The Dixie Group, Inc. (NASDAQ:DXYN) Q2 2020 Earnings Conference Call - Final Transcript

Aug 06, 2020 • 11:30 am ET

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The Dixie Group, Inc. (NASDAQ:DXYN) Q2 2020 Earnings Conference Call - Final Transcript

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Presentation
Executive
Daniel K. Frierson

with our lower customer demand.

In order to preserve cash, we placed a large percentage of our associates either on rotating layoff or furlough. We implemented approximately $14 million in cost cuts for the current year. These cost cuts included deferring maintenance when possible, reduced capital expenditure, instituting select job eliminations and temporary salary reductions. We deferred new product introductions and reduced our sample and market expenses for the year. We worked with suppliers, lenders and landlords to extend payments in the second quarter for existing agreements. We have taken advantage of deferral of payroll-related taxes under the CARES Act as well as deferring payments into our defined contribution retirement plan. We have modified our senior credit facility to provide additional flexibility with regard to loan availability.

We are still assessing the long-term impacts of the COVID crisis on our markets and operating practices. The recovery in our residential markets have been quicker than in our commercial markets, as is typical during periods of economic recovery. We're encouraged by the improvement we have seen in sales in recent weeks. But as a resurgence of COVID-19 cases has been seen in many parts of the country and as government authorities reassessed their decisions to lift the restrictions in their jurisdictions, we're cautious as to what the remainder of the year may look like.

Allen Danzey will now review our second quarter financial results, after which I'll comment further on current conditions. Allen?

Executive
Allen L. Danzey

Thank you, Dan. Our net sales in the second quarter of 2020 were $60.8 million. This was a 39.4% decrease from the 2019 second quarter net sales of $100.4 million. The decrease in sales during the quarter, as Dan mentioned, was the result of the COVID-19 pandemic and associated closures and restrictions from government mandates. The negative sales impact related to the COVID-19 pandemic started late in the first quarter and reached a low point in the second week of April, after which we began seeing a recovery throughout the end of the quarter.

The gross profit for the quarter was 20.1% of net sales compared to 23.4% in the second quarter of 2019. The 2020 gross profit was negatively impacted by the lower sales volume, including the underabsorption of fixed costs. Selling and administrative costs in the second quarter of 2020 were $4.6 million lower than the second quarter of 2019. Due to the lower net sales in 2020, selling and administrative expenses as a percent of net sales were higher at 27.2% in the second quarter of 2020 compared to 21% in the second quarter of 2019. The reduction in selling and administrative expenses were primarily the result of cost-saving initiatives implemented as a result of the COVID-19 pandemic. These initiatives included reduction in samples and marketing expenses, reductions and restrictions on travel, reductions in payroll expenses through job eliminations, furloughs and temporary pay reductions as well as other expense reduction.

During the quarter, we also incurred $1.2 million in facility consolidation and severance expenses. These expenses