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Stalling sales slam into Dan River's Q2 profits

With sales slashed by more than a fourth in its core home fashions business, then picking up a $12 million tab to shut down two of its manufacturing plants, Dan River Inc. recorded a second-quarter loss of $19.4 million, compared with a $3.7 million year-ago profit.

Overall sales at the diversified textiles producer declined by 24.4 percent, to $116.3 million from $153.9 million last year, an unnerving shortfall of $37.6 million, as sales fell off in each of the company's business segments.

Hardest hit was the big home fashions business, where sales plunged by 27.8 percent, to $77.4 million from $107.2 million, hammered in the midst of a bruising business environment that many industry executives are calling the worst in half a century or more. Dan River is the first of the big home fashions players to report second-quarter results, perhaps offering a preview of the continuing damage that other big mills are likely to report in coming weeks after retailers shutdown the pipeline and stopped ordering goods over the past several months.

Taking a bite out of the bottom line, Dan River put up a $12.2 million charge to cover the cost of shutting down two of its manufacturing plants, a greige goods weaving plant in Greenville, SC, and a sewing facility in Fort Valley, GA. "As demand recovers, the company plans to transfer production capacity form the closed facilities to other company facilities in Danville, VA, and Morven, NC," said Joseph Lanier Jr., chairman and ceo.

Margins came under crushing pressure, narrowing by 690 basis points, or 6.9 percentage points, to 12.6 percent from 19.5 percent a year ago. Gross margin dollars were sliced in half, by 51.2 percent, to $14.7 million from $30.1 million last year.

Dan River slashed costs by 10.9 percent, to $15.3 million from $17.2 million last year, generating a cash savings of $1.9 million. But even with the draconian cost cuts, expenses climbed higher, measured as a percentage of falling sales, rising by 200 basis points, or 2.0 percentage points, to 13.1 percent from 11.1 percent the prior year.

Second quarter segment results

Home Fashions 2003 2002 % change
(loss)
Sales $77,416 $107,194 -27.8
Operating income 788 12,211 -93.5
Apparel fabrics
Sales 30,045 36,951 -18.7
Operating income (514) 1,323
Engineered products
Sales 8,887 9,797 -9.3
Operating Income (616) (307)
6 MONTHS
Home Fashions 2003 2002 % change
Sales 185,831 223,202 -16.7
Operating income 12,311 17,525 -29.8
Apparel fabrics
Sales 59,103 68,822 -14.2
Operating income (1,149) (253)
Engineered products
Sales 18,786 20,276 -7.3
Operating income (1,468) (610)


Dan River Inc.

Qtr. 6/28 (x000) 2003 2002 % Chg
(loss)
a-Second-quarter results include a $12.2 million charge, primarily non-cash, stemming from the previously announced shutdown of two manufacturing plants; $334,000 in miscellaneous expenses, including a pre-tax charge of $1.3 million related to the write-off of unamortized costs stemming from financings paid in full during the quarter, partially offset by miscellaneous income, compared with $148,000 in miscellaneous income in the year-ago period; and an income-tax benefit of $1.8 million, compared with a year-ago tax provision of $2.6 million.
b-Six-month results include $195,000 in net miscellaneous costs, including plant closing and financing charges, offset by other income, compared with $207,000 in miscellaneous income last year; the prior-year period includes a $20.7 million after-tax charge stemming from a change in accounting.
Sales $116,348 $153,942 -24.4
Oper. income (EBIT) (599) 12,918
Net income (19,405)a 3,658a
Per share (diluted) (0.88) 0.16)
Average gross margin 12.6% 19.5%
SG&A expenses 13.1% 11.1%
Six months
Sales 263,720 312,360 -15.6
Oper. income (EBIT) 9,151 16,856 -45.7
Net income (16,655)b (22,178)b
Per share (diluted) (0.76) (1.02)
Average gross margin 16.1% 16.6%
SG&A expenses 12.6% 11.2%


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