Majors send mixed 3Q signals
November 11, 2002,
New York — Still bumping down a rocky road in a punishing retail environment, five public home fashions suppliers turned in a mixed-bag performance during the third quarter, with two of the biggest players, WestPoint Stevens and Pillowtex, both losing money. And three, including those same two major mills, recorded big declines in sales.
But while most of the industry was still having its problems, one clear victor raced ahead of the pack, emerging textiles powerhouse Mohawk Industries Inc. It parlayed an acquisition into a 35 percent increase in sales and stronger sales and wider margins into a 46 percent jump in profits.
The only other player to record gains in both sales and earnings during the period was decorative fabric producer Quaker Fabrics, which scored an earnings rebound as profits more than tripled and sales improved by 6 percent.
Another key player launched an earnings turnaround during the third quarter, diversified textiles producer Dan River Inc., where earnings jumped up by 159.3 percent as stronger margins and lower interest costs offset a 7.5 percent drop in sales. With its operating profits almost quadrupling — riding high on sharply stronger margins — the company's operating margin approached the double-digit mark, at 9.8 percent.
Still acting as a drag and putting crushing pressure on profits at two of the industry's biggest players, WestPoint Stevens and Pillowtex, was the industry's four-letter word — D-E-B-T.
Only months after emerging from bankruptcy — and wiping out most of its debt in the process — still-troubled Pillowtex rang up a $9.3 million loss as sales skidded down by 10.2 percent. Shucking most of its debt load, Pillowtex reduced its interest expense by more than two-thirds, 66.9 percent, from year-ago levels. But even so, it generated an operating loss during the period and couldn't begin to cover even that reduced level of debt service.
Ditto WestPoint Stevens, with long-term debt of roughly $1.4 billion the company now owes almost one dollar for every dollar of sales it will record during all of 2002.
Illustrating the choking impact of all that debt, WestPoint's interest expense in the quarter totaled $33.7 million — more than twice as much as it threw off in cash flow, with an operating profit of just $15.2 million.
That's precisely one of the things that makes Mohawk Industries so strong — its relative lack of long-term debt. Indeed, its interest expense during the third quarter was the lowest among the publicly held companies — just 11.5 percent of cash flow.
If the industry continued to do one thing right almost across the board, it was working down its stockpiles. Only one producer, Dan River, recorded inventories that exceeded quarterly sales, by 2.7 percent, and even then only because of the drop in sales. In the leading position, once again, was Mohawk, whose inventories totaled only 60.7 percent of third-quarter sales.
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