Carpet maker Cavalier says its books may sink into the red as its faces pressure from higher wool prices.
Cavalier says market conditions in New Zealand and Australia remain sluggish and its margins for its broadloom carpets remains weak.
However, the company says its wool scouring and wool buying businesses are returning profits at expected levels.
Cavalier expects full-year underlying earnings to be between $3 million and $5 million - compared with a $17.3 million underlying profit last year.
But says implementing a plan to turnaround the business and paying one-off costs may force it into the red.
The carpet maker says if this happens, the full-year loss would be between $1 million and $3 million.
Cavalier says assuming market conditions improve, it expects to make a profit of between $10 million and $12 million next year.