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The Dixie Group Reports Second Quarter 2008 Results

CHATTANOOGA, Tenn.-(Business Wire)-August 5, 2008 - The Dixie Group, Inc. (NASDAQ:DXYN) today reported financial results for the second quarter and six months ended June 28, 2008. For the second quarter, income from continuing operations was $1,283,000, or $0.10 per diluted share, compared with income from continuing operations of $2,556,000, or $0.20 per diluted share, for the second quarter of 2007. Sales for the second quarter of 2008 were $77,155,000, down 9% from sales of $84,403,000 in the year-earlier quarter.

For the first six months ended June 28, 2008, income from continuing operations was $1,365,000, or $0.11 per diluted share, compared with income from continuing operations of $2,793,000, or $0.21 per diluted share, for the first half of 2007. Sales for the year-to-date period in 2008 were $147,877,000, down 7% from $158,893,000 reported in the prior-year period.

Commenting on the results, Daniel K. Frierson, chairman and chief executive officer, said, "Declining home sales, difficult credit conditions, contracting consumer confidence, and rapidly rising raw material and energy costs continued to have a negative impact on the carpet industry and on our business. Compared with the prior year's second quarter, our sales of carpet products declined 6.9%, which was 1.1 percentage point less than the industry's reported sales decline. Sales of our residential products were down 8.2% while sales of our commercial products declined 4.7%. Our second quarter commercial product sales comparison reflected the effect of an unusually large sale to one customer in the year-earlier quarter. Our commercial product sales rose 2.2%, year-over-year, for the first six months of this year - well ahead of the industry's commercial sales growth, and grew nicely in the month of July. We continue to expect our commercial product sales to increase for the full year.

"Rapidly rising raw material and energy-related costs compressed our gross margins this year. These costs increased more than 8% in the first half of this year and rose significantly again in July. Lower sales volume also had a negative impact on fixed-cost leverage. We addressed the higher expenses and lower volume by increasing selling prices and implementing cost-reduction initiatives. We increased our selling prices in February, June and again in July of this year to fully recoup the higher expenses experienced to date; however, the higher raw material and energy costs will continue to pressure our margins until all the new selling prices are fully implemented in the fourth quarter of this year. The cost-cutting initiatives reduced our associate headcount by approximately 9% and improved labor productivity. Better material utilization and quality also improved operating performance.

"Because of continuing economic uncertainty, the outlook for the industry and our business remains difficult to predict. Depressed housing sales and tight credit conditions are expected to continue to affect demand for residential carpet products throughout the remainder of this year. Although we believe our commercial product sales will grow this year, we expect their rate of growth to slow by year-end. The new residential and commercial products we have introduced are well positioned and have been well received in the marketplace. We are extremely pleased with our wool collections - their growth and profitability, at both Masland and Fabrica, have exceeded our expectations. Our carpet tile products continue to grow in line with our projections. We expect to continue increasing our market share in 2008 and believe that our business is well positioned to be stronger when industry conditions improve," Frierson concluded.

During the second quarter of this year, the Company purchased 112,672 shares of its Common Stock at an average price of $7.39 per share, pursuant to the Company's previously authorized stock repurchase program. In July, the Company purchased an additional 191,508 shares of its Common Stock at an average price of $5.55 per share. Additional repurchases of the Company's Common Stock may be made based on management's review of developing economic conditions and other opportunities. Pending such review, the Company is not making additional repurchases of our Common Stock. The Company's intent is to maintain a relatively conservative capital structure during this period of uncertainty.

The Company's income from discontinued operations was $3,000, or $0.00 per diluted share, for the second quarter of 2008, compared with a loss of $118,000, or $0.01 per diluted share, for the second quarter of 2007. Including discontinued operations, the Company reported net income of $1,286,000, or $0.10 per diluted share, for the second quarter of 2008 compared with net income of $2,438,000, or $0.19 per diluted share, for the second quarter of 2007. For the first half of 2008, the Company's loss from discontinued operations was $66,000, or $0.01 per diluted share, compared with a loss of $184,000, or $0.01 per diluted share, in the prior-year period. Including discontinued operations, the Company reported net income of $1,299,000, or $0.10 per diluted share, for the first six months of fiscal 2008 compared with net income of $2,609,000, or $0.20 per diluted share, for the year-earlier period.

A listen-only Internet simulcast and replay of Dixie's conference call may be accessed with appropriate software at the Company's web site or at www.earnings.com. The simulcast will begin at approximately 11:00 a.m. Eastern Time on August 5, 2008. A replay will be available approximately two hours later and will continue for approximately 30 days. If Internet access is unavailable, a listen-only telephonic conference will be available by dialing (913) 312-1376 at least ten minutes before the appointed time. A seven-day telephonic replay will be available two hours after the call ends by dialing (719) 457-0820 and entering 5420893 when prompted for the access code.

The Dixie Group (www.thedixiegroup.com) is a leading marketer and manufacturer of carpet and rugs to higher-end residential and commercial customers through the Fabrica International, Masland Carpets and Dixie Home brands.

Statements in this news release, which relate to the future, are subject to risk factors and uncertainties that could cause actual results to differ materially from those indicated in such forward-looking statements. Such factors include the levels of demand for the products produced by the Company. Other factors that could affect the Company's results include, but are not limited to, raw material and transportation costs related to petroleum prices, the cost and availability of capital, and general economic and competitive conditions related to the Company's business. Issues related to the availability and price of energy may adversely affect the Company's operations. Additional information regarding these and other risk factors and uncertainties may be found in the Company's filings with the Securities and Exchange Commission. -0- *T THE DIXIE GROUP, INC. Consolidated Condensed Statements of Operations (unaudited; in thousands, except earnings per share) ——————————————————————————————————— Three Months Ended Six Months Ended ———————————————- ————————— —————————- June 28, June 30, June 28, June 30, 2008 2007 2008 2007 ———————————————- ————- ———— ————- ————- NET SALES $77,155 $84,403 $147,877 $158,893 Cost of sales 54,602 58,140 104,767 110,811 ———————————————- ————- ———— ————- ————- GROSS PROFIT 22,553 26,263 43,110 48,082 Selling and administrative expenses 19,078 20,543 38,021 40,321 Other operating income (88) (82) (236) (110) Other operating expense 181 144 368 269 ———————————————- ————- ———— ————- ————- OPERATING INCOME 3,382 5,658 4,957 7,602 Interest expense 1,454 1,669 2,930 3,226 Other income (121) (22) (182) (37) Other expense 17 13 26 31 ———————————————- ————- ———— ————- ————- Income from continuing operations before income taxes 2,032 3,998 2,183 4,382 Income tax provision 749 1,442 818 1,589 ———————————————- ————- ———— ————- ————- Income from continuing operations 1,283 2,556 1,365 2,793 Income (loss) from discontinued operations, net of tax 3 (118) (66) (184) ———————————————- ————- ———— ————- ————- NET INCOME $ 1,286 $ 2,438 $ 1,299 $ 2,609 =============================== ========= ======== ========= ========= BASIC EARNINGS (LOSS) PER SHARE: Continuing operations $ 0.10 $ 0.20 $ 0.11 $ 0.22 Discontinued operations 0.00 (0.01) (0.01) (0.02) ———————————————- ————- ———— ————- ————- Net income $ 0.10 $ 0.19 $ 0.10 $ 0.20 =============================== ========= ======== ========= ========= DILUTED EARNINGS (LOSS) PER SHARE: Continuing operations $ 0.10 $ 0.20 $ 0.11 $ 0.21 Discontinued operations 0.00 (0.01) (0.01) (0.01) ———————————————- ————- ———— ————- ————- Net income $ 0.10 $ 0.19 $ 0.10 $ 0.20 =============================== ========= ======== ========= ========= Weighted-average shares outstanding: Basic 12,549 12,828 12,599 12,799 Diluted 12,655 13,010 12,711 12,993 =============================== ========= ======== ========= ========= *T -0- *T THE DIXIE GROUP, INC. Consolidated Condensed Balance Sheets (in thousands) ——————————————————————————————————— June 28, December 29, 2008 2007 —————————————————————- —————- —————— ASSETS (Unaudited) Current Assets Cash and cash equivalents $ 162 $ 427 Accounts receivable, net 34,931 32,868 Inventories 79,300 75,928 Other 10,333 7,742 —————————————————————- —————- —————— Total Current Assets 124,726 116,965 Net Property, Plant and Equipment 100,251 102,378 Goodwill 56,635 56,743 Other Assets 14,973 14,152 —————————————————————- —————- —————— TOTAL ASSETS $296,585 $290,238 =========================================== =========== ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable and accrued expenses $ 34,082 $ 32,734 Current portion of long-term debt 8,972 8,817 —————————————————————- —————- —————— Total Current Liabilities 43,054 41,551 Long-Term Debt Senior indebtedness 68,085 60,119 Capital lease obligations 1,816 2,547 Convertible subordinated debentures 14,662 17,162 Deferred Income Taxes 11,875 11,726 Other Liabilities 14,862 15,019 Stockholders' Equity 142,231 142,114 —————————————————————- —————- —————— TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $296,585 $290,238 =========================================== =========== ============ *T

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