The Dixie Group, Inc. (NASDAQ:DXYN) today reported financial results for the first quarter ended March 31, 2012. In the first quarter of 2012, the company had sales of $62,851,000 and a loss from continuing operations of $104,000, or $0.01 per diluted share, compared with income from continuing operations of $644,000, or $0.05 per diluted share for the first quarter of 2011. The sales increase, after adjusting for the 13-week period this year versus the 14-week period last year, was 2.6%. Sales decreased by 4.7% on a fiscal period basis.

Commenting on the results, Daniel K. Frierson , chairman and chief executive officer, said, “The first quarter typically is the slowest and most difficult quarter for our business. However, Dixie had a year-over-year sales improvement of 2.6%; adjusted for a 13-week versus 14-week fiscal period last year and in line with industry growth for the period. Our growth in the residential business, on an adjusted basis for weeks in the period, was 5.7%, in excess of the residential market growth of low single digits. This growth was significant as it represented a shift to higher-end retail sales for our Fabrica, Masland Residential and Dixie Home brands and a decline in our mass merchant sales. All three of these upper-end retail brands had double digit growth relative to the same period a year ago, as adjusted for number of weeks in the period. Within our Masland and Fabrica brands, our Wool and Stainmaster products had particularly strong results. In contrast, our commercial business declined 8.2% relative to a particularly strong sales period a year ago on a calendar adjusted basis. This decline was in comparison, we believe, to low single digit growth in the commercial market.

“We are taking advantage of several unusual opportunities to invest in new products in 2012. In the residential market, we are one of three suppliers to launch Stainmaster SolarMax products, with inherent stain and fade resistance, starting in 2011 and continuing into 2012. In addition we are one of two suppliers to bring to market in 2012 Stainmaster TruSoft, the new standard in softness. Finally, Fabrica will be introducing a number of new wool products featuring our new ‘permaset process’ allowing our design customers an unlimited choice of colorations. In the commercial market, we are pleased with the response to our newly launched and award winning Chrome Collection. Our continued investment in new products, we believe, positions us to continue to outperform the industry at the high end of the marketplace. Our Masland and Fabrica residential lines both exceeded 13% growth over the same period a year ago on a constant week basis, further evidence that the high end of the market is responding to our continued investment in new products during this recovery period for the market.

“The quarter saw margins at 25%, in line with expectations considering our shift in products, the effect of the price increase and lower unit volumes. We had higher selling and administrative costs as we continued our accelerated investment in new products. The industry and Dixie implemented price increases due to higher raw material costs in January. The effect of the increase will be fully in place in the second quarter.

“Working capital increased by $5,431,000 during the quarter due to the seasonal rise in preparation for the spring selling season. Capital expenditures were $1,132,000, while depreciation and amortization was $2,402,000 for the period. Total debt increased $5,276,000 during the first quarter. Availability under our credit lines was $18,113,000 at quarter end.

“With uncertainty surrounding the rate of recovery in the housing sector and potential macro-economic issues affecting consumer confidence and the stock market, it is difficult to predict how smoothly the overall floorcovering market will recover. We believe that conditions in the upper-end residential portion of our industry should continue to grow while having challenges in the mid-market price points. The commercial market does not appear to have regained its footing since the surge in business at this time a year ago. However, we are committed to continue our emphasis to growing our market presence with new innovative products.”

The company’s loss from discontinued operations was $77,000, or $0.00 per diluted share, for the first quarter of 2012, compared with a loss from discontinued operations of $21,000, or $0.00 per diluted share, for the prior year. Including discontinued operations, the company reported a net loss of $181,000, or $0.01 per diluted share, for the first quarter of 2012 compared with net income of $623,000, or $0.05 per diluted share, for the year-earlier period.