“We have seen improvements in efficiencies in both locations even as we are in the process of finalizing these moves over the next several months. We have spent over $500 thousand in the quarter implementing this manufacturing re-alignment, which impacted gross profit margins by 0.8% in the period. Further, we have borne significant operational inefficiencies in the process of launching a number of new products, costs which are largely behind us.
“We had a price increase in the commercial business only during the quarter, the effect of which will begin to be felt in the third quarter. Further, our selling, general and administrative expenses were impacted by over 1.4% relative to a year ago due to higher sampling expenses associated with new product launches planned for 2012. Our SG&A, at 23.6% of sales, was two percentage points above last year's 21.6% of sales for the second quarter.
"As we saw the industry slowdown late in the second quarter, we maintained a tight rein on running schedules, inventories and overtime. Sales early in the third quarter appear to be following the same trend as the second with our higher-end residential lines doing better than the market but continued weakness in the mass merchant and commercial sectors. Further, we will not repeat the one-time mass merchant special that added 6% to last year's third quarter sales.
"Capital expenditures were $1.7 million for the year-to-date, while depreciation and amortization was $4.8 million. We continue to underspend our depreciation and amortization levels. We anticipate total capital expenditures of between $4 and $5 million for the year. Working capital increased $9 million during the first six-months, primarily in inventories, which we expect to moderate in the second half of the year.
“Total debt, which normally rises during the middle of the year, increased by $2.2 million during the quarter to $75.6 million. We renegotiated an equipment operating lease during the period, lowering our deposit and letter of credit requirements by $1.5 million and giving us lower costs for the remaining term of the lease facility. Our availability under our credit lines was $19.3 million as of quarter end.
"Continued uncertainty in the economy has resulted in a softer sales period that we expect may continue throughout the summer. However, we are confident that the upper end of the residential market is recovering faster than the rest of the market, and we will continue our emphasis on serving these customers. We have a focused effort to continue to seek new growth opportunities in the commercial market despite our poor performance in this segment in the recent past.
“We will continue to invest in new products and processes as we maintain our goal of being the fashion leader in this industry. We feel that the continued investment in beautiful products, focused operations and strong expense control are the keys to outgrowing the industry during times of uncertainty," Frierson concluded.
The Dixie Group is a leading marketer and manufacturer of carpet and rugs to higher-end residential and commercial customers through the Fabrica International, Masland Carpets, Dixie Home, Masland Contract and Whitespace brands.
The Dixie Group Inc