P'tex sales drop elicits loss of $51M

1Q deficit five times that of 2000

Don Hogsett, Staff Staff, June 25, 2001

Stymied by sharply falling sales in a bruising retail environment, and at the same time working off bloated stockpiles at margin-pinching prices, Pillowtex Corp. recorded a sharply escalating first-quarter loss of $51.9 million — almost five times the size of a year-ago deficit of $11.7 million.

Sales at the embattled textiles producer, operating in Chapter 11 since last November, dropped an unnerving 16.0 percent, to $289.8 million from $345.2 million last year, a fall-off of more than $55 million. More than 70 percent of the drop in sales, a total of $38.9 million, was due to the loss of a single, unspecified customer, reportedly Kmart, affecting all three major product segments, the company said. "This, combined with the continued slowdown in the U.S. economy and increased competition from imports, was responsible" for the overall sales shortfall.

Hardest hit of all the company's operations was the long-struggling blanket business, where sales were virtually slashed in half, by 47.7 percent, to $10.8 million from $20.7 million last year.

Bed and bath sales fell by 16.4 percent, to $210.9 million from $252.4 million a year ago, a drop of $41.5 million.

Virtually unscathed was the company's resilient pillow and pad business, where sales slipped back just 3.7 percent, to $53.3 million from $65.7 million a year ago.

Putting the bottom line under crushing pressure, margins were squeezed almost to the vanishing point as the company worked off excess inventories. Average gross margin contracted to 1.5 percent from 11.3 percent a year ago, while gross margin dollars fell by 88.7 percent, to $4.4 million from $39.1 million.

Given the fall-off in sales, costs crept up by 50 basis points, to 8.3 percent from 7.8 percent a year ago. But measured in absolute dollars, costs were pared by 10.5 percent, to $24.1 million from $26.9 million last year, a cash savings of $2.8 million.

Working hard to cut down stockpiles, Pillowtex lowered its inventories by an impressive 39.2 percent on a year-over-year basis, to $268.7 million from $442.2 million last year. During the past three months, the company pruned its inventories by 3.6 percent, from $278.8 million.

The company, under new president and coo Tony Williams, has stayed off the radar screen over the past several months as top management hammers out a formal plan of reorganization to ease the company out of bankruptcy — a plan which is widely expected to result in a sweeping restructuring of the major mill, including a major downsizing, as it focuses on its high-margin fashion brands. That plan could be unveiled soon, since Pillowtex has only until July 16, less than a month away, to submit the plan to the court. Past that point, creditors can bring their own reorganization plan before a U.S. bankruptcy judge.

Pillowtex Corp.

Qtr. 3/31 (x000) 2001 2000 % CHG
a-Results in the first quarter include a $2.0 million restructuring charge; bankruptcy costs of $7.6 million; and $3.7 million in preferred dividends and accretion, compared with $1.9 million the prior year.
Sales $289,766 $345,160 16.0
Oper. income (EBIT) (21,860) 12,156
Net income (51,926)a (11,670)a
Per share (diluted) (3.64) (0.82)
Average gross margin 1.5% 11.3%
SG&A expenses 8.3% 7.8%

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