Dixie Group’s 1Q Earnings Off

Chattanooga, TN, May 02, 2006--The Dixie Group, Inc., today reported income from continuing operations of $926,000, or $0.07 per diluted share, for the first quarter ended April 1, 2006, compared with income from continuing operations of $1,872,000, or $0.15 per diluted share, for the first quarter of 2005. Analysts were looking for EPS of $0.07 during the quarter. Sales for the first quarter of 2006 were $79,173,000, up 10% from sales of $72,034,000 in the year-earlier quarter. Commenting on the results, Daniel K. Frierson, chairman and chief executive officer, said, "First quarter results reflected an 11% gain in our sales of carpet products, driven by a 16% increase in revenue from commercial carpet products and a 9% increase in revenue from residential carpet products. All of our carpet businesses grew during the first quarter; however, a significant portion of the revenue growth was split equally between our commercial and Dixie Home products. "Our first quarter profit performance continued to be negatively affected by issues associated with the rapid growth over the past several years that over-taxed our operating capabilities beginning in the second half of 2005. Outsourcing of tufting production during the start-up of our new North Georgia tufting operation and its related cost and quality issues, expenses associated with the start-up of our new tufting and tile manufacturing operations, and higher fixed costs all had a negative impact on first quarter 2006 results. "The installation of the equipment at our North Georgia tufting operation was completed in April of this year, and this facility should be running on a full schedule before the end of May. The new tufting operation already has simplified operations, improved service and quality and allowed us to introduce and sample new products in a more timely manner. Our need to outsource tufting will be significantly reduced when this new tufting operation is running at full capacity. The new tufting operations should begin to lower manufacturing costs during the second quarter of 2006, with the full benefit seen in the last half of the year. "The emphasis we have placed on introduction and sampling of new products early in 2006--including product introductions delayed in the last half of 2005, should continue to fuel sales growth. Our order entry rate is increasing, making us optimistic that our revenue growth this year will continue at a rate well above that of the carpet industry as a whole. We still expect total sales to increase in the 7% to 12% range this year," Frierson concluded. Results related to discontinued operations reflected a loss of $91,000, or $0.01 per diluted share, in the first quarter of 2006 compared with income of $422,000, or $0.03 per diluted share, in the first quarter of 2005. Including discontinued operations, the company reported net income of $835,000, or $0.06 per diluted share, in the first quarter of 2006 compared with net income of $2,294,000, or $0.18 per diluted share, in the first quarter of 2005.