The Dixie Group, Inc. on Wednesday reported financial results for the quarter ended March 26. For the first quarter of 2022, the company had net sales from continuing operations of $77,575,000 and a net loss of $3,357,000 or $0.22 per diluted share. In the first quarter of 2021, as adjusted to reflect the commercial business as discontinued operations, net sales from continuing operations were $72,747,000 and the net loss was $2,028,000 or $0.14 per diluted share.

Commenting on the results, Daniel K. Frierson, chairman and chief executive officer, said, "During the first quarter of 2022, our net sales increased 6.6 percent compared with the first quarter of 2021. Order entry surpassed prior year throughout the quarter with the highest growth occurring within our Masland Residential and Fabrica business and within our hard surface products overall. Our Dixie Home business declined due to a shift in strategy by our primary mass merchant customer. Although this change in strategy will continue to negatively impact our Dixie Home business, we have increased our sales in the specialty retail segment by 9 percent over the prior year, outpacing the market.

"In the first quarter of 2022 we experienced a decline in our gross margins primarily due to two major items. First, we were negatively impacted by unprecedented price increases from our primary raw material supplier, coupled with their decision to exit the business. We are working with other suppliers to replace this volume and bring our costs to a more normal level. We expect the conversion to be complete by the end of the second quarter. Second, dramatic increases in ocean freight costs resulted in significant declines in margin on our hard surface business. Fortunately, late in the quarter we began to see a reduction in these freight costs resulting in improved margins for these products.

"We are excited about a number of new product offerings introduced during the quarter. We successfully launched our new decorative segment offering introducing 30 new styles under our new brands, 1866 by Masland and Décor by Fabrica. The new offering will include hand tufted, hand loomed, wire wilton, and face to face woven products with fresh looks and on trend colors.

"In addition to the launch of our decorative segment offering, we also introduced several new hard surface programs, including TRUCOR Tymbr and Dwellings by Dixie Home. TRUCOR Tymbr will compete in the high end of the laminate category, and includes a 9.5" wide and 72" long laminate product with excellent water resistance, stunning visuals, and an AC6 scratch resistance rating. Dwellings by Dixie Home, is an engineered wood program which hits mainstream price points and offers beautiful colors and finishes in white oak and hickory. In addition to these new categories, we also have several new innovations in our existing categories planned for introduction to the market in the second quarter. The innovations include: TRUCOR Boardwalk, a new SPC offering featuring clean visuals, lighter colors, and a new pillowed edge bevel for an authentic look, TRUCOR Prime Pinnacle, a new WPC offering with a large plank size of 12" wide by 90" long, and 18 new SKUs in our Fabrica Fine Wood program including two new Ash collections in 7½" and 9½" widths with fresh, clean visuals.

"Also, during the quarter, we continued our focus on strengthening our financial position by securing funds under a long-term low interest rate loan. On March 16 we closed on an $11 million note payable at a fixed interest rate of 3.81 percent over 20 years. Closing on this loan allowed us to pay off $5.5 million in existing notes payable at higher interest rates and avoid future balloon payment amounts.

"Looking forward to the remainder of the year, we believe our new raw material sourcing plan will allow us to have more control of our product offerings over a broader array of price points. We continue to build stronger relationships with our key retail customers through the development of the Premier Flooring Center concept focused on selling better goods, helping them improve margins and positioning us as a more important supplier to the specialty retail segment," Mr. Frierson concluded.

The gross profit as a percentage of net sales was 19.6 percent for the first quarter of 2022, compared to a gross margin of 23.2 percent in the first quarter of 2021. The raw material costs in the first quarter of 2022 were negatively impacted by unsustainably higher pricing from primary raw material provider, Invista, as the result of their decision to exit the business. The company has also incurred cost increases from other vendors as a result of inflation and higher freight costs on imported goods. Selling and administrative expenses for the quarter were 22.4 percent of net sales, an unfavorable increase of .7 percent from the level of 21.7 percent in the first quarter of 2021. The increase in selling and administrative costs were primarily related to higher investments in samples and marketing and also increased expenses related to information systems, primarily directed at increasing the company's cyber security.

Receivables decreased $1.8 million as compared to the end of the fiscal year 2021, primarily due to seasonally lower sales during the first quarter. Despite a decrease in units of inventory from fiscal year end 2021, net inventory value increased $3.2 million during the quarter due to rising costs.

Accounts payable and accrued expenses decreased by $1.8 million from prior year end. Capital expenditures for the first quarter of 2021 were $0.3 million and are planned for 2022 at a maintenance level of approximately $5.0 million. Interest expense was $1.1 million for the first quarter of 2022 compared to $1.3 million in the first quarter of 2021.

Debt increased by $3.8 million during the quarter driven by rising costs and decreases to accounts payable and accrued expenses. Availability at the end of the quarter was $38.2 million under the line of credit with the senior credit facility.

Although the loss of the low margin mass merchant business will negatively impact the top line in the second quarter, the company is seeing growth through initiatives in the specialty retail segment. Floorcovering sales and orders for the start of the second quarter have continued at a pace ahead of comparative business from the same period a year ago.

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