| Daniel Frierson | executive |
| Allen Danzey | executive |
| Barry Gertner | analyst |
Welcome to The Dixie Group Inc. 2024 Third Quarter Earnings Conference Call. Today's call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to the Chairman and Chief Executive Officer, Dan Frierson. Please go ahead.
Thank you, Jessie, and welcome, everyone, to our third quarter 2024 conference call. I have with me Allen Danzey, our CFO.
Our safe harbor statement is included by reference both to our website and press release.
For the third quarter of 2024, the company had net sales of $64,877,000 as opposed as compared to $68,576,000 in the same period of 2023.
The company had an operating loss of $2,107,000 compared to an operating loss of $913,000 in the third quarter of 2023. The net loss from continuing operations in the third quarter was [ $3.7 million ] or $0.26 per diluted share. In 2023, the net loss from continuing operations for the third quarter was $2.211,000 or $0.15 per diluted share. Net sales in the third quarter started off slowly in the month of July, but improved throughout the remainder of the quarter.
Soft market conditions as a result of high interest rates while existing home sales and low consumer confidence have negatively impacted our overall sales volume.
Net sales from soft surfaces during the quarter were 3% below prior year, while the industry, we believe, was down approximately 6.5%. Operating margins in the third quarter were unfavorably impacted by the lower manufacturing volume in the plants and significant nonrecurring costs for capacity charges from utilities at our manufacturing facilities in California and higher costs related to our self-insured medical benefits and workers' compensation. At this time, for a financial review, I will turn it over to Alan Danzey.
Thank you, Dan.
As Dan mentioned, our net sales in the third quarter were down 5.4% from the prior year, and they are down 4.3% on the year-to-date. The high interest rates and low consumer confidence has delayed our consumer decisions around large discretionary spending which includes the home purchasing and remodeling, which are drivers for our business. Dan mentioned the impact on our gross profit margin, which in the third quarter was 24.6% of net sales compared to [ 26.6% ] in the same quarter of the prior year.
For the year-to-date September 2024, the gross margins were 25.7% compared to 26.6% in the prior year. Despite the lower third quarter margins, we believe the positive results of our cost reductions throughout the company, our facility consolidation on the East Coast and savings from the successful start up of our extrusion operations, will restore the higher margins in line with volumes.
Selling and administrative expenses for the third quarter and year-to-date September were lower in dollars and as a percent of sales when compared to the prior year. This was a result of year-over-year cost-cutting initiatives, particularly in our [indiscernible] administrative area.
Our interest expense in the quarter was $1.6 million compared to $1.8 million in 2023 and for the year-to-date, we had $4.8 million in interest expense in 2024 compared to $5.5 million in 2023. This decrease in interest expense is being driven by lower average debt in the current year. The net loss from continuing operations in the third quarter of 2024 was $3.9 million compared to a net loss of $2.4 million in the same period of 2023.
On the year, we have a net loss from continuing operations of $5.5 million compared to a net loss in the prior year at $5.4 million.
Turning to our balance sheet.
Our quarter end receivables increased by $2.9 million from prior year-end balance that was $1.5 million lower than the same period of the previous year due to lower sales volume in the current period.
Our net inventory balance at the end of the third quarter was $76.8 million. This was $3.2 million or 4% below the inventory balance at September of 2023. We do plan to reduce inventories in the fourth quarter while remaining focused on maintaining timely service to our customers. Accounts payable and accrued expenses were $1 million lower than the same period than the previous year, in line with the planned reduction on spending and inventory-related areas as we enter into the fourth quarter. Net property, plant and equipment increased by $3.6 million from year-end. This increase included cash purchases of $1.9 million and prior year deposits that were moved into PP&E in the amount of $6.5 million.
These additions to PP&E were offset by approximately $4.8 million in depreciation.
Our debt increased by $3.9 million from the end of 2023, mainly driven by operating needs and investment in samples and other costs that were associated with product introductions in the first part of the year.
Our year-over-year debt was lowered by $9.5 million. our current unused borrowing availability under our revolving credit facility is $12.3 million.
Our investor presentation is available on our website at dixiegroup.com. Dan?
Thank you, Alan.
We are pleased by the results of the successful operation of our extrusion equipment that began in the first quarter of this year. Along with providing raw material at a lower cost, the importance of securing an internal supply of fiber became even more apparent as one of our suppliers of white nylon announced they would be shutting down their operations later this year. Throughout the third quarter, we continued to promote Our Step Into Color campaign through marketing materials placed in our customers' retail stores as well as digital advertising. The Step into color Campaign connects our retail customers, designers and consumers with a world of color options, including custom color availability in all our brands. This provides the end user with colorful options in piece dyed nylon as opposed to the sea of sameness that is solution dyed polyester. .
Our marketing activities in the third quarter included continued focus on expanding our digital marketing efforts, which has resulted in increased lead generation, sample order activity from our website and improved capabilities for online product visualization.
We also saw strong growth from retail stores where we have placed our Premier Flooring Center program. The investment in samples, merchandising and training in these stores have provided returns of increased business and greater market share.
Our product and marketing initiatives should allow us to continue to outperform the industry in what has been a difficult flooring market.
Our cost savings initiatives, including the successful operation of our extrusion equipment, and the consolidation of our East Coast manufacturing facilities have us in a strong position to maximize the return from an anticipated improvement in demand going into 2025. This higher demand is expected to be driven by higher existing home sales and remodeling as a result of decreasing interest rates and access to elevated home equity. Due to the lower level of business in the third quarter, we did not build inventory as we normally would in anticipation of a strong fourth quarter.
We also anticipate lowering inventory in the fourth quarter so we will underproduce our sales during this period.
The hurricane season impacted business in several geographical areas where we do business.
During the last half of the year, that certainly has impacted us but should provide an uplift during the following year. Higher ocean freight rates were also adversely impacted third quarter results and also probably led to increased inventory of hard surface products in anticipation of the dock workers' strike.
At this point, ocean freight rates are returning to more normal levels, but there is uncertainty about the impact of dock workers negotiations going into next year. The preliminary thoughts about next year point to continued lowering of interest rates and mortgage rates, which, along with the wealth effect of higher home values and a bullish stock market should increase existing home sales and remodeling. It's impossible to determine the mortgage rate level that will change the current market dynamics.
Around 60% of outstanding mortgage holders have a rate below 4%. There also is a pent-up demand to sell home and equity as a share of total real estate value is above 70%, which is the highest level since the 1950. This could make homeowners willing to take the hit on a more expensive mortgage sooner than most people think.
Also, we anticipate getting election behind that will help clear the air and provide a more positive environment for consumers. It certainly will change the advertising of daily on TV. Total sales in the fourth quarter [indiscernible] slightly below year ago levels. But our soft surface sales so far in the fourth quarter are slightly above a year ago level. At this time, we would like to open up the call to questions.
[Operator Instructions] We do have a question coming from the line of Barry Gertner with ROTH.
I wanted to know in the last call, we discussed the NASDAQ delisting and Allen and Dan, you mentioned that you're trying to get ahead of it. Subsequently, the stock did get delisted. I was curious what the thinking is with management going forward and how this ties into the refinancing of the October 2025 line, if that discussion there have started?
Yes.
As far as the stock situation, as you talked about, we were monitoring that, we made efforts on our side as well as speaking with our Board and investors and felt like as we approach the deadline, the best option for us was move through those existing markets.
I think that's worked out very well for us. The reporting requirements are much the same, so we'll continue to provide information out to investors and we'll be able to save some internal costs as we move forward under the OTC market.
We are, as you mentioned, approaching or within the 1-year period of our current [indiscernible] working through entering [indiscernible]
Thank you. With no further questions in the queue, I will turn the call back to Dan Frierson for any additional or closing remarks.
Yes, thank you very much, and thank all of you for being on the call, and we look forward to discussing our fourth quarter with you next year. Thank you.
Thank you. Ladies and gentlemen, that will conclude today's conference. Thank you again for your participation.