Sales of carpets, rugs and floor tiles made by the Dixie Group, Inc. fell 50% last month and are expected to be down 35% in May.
But company CEO Dan Frierson said Tuesday he expects floorcovering sales to be more normal by the end of the year as the economy reopens and improves in the second half of 2020. By cutting costs and improving efficiency, Dixie Group also cut its operating losses in the first quarter compared with a year ago despite a 9.1% drop in sales during the three-month period.
The Dalton, Georgia-based carpet manufacturer reported Tuesday an operating loss of $2.6 million, or 17 cents per share, in the first quarter of 2020 on sales of $80.6 million. A year earlier, Dixie reported a loss of $6.6 million, or 42 cents per share, on sales of $88.6 million.
"We had a slow start to our sales in January, but improved in February before finally seeing the slide in sales due to the COVID-19 crisis impact us the last three weeks of the quarter," Frierson said.
The sales slump worsened during the start of the second quarter with the lowest sales in the second week of April, but Frierson said sales have since gotten better over the past month.
"Our low point in orders occurred around the Easter holiday and have improved each week since that time.," he said.
In response to the coronavirus, Dixie implemented safety measures for employees and cut travel, costs and staff, Frierson said.
" We have had several cases of COVID-19 exposure in our operations for which we took appropriate cleaning and safety measures, including large scale COVID-19 testing, mandatory temperature checks prior to starting work, and deep cleaning and sanitation," he said.
"We have reduced our running schedules for most facilities to one shift, just beneath our shipping levels, so we could maintain order flow to those customers for which we still had requirements, while simultaneously reducing inventories to align them with our lower customer demand."
Frierson said Dixie has reduced anticipated spending in the current year by about $14 million by reducing capital expenditures, cutting some jobs and making temporary salary reductions. Dixie also has deferred new product introductions and reduced sample and marketing expenses for 2020.
"Many of our customers are reopening and beginning to generate business," Frierson said. "We would expect business to continue improving and be at more normal levels later this year."
In the meantime, Dixie is taking advantage of deferral of payroll-related taxes under the CARE act as well as deferring payments into the company's defined contribution retirement plan.
"We have modified our senior credit facility to provide additional flexibility with regard to loan availability during this uncertain period," Frierson said. "This bank amendment to our senior credit facility has increased our borrowing costs slightly while reducing the size of the lending facility to better fit our reduced borrowing base as we continue to reduce our inventories to improve liquidity. The company's availability under its long term credit agreement is currently $10.7 million. As part of the modification to the senior debt facility, the company has agreed to pursue additional fixed asset loans. However, if the economic crisis is more severe than anticipated it will seek additional sources of funding and/or other actions as deemed necessary."
After the earnings results were announced Tuesday, Dixie Group shares dropped Tuesday by nearly 5.3%. Dixie shares are down 36.8% so far in 2020, but over the past year, Dixie shares are up 14,2%.
Contact Dave Flessner at dflessner@timesfreepress.com or at 423-757-6340.