Composite fails to make grade with 2001 sales

Susan Andrews, Don Hogsett, August 12, 2002

New York — With sales skidding down in the midst of a deep recession and a weakening retail environment — and still encumbered by heavy debt loads and interest payments — the American textiles industry endured a second straight year of excruciating pain during 2001, with a whopping 80 percent of suppliers, 10 out of 12 key players, losing money last year, a grand total of $620.8 million.

If there was any good news — and there wasn't much in a year punctuated by bankruptcies, defaults and liquidations — last year's composite loss for the 12 companies ranked in the Home Textiles Today Vendor Report Card actually improved somewhat, the loss narrowing by 11.2 percent, from $699.0 million the prior year.

If there was modest improvement to the bottom line, you sure wouldn't know it from the top line last year, with sales for the 12 companies sliding down by 6.5 percent, to $11.6 billion from $12.4 billion last year — a shortfall of more than $812 million.

Some of those dollars just disappeared as retailers increasingly competed with their own suppliers, stepping up their direct sourcing of low-cost product from abroad. In other cases, the decline marks a shift in business from department stores to discounters — and a big downward shift in unit prices, and a corresponding squeeze on margins.

Margins? What margins, some suppliers were wondering, left reeling as lower sales meant lower running rates in their high-fixed-cost plants. Indeed, the composite average gross margin for the sample in this year's Report Card narrowed to just 15.9 percent from 25.6 percent the prior year.

Putting profits under even greater pressure, all the while that margins were eroding, costs were climbing higher, to a composite 12.0 percent of sales from 11.6 percent in 2000.

Measured on an operating basis, the industry did somewhat better, actually making money, if a lot less than the year before. Slammed by the sharply lower margins, composite operating profits plunged by 74.9 percent, to $434.6 million from $1.8 billion the preceding year, a shortfall of $1.3 billion.

Home fashions suppliers significantly outperformed more diversified textiles suppliers, a group that includes such players as Burlington Industries and Cone Mills. Home fashions producers — some of them, like Crown Crafts, turning around their operations and returning to profitability — narrowed their losses by more than 40 percent, to $89.2 million from $150.3 million. And home sales, while declining, fell just 3.2 percent, compared with a double-digit decline of 11.5 percent for diversified textiles producers.

Running on fumesThey didn't have the cash to service their debt(Ranked by the disparity between cash flow and interest expense)
THE TANK IS EMPTY: Mired deep in debt, and in some cases red ink, more than half of the companies measured in this year's Vendor Report Card - seven out of the 12 - couldn't even spin off enough cash last year to cover the interest on their debt, let alone pay down some of the principal. That's a worsening industry profile from the six companies that found themselves in the same predicament during 2000. And given the nature of the beast (interest expense tends to climb rather than fall as companies fall further behind) and last year's weakened economic environment and stalled out retail sales, it comes as no surprise that most of the players are making a repeat performance on the list. Newcomers in this year's ranking include a debt-heavy giant, WestPoint Stevens, as well as Dan River and Cone Mills. Much of the industry is maxxed out, its feet to the flames, after years of throwing cash around to finance high-flying acquisitions that somehow seldom seemed to work or to add lots of capacity that's now become redundant in a rapidly shifting arena of global sourcing.
All figures in $000s
Company Cash flow Interest expense Shortfall
Pillowtex ($53,760) $64,666 $118,426
Guilford Mills -51,462 25,292 76,754
Polymer Group 27,221 99,406 72,185
Burlington Inds. 12,539 71,174 58,635
Dan River 556 32,063 31,507
WestPoint Stevens 120,335 141,606 21,271
Cone Mills 4,674 17,165 12,491
( ): denotes loss
Source:Home Textiles Today market research

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