Dixie’s Earnings Up in 3Q

Chattanooga, TN, November 7, 2006--The Dixie Group in the third quarter reported net income, including discontinued operations, of $2.6 million, or $0.20 per diluted share, compared with net income of $1.2 million, or $0.09 per diluted share, for the third quarter of 2005. Sales for the third quarter were $83.6 million, up 9% from sales of $76.7 million in the year-earlier quarter. For the first nine months of 2006, net income was $4.4 million, or $0.34 per diluted share, compared with net income of $7 million, or $0.54 per diluted share, in the 2005 period. Commenting on the results, Daniel K. Frierson, chairman and chief executive officer, said, "Despite weakness in the carpet industry, sales in all of our carpet business units reflected year-over-year growth in the third quarter of this year, and our business continues to outpace the industry. Compared with the same periods in 2005, net sales of carpet products rose 8% in the third quarter and 10% for the first nine months of this year. Units of broadloom carpet sold increased 5% in the third quarter and 12% for the first nine months of 2006. "Sales of our modular/carpet tile products were not significant in the third quarter; however, we are extremely pleased with the acceptance these products have received in the marketplace. The order activity we are seeing and our backlog position give us reason to be optimistic about the future of this business and our modular/carpet tile strategy. "Our continued progress in improving quality issues and controlling discretionary spending is reflected in our third quarter operating results. Despite higher raw material costs and approximately $800,000 of costs related to the start-up of our modular/carpet tile operation, our gross margins and operating profits, as a percent of sales, improved in the third quarter of this year, compared with the first two quarters of this year and the third quarter of last year. Raw material costs increased in early July of this year. We raised selling prices to recoup these higher costs; however, the full effect of our higher selling prices will not be realized until the fourth quarter. "For the first nine months of this year, higher sales and control of general and administrative expenses led to improved gross margins and operating profit comparisons. As a percentage of sales, these performance measures were negatively affected by expenses in the first half of 2006 related to the start-up of our new tufting and modular/carpet tile operations, termination of a legacy defined benefit retirement plan and product quality issues. "We are optimistic that our sales will continue to outperform the carpet industry. Our carpet sales were about 4% above year-earlier levels in the first five weeks of the fourth quarter; however, order entry comparisons to the prior year softened. We believe the order entry comparisons were affected by selling price increases a year ago that appear to have significantly increased the 2005 order entry. The weakness the carpet industry is experiencing is also a factor in our order levels. Sales comparisons in the fourth quarter of this year will be difficult due to differences in our accounting calendar: the fourth quarter and year ended December 30, 2006, will contain 13 and 52 weeks, respectively, compared with 14 and 53 weeks in the fourth quarter and year ended December 31, 2005. These trends lead us to believe that our revenue will grow in the 5% to 7% range for the full 2006 year," Frierson concluded. Results of discontinued operations reflected a loss of $86,000, or $0.01 per diluted share, for the third quarter of 2006, compared with a loss of $32,000, or $0.01 per diluted share, for the third quarter of 2005. For the first nine months of 2006, the loss from discontinued operations was $2,137,000, or $0.16 per diluted share, compared with income of $295,000, or $0.02 per diluted share, in the year-earlier period.