It has been quite the roller-coaster ride for The Dixie Group over the last few years. Upended by the Stainmaster exit, TDG weathered some difficult quarters before turning in a positive Q2 2024, with income of $700,000 vs. a loss of $1.6 million in the prior-year period. This was achieved despite soft conditions in the residential retail market exacerbated by inflation and high interest rates. FCNews senior editor Ken Ryan caught up with T.M. Nuckols, president of TDG’s residential division, to discuss the turnaround.
What have the last three years been like for TDG?
Man, what a ride it has been. We have been dealt more than a few curveballs. Remember, The Dixie Group was nearly a 100% Stainmaster-branded mill for over 20 years. Then, in the second quarter of 2021, Invista unexpectedly sold the Stainmaster brand to Lowe’s. I guess it wasn’t that much of a surprise, but the timing was unexpected; honestly, I was a bit shocked when it happened. By the way, it happened literally four days after our computer network and systems had been hacked, so we were in the middle of that mess, too.
Not long after selling off the brand, Invista proceeded to exit the BCF fiber business—in an abrupt and abusive manner. I was really disappointed in how my previous company handled that transition. Absolutely no concern for their customer base, and The Dixie Group had been their strongest supporter for literally decades. To add insult to injury, we were collateral damage as Lowe’s quickly eliminated all nylon 6,6 products from their floor in response to Invista’s bad behavior on the fiber exit. That hurt because we had been a good supplier to them. We were just in the wrong place at the wrong time.
Talk to me about business conditions in that time.
During that same stretch of time, we saw business conditions change dramatically. Through 2021 and early 2022, business literally was through the roof. Looking back on it, it’s easy to see now that a lot of business was pulled forward in the aftermath of COVID-19 when so many people were stuck at home, working from home, remote school, etc. Then, in May of 2022, we began to see the decline in business. Here we are, two years later, and we are still seeing it decline. Industry numbers for the second quarter in 2024 vs. the second quarter in 2021 show a decrease in residential carpet of 25%. And the specialty retail segment, which is our focus, is down by even a greater amount.
How has TDG responded?
We have been forced to convert literally several thousand carpet SKUs to new fiber options. And we had to do that while continuing to serve our customers and navigate increasingly difficult market conditions. Talk about a mountain to climb. With all the fiber conversions and dramatically changing market conditions, 2022 was a very difficult year for the company. We saw what was happening, and that summer we developed a cost reduction plan and began making the necessary changes. We eliminated over $35 million in cost in 2023 and are pacing for another $10-plus million in reductions in 2024. In 2023, even though we showed a loss as a company, our financial performance was so much better than the prior year. I could see it, and we tried to keep everyone upbeat and confident in our direction and strategy. Our performance in 2024 has continued to improve. Q1 showed a loss, but the first quarter is always our toughest period. We saw the improvements in the underlying numbers, so we were encouraged. Then, showing a positive result in Q2 felt very good knowing all the hard work that went into it over the past two-plus years is paying off for the company. It is really a testament to the company’s ability and willingness to adapt to change, stay focused on the long term and make the necessary moves.
What were some of the main factors leading to the turnaround at TDG?
Besides the significant cost reductions we were able to achieve, we also focused on gaining market share. When the Stainmaster brand sale and subsequent fiber exit happened, our soft surface market share bottomed out in mid-2022 when the last of our products were eliminated from Lowe’s. Since that time, we have steadily gained market share by providing differentiated styles to the mid- and high-end residential customer base through the specialty retail and designer channels. Business has been very tough for the last two years, but we have been able to maintain a sales volume that played a key role in our positive second quarter this year. Notably, our high-end carpet segment (Masland and Fabrica) is showing positive growth in a very challenging market this year. In addition, we have continued to gain share of the hard surface market through our TRUCOR and hardwood segments.
Talk about the successful start-up of your extrusion line.
When Invista exited the BCF fiber business, we were able to quickly make arrangements with other suppliers. It was a challenging time, but we were fortunate to secure fiber supply which would meet our needs. Around the same time, we were fortunate to have an opportunity to partner with another company that was planning to invest in nylon extrusion. We took advantage of that opportunity, and in the late part of the first quarter of 2024, we started up our nylon extrusion. The start-up went well, and the first few months of extruding our own nylon has been very good from a quality and consistency standpoint. Our investment in nylon extrusion provides day-in and day-out cost savings in our primary raw material. Strategically, it protects us, our customers and puts us more in control of our own destiny for the long term. While our current extrusion capacity does not fulfill all our fiber needs, it does provide a significant share of our nylon usage, and we have the opportunity to expand our capacity at the right time.
Color is a point of emphasis these days. Why/how does The Dixie Group do it better than the others?
With the growth in solution-dyed yarns, especially polyester, I would say the residential carpet mills have moved more toward more neutral colors, largely beiges and grays. We see color as a point of differentiation for The Dixie Group. The vast majority of our carpet business is piece-dyed nylon, especially in our Fabrica and Masland lines. With piece-dyed nylon, we are able to create and service beautiful, long color lines that set us apart from the sea of sameness. Our color and design capability, led by Vickie Gilstrap, is the best in the industry.
We have piece-dye capability on both the East Coast and West Coast, and these facilities are very well run with experienced leaders. Our Fabrica dye house is exclusively a beck-dye operation, which is the best process for color depth, penetration and consistency.
This year we launched custom color capability in all three carpet lines—DH Floors, Masland and Fabrica. Any of our piece-dyed nylon products can be custom-colored to meet the exact color and hue the consumer is looking for. Who else in the market is offering this service?
Our Step Into Color campaign has been really well received, with banners and other materials being featured in many showrooms across the country. We see Step Into Color as a long-term campaign that will work for us and our customers.
Closing comments?
I am pleased with our second quarter results and The Dixie Group’s return to profitability. Regardless of what the rest of 2024 brings, the steps we have taken to get here have put us on the right track for long-term success.
The post Executive interview: T.M. Nuckols, The Dixie Group appeared first on Floor Covering News.