The Dixie Group, Inc. (NASDAQ:DXYN) today reported financial results for the second quarter and six months ended June 28, including a decline in income.

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.