Sales of carpet products decline at Dixie Group

05 Aug '08

5 min read

The Dixie Group Inc 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.

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