The Dixie Group reported financial results for the second quarter, which ended June 28.

For the second quarter, the company reported sales of $108,171,000 and a loss from continuing operations of $605,000, or $0.04 per diluted share, compared with sales of $83,617,000 and income from continuing operations of $1,677,000, or $0.13 per diluted share for the second quarter of 2013. Income from continuing operations, excluding manufacturing integration, facility consolidation, asset impairment and acquisition related pre-tax expenses of $2,221,000 was $772,000 after-tax (non-GAAP adjusted income from continuing operations, as set forth herein), or $0.05 per diluted share for the period. 

Commenting on the results, Daniel Frierson, chairman and CEO, said, “We continued our strong sales growth relative to the industry. Our sales increase for the quarter was 29.4% on a year-over-year basis and 14.8% without the addition of Atlas Carpet Mills, acquired in March of this year. The market, however, was up only slightly. Our sales increase in the second quarter for residential products was 13.7% ahead of the same quarter last year, relative to the market declining slightly on the same comparable basis.

"The second quarter sales increase for our commercial products was 83.5% ahead of the same time period last year. Without Atlas, the increase was 24.4% for the second quarter as compared with the same time period last year and relative to a year-over-year market increase in the low-single digits. All of Dixie’s brands, other than the Atlas Carpet Mills brand, were up for the second quarter on a year-over-year basis. We anticipate Atlas sales to pick up as new product introductions are released late in the year. Additionally, the industry implemented a price increase, starting in June. However, the full impact will not be felt until later this summer. We largely completed the launch of the Desso Masland Hospitality joint venture during the second quarter. Further, our new product introductions over the last twelve months continue to show strong sales growth. 

“The second quarter was a transitional quarter operationally, with operations improving throughout the quarter but still not fully up to expectations," he added. "We completed the shutdown of the Atlas dye house in May. It is under contract for sale in the third quarter of this year. We are still installing additional equipment in our Susan Street facility to accommodate the dyeing needs of Atlas. That should be completed in the third quarter. The first step in our east coast warehouse re-alignment process began with the installation of equipment into our new Adairsville facility in May and the formal opening in mid-June. We also announced in June additional restructuring charges related to the closing of our carpet and yarn dyeing operations in our Atmore, Alabama, facility under an accelerated schedule due to faster acceptance of our continuous dyed production than originally forecasted, and increasingly stringent environmental regulations at the Atmore facility. This added restructuring plan has an attractive payback. The carpet dye operations in Atmore are now shutdown and the production moved to our other facilities or outside processors. The yarn dye operations in Atmore should be completely moved in the third quarter to other Dixie facilities. For further information on the announced restructurings, please see the attached table showing the timing of the charges anticipated to be incurred in 2014 and 2015. 

“Gross profit for the quarter, after adjusting for manufacturing integration and acquisition-related inventory expenses was 24.8% of net sales (non-GAAP), an improvement over the adjusted gross profit of 21.6% (non-GAAP) during the difficult first quarter," Frierson continued. "Operations continued to improve throughout the quarter as we were able to overcome the weather and operational difficulties of the first quarter. Manufacturing costs were positively impacted by improved material utilization, the movement of products onto more productive equipment, and higher efficiencies. We still have more improvements to make to return to acceptable margin levels later in the year.

"After adjusting for manufacturing integration and acquisition-related legal and other expenses, selling and administrative expenses were 22.1% (non-GAAP) of net sales for the second quarter as compared with 22.2% (non-GAAP) for the same quarter of 2013. Operating income was $440 thousand for the quarter. On a non-GAAP basis, operating income was $2.7 million for the quarter. Certain expenses in the quarter, including facility consolidation charges, the direct and purchase accounting costs of the Atlas acquisition and the continued Robertex re-branding expenses have been added back as an adjustment in the non-GAAP presentation. Other expenses affecting operating income, totaling over $800 thousand dollars in the period, included higher than normal workers' compensation costs due to an accident that occurred while installing equipment to accommodate the Atlas dye house integration and lower operating efficiencies early in the quarter. 

“We completed a stock offering of 2.5 million shares in May," he explained. "The purpose of the offering was to pay for the Atlas acquisition and fund continued growth. Our working capital increased $3.6 million for the quarter. Capital expenditures for the second quarter were $2.2 million, not including refinancing existing operating leases into a $2.0 million capital lease to lower our financing costs. Depreciation and amortization was $3.3 million for the quarter. Excluding the refinancing of our operating leases described earlier, we anticipate total capital expenditures for the year to be approximately $19 million. Income taxes for the quarter were a benefit of $66 thousand, including a true up for the year-to-date rate as well as a one-time $117 thousand charge for the expiration of a market based stock grant. Our anticipated tax rate going forward is 38%. We ended the quarter with $114.7 million in debt and availability of $46.5 million under our bank revolver. 

“The second quarter reflected operational improvements, coming off of a poor performance in the first quarter. We continue to focus on increasing profitability through improved operations and tighter cost controls. Sales for the first four weeks of the third quarter were ahead of the same quarter last year by approximately 19%. Excluding Atlas Carpet Mills, our sales were ahead approximately 6%. We feel that the industry has seen improved operating schedules recently and feel both the residential and commercial markets are continuing to trend positive. We are optimistic that our growth will continue at a rate greater than industry growth rates throughout 2014. As always, we continue to focus on being the style and design leaders so we may supply our customers the finest products of the highest quality,” Frierson concluded. 

To view the full report, visit thedixiegroup.com.