Dixie Group to Go Upmarket in 2004

Chattanooga, TN, Feb. 18--Dan Frierson, chairman and CEO of The Dixie Group, said Tuesday that the Chattanooga-based carpet maker is starting a new era, according to the Chattanooga Times/Free Press. "In essence, we are entering 2004 as a new company," Frierson said in a prepared statement accompanying the company's earnings report for the fourth quarter of last year and all of 2003. Dixie Group sold its Carriage Carpet plants in Calhoun, GA and Ringgold, GA to Shaw Industries last fall. Frierson said the sale amounted to a fresh start for his company, which will focus on selling higher-end residential carpet under the Fabrica, Masland and Dixie Home brands. "(Dixie Group) is focused on its core competencies, in a much stronger financial position and well positioned to take advantage of the improving economy," he said. Industry analyst Gregg Yorkison said Dixie Group's repositioning is a textbook example of "right-sizing" a company. "This is a focus company right now, with three major groups," said Yorkison, a partner in Santa Monica, CA based CYG Investment Banking. "They seem to be doing it well, and the market's rewarding them--its stock was $3 and change in September, and now it's $11 and change. Their gross margin is 33 percent, which is extraordinary. They've reinvented themselves as a growth stock," he said. The company reported a loss from continuing operations of $11.7 million, or 99 cents per share, for October, November and December, compared to income from continuing operations of $4.4 million, or 37 cents per share for the same time last year. Quarterly sales rose from $54.1 million in the fourth quarter of 2002 to $64.6 million for the last three months of last year. For the year, Dixie Group reported an operational loss of $9 million, or 77 cents per share, down from operational income of $11.4 million, or 97 cents per share, in 2002. Sales were up, from $223.2 million in 2002 to $234.1 million. Company officials said the fourth-quarter loss was due in part to charges of $21.1 million, related to the sale and early payoff of debt. Absent those charges, officials said, the company's operational income was $1.7 million for the quarter and $4.4 million for the year. Dixie Group's move to high-end carpet isn't its first such transition. Frierson previously steered the company from its original product, yarn, to a large-scale carpet maker. Frierson said all of Dixie Group's brands posted "strong sales gains" in 2003--up more than ten percent for the year and more than 21 percent for the fourth quarter of 2003, with Fabrica and Masland accounting for more than half that growth. He said start-up costs for the company's newest line, Dixie Home, reduced the company's pre-tax earnings by nearly $3 million for the quarter and more than $8 million for the year. Even so, he said, "we believe the negative effect of this investment on our earnings will significantly decline" through the year. "We are substantially expanding the collection in 2004 and expect sales will reach an annualized run rate of more than double the current rate ($25 million per year) by the end of 2004," he said. Yorkison said the residential carpet market, especially the high-end market, should be strong throughout the year, given that Federal Reserve Chairman Alan Greenspan has indicated that there'll be little, if any, interest rate movement in the near future. "So Dixie, right now, is poised for a heck of a year," Yorkison said.

Print the Article