Sputtering sales prompt Dan River plant closings

Don Hogsett, June 16, 2003

In the continuing retrenchment of the American textiles industry, and a shutdown in its overall capacity, Dan River Inc. said it will shutter two of its plants in the midst of a protracted slowdown in industry sales, laying off 630 workers.

Adding up $12 million in pre-tax restructuring charges — $10 million of it non-cash items — and fettered by the persistently weak retail environment, the diversified textiles producer said it expects to record a loss of about $13 million during the second quarter.

The plant closings are expected to be completed during the third quarter and are ultimately expected to save the company about $9 million a year.

Triggering the plant closings, sales in Dan River's big home fashions during April and May, the first two months of the second quarter, tumbled by 23 percent, or $16 million, chairman and ceo Joseph Lanier Jr., told investors in a conference call.

Spooked by the news — which takes place against the unsettling backdrop of a WestPoint Stevens bankruptcy and the ongoing financial collapse of Pillowtex Corp. — Wall Street and investors ran from Dan River stock, knocking it down by more than 20 percent when the news came out last Thursday, June 12.

Hard hit by the news of the plant closing, Dan River shares dropped by 20.8 percent, or 77 cents a share, to $2.93 from $3.70 the day before, in unusually heavy volume. More than 179,000 shares changed hands, more than six times the average daily volume of 29,590.

Affected in the capacity pull- back are a home fashions weaving plant in Greenville, SC, and a comforter sewing plant in Ft. Valley, GA. As demand recovers to more normalized levels, Dan River said, it will transfer production capacity from the closed facilities to other plants in Danville, VA, and Morven, NC, and source more product off-shore.

Joseph L. Lanier Jr., chairman and ceo, blamed a crippling and broad-based retail environment for the plant closings. "Retailers, burdened with excess inventory due to lackluster sales, continue to adjust inventories by reducing their product intake." During a conference call, Lanier said that as sales slowed and stockpiles climbed at retail, "our customers have become very cautious," and have shut off the flow of re-orders. Wal-Mart, Sears, Kohl's and Linens 'n Things, said Lanier, all reported inventory levels that are nine to 28 percent higher than in the previous quarter.

The slowdown in retail sales, he noted, is both widespread and broad-based, affecting every channel of distribution, with department and specialty stores particularly hard hit. Even so, he emphasized, "We've not lost any customers, major programs or shelf space."

Putting even more pressure on Dan River's top line, said Lanier, Kmart, a major customer, postponed the roll-out of a new Martha Stewart program by a month. "This meant a four-to five-week period without reorders from them."

Going forward, Lanier said he expects only a gradual recovery at Dan River during the back half of the year. "We expect the company's financial results in the second half of 2003 to be somewhat of a mirror image of the first half. As the anticipated recovery in the economy occurs, we should experience a gradual improvement in our results over the last six months of the year." Striking a more upbeat note, he added, "While our financial results for the remainder of the year may be weaker than originally projected, we continue to expect to generate free cash flow and reduce debt."

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