• Net Sales: $70.5 million in Q2 2024, down 4.7% from $74 million in Q2 2023.

• Gross Profit Margin: 28.1% in Q2 2024, up from 26.7% in Q2 2023.

• Operating Income: $2.3 million in Q2 2024, compared to $300,000 in Q2 2023.

• Net Income from Continuing Operations: $700,000 in Q2 2024, compared to a net loss of $1.6 million in Q2 2023.

• Interest Expense: $1.6 million in Q2 2024, down from $1.8 million in Q2 2023.

• Year-to-Date Net Loss: $1.9 million in 2024, compared to $3.5 million in 2023.

• Debt Increase: $3.4 million from the end of 2023.

• Unused Borrowing Availability: $14 million under the revolving credit facility.

• Sublease Agreement: $1.8 million annual income from a 10-year sublease of Saraland, Alabama facility.

• Warning! GuruFocus has detected 6 Warning Signs with DXYN.

Release Date: August 08, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• The Dixie Group Inc (DXYN) returned to profitability in the second quarter of 2024, reporting a net income of $700,000 compared to a net loss of $1.6 million in the same period of the prior year.

• Gross profit margin improved to 28.1% of net sales in the second quarter of 2024, up from 26.7% in the second quarter of 2023.

• The company completed a 10-year sublease agreement for its Saraland, Alabama facility, expected to generate approximately $1.8 million annually in other income.

• Cost-saving initiatives, including the consolidation of manufacturing operations on the East Coast, contributed to improved margins.

• The launch of new products and marketing campaigns, such as the 'Step Into Color' campaign, has generated meaningful volume and positioned the company for future growth.

Negative Points

• Net sales in the second quarter of 2024 were $70.5 million, down approximately 4.7% from the same period in the prior year.

• High interest rates and inflationary pressures have negatively impacted consumer decision-making, delaying home purchasing and remodeling activities.

• The hard surfaces segment experienced a significant decline, with sales down 15% to 20% in the second quarter.

• Despite improvements, the company still reported a year-to-date net loss of $1.9 million, although this is an improvement from the prior year's loss of $3.5 million.

• The company anticipates continued challenges in the third quarter, with no expected improvement in business conditions until interest rates decline.

Q & A Highlights

Q: Will the completion of new product launches for 2024 impact SG&A expenses in the latter half of the year? A: Allen Danzey, CFO: The cost of sampling activities is spread in line with sales during the year of introduction, so expenses will not be significantly impacted. However, it will positively affect cash flow as the investment is heavily weighted towards the first half of the year.

Q: How much of the $10 million in cost savings has been achieved, and what are the plans for next year's cost savings? A: Daniel Frierson, CEO: About 35% to 40% of the cost savings have been realized in the first half of the year. Next year's plan is in the early stages and is expected to be about half the level of this year's reduction.

Q: Are the gross margins of over 28% this quarter sustainable, or were there any one-time factors? A: Allen Danzey, CFO: The margins are sustainable at the current volume, reflecting cost savings, particularly from the consolidation of manufacturing operations on the East Coast. There were no significant one-time factors affecting the margins.

Q: Was the hard surfaces business down by 15% to 20%, and can you comment on that? A: Daniel Frierson, CEO: Yes, the hard surface business was down in that range. Hard surfaces account for less than 20% of our total business, and we are gaining market share in soft surfaces, which were down slightly.

Q: Is the $1.8 million in sublease income all incremental, and how will it be recognized? A: Allen Danzey, CFO: The income is incremental, with $800,000 being additional. It will be recognized on a straight-line basis, adding approximately $450,000 per quarter in other income.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.