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WestPoint feels squeeze in 4Q

Slowing sales, restructuring costs result in losses

Don Hogsett, Carole Sloan -- Home Textiles Today, February 12, 2001

ATLANTA -With sales falling off by 13.8 percent, putting margins and costs under crushing pressure, then hit by $23 million in widespread restructuring costs, WestPoint Stevens Inc. posted a fourth-quarter loss of $8.9 million, a second straight quarterly deficit at the nation's largest home textiles supplier.

Confirming the bad news it had previewed the week before for Wall Street analysts and investors, the troubled textiles giant said that sales in the closing quarter tumbled by $67 million, or 13.8 percent, to $418.2 million from $485.2 million last year. With the exception of one bright spot, its Vellux blanket business, which continued to grow at a double-digit pace, "sales declined in every other product category in the quarter," according to the company.

The company found no shortage of culprits for the shortfall, including "continued disappointing retail demand for home fashion products that started last fall, significant inventory reduction by selected large retailers and the disruptive effect of the tornado that damaged the Abbeville, AL, distribution center in December."

As if that weren't enough, the company racked up still more in restructuring costs, another $23 million covering a wide range of issues, including plant closings, plant downtime and severance costs, said David Meek, cfo, in a conference call with investors. And extending a rolling restructuring designed to cut costs and boost profits, WestPoint separately said it will permanently cut back an additional three facilities in Roanoke Rapids, NC, after earlier mothballing four other plants (see related story below).

Taking note of "an exceptionally difficult retail environment," newly named president and coo Chip Fontenot told investors on a conference call, "All distribution channels were down except for specialty stores and Ralph Lauren sales to department stores" as retailers worked off their merchandise stockpiles and put the flow of goods on hold.

That, in turn, put crushing pressure on WestPoint margins as the company idled its own plants to bring supply in line with demand and work down its own bulging inventories. Weighed down by $11.9 million in extra costs tied to plant slowdowns, average gross margin narrowed by 570 basis points, to 21.1 percent from 26.8 percent the prior year. Given the increased margin pressure, gross margin dollars were slashed by almost one-third, falling by 31.9 percent, to $88.4 million from $129.8 million.

And in even further bad news, costs climbed sharply higher, spread out over sharply lower sales. Stung by sharply falling sales, the expense ration rose by 320 basis points, to 14.3 percent from 1.1 percent last year.

With those three big strikes against it-falling sales, thinning margins and rising costs-operating profits plunged by almost two-thirds, dropping 62.6 percent, to $28.4 million from $75.9 million.

And the outlook improves only modestly for the current first quarter, said Holcombe Green Jr., chairman and ceo. "We expect first-quarter sales to be down slightly, in the 5 percent to 7 percent range." But earnings per share, he added, should recover "to about 10 cents per share" from this quarter's deficit of 18 cents.

Going forward through 2001, new president Fontenot said he's confident that WestPoint can build its sales by about 10 percent for all of this year as it adds new merchandise programs, including an expanded Ralph Lauren line, results from the recently acquired Chatham blanket operation and a new Disney program.

WestPoint Stevens Inc.


Qtr. 12/31 (x000) 2000 1999 %CHG

Sales

$418,205

$485,161

-13.8

Oper. Income (EBIT)

28,379

75,861

-62.6

Net income

(8,925)a

30,769a

-

Per share (diluted)

(0.18)

0.57

-

Average gross margin

21.1%

26.8%

-

SG & A expenses

14.3%

11.1%

-

Twelve months

2000

1999

%CHG

Sales

1,815,870

1,883,263

-3.6

Oper. Income (EBIT)

144,145

268,100

-46.2

Net income

(63,310)b

104,112b

-

Per share (diluted)

(1.28)

1.84

-

Average gross margin

21.4%

26.8%

-

SG & A expenses

13.5%

12.6%

-


( ): Denotes loss

a-Fourth-quarter results include a $7.2 million restructuring and impairment charge; $4.3 million in miscellaneous expenses, up from $1.0 million last year; an income-tax benefit of $5.0 million, compared with a year-before tax liability of $17.4 million.

b-12-month results include a $109.2 million restructuring and impairment charge; $11,419 in miscellaneous costs, up from $2.8 million last year; and an income-tax benefit of $35.5 million vs. a $104.1 million tax liability the preceding year.

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