s conference. You may disconnect your lines at this time. Thank you for your participation.
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