Dan River slapped by sharp drop

Don Hogsett, October 20, 2003

Providing a heads-up to investors and lenders, diversified textiles producer Dan River Inc. said sales in its third fiscal quarter ended Sept. 27 have fallen by roughly 30 percent from year-ago levels, to $103.7 million from $147.4 million last year, a daunting shortfall of $43.7 million.

The sales drop marks the second straight deep decline in sales for the producer of home fashions, men's shirting fabrics and industrial fabrics. During the second quarter, Dan River sales declined by 24.4 percent, to $116.3 million, helping to trigger a loss of $19.4 million.

Frustrated investors drove the value of Dan River stock down by 29 percent in heavy trading once the news came out on Tuesday, Oct. 15.

Shares tumbled 51 cents a share to $1.27 from $1.78 the day before. And investors continued to run from the company the following day, Oct. 16, when by midday shares were down by another 7.1 percent, or 9 cents a share, to $1.18.

Shares are now trading at their lowest point in the past 12 months, down more than 70 percent from a 52-week high of $3.99. Dan River said sales in its core home fashions business skidded down by 27.8 percent, to $76.4 million from $105.8 million last year, a drop of $29.5 million. Sales in its apparel fabrics business, principally men's shirting fabrics, plunged even further, by more than a third, sliding down by 34.3 percent, to $20.5 million from $31.2 million. And hardest hit of all was the engineered products business, where sales plummeted by 61.1, to $6.8 million from $17.5 million last year.

Complete results for the third quarter will be released in early November, the company said.

Dan River broke out the bad news along with some good as it said it has cut a deal with its lenders to waive a restrictive debt covenant that required a certain level of cash flow to interest expense and debt during the second quarter, an agreement the company breached as its sales continued their downward slide. Because of the drop-off in sales, the company said, cash flow fell short of expectations, missing the required ratio.

Dan River said that "based on current information," it believes it has sufficient liquidity under its credit facility to provide for anticipated working capital needs and debt service for the fourth quarter of the year. The company said it "will work with its lending group to negotiate such further amendments or waivers as will be necessary to maintain compliance with the terms of its credit facility during fiscal 2004."

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