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Troubling year for suppliers

In a perplexing, punishing, watershed year for the American textiles industry, two of the largest, oldest and best-known companies in the business literally disappeared from view. Pillowtex, the heir to Fieldcrest and Cannon Mills, succumbed to a crushing debt load and a series of management missteps and shut its doors forever; and historically reticent Springs Industries, now a private company, no longer opened its books to public inspection.

For the companies left standing, or left in sight, it was a vexing, problematic year as retailers increasingly turned their backs on American suppliers, going directly to offshore producers; and U.S. suppliers themselves increasingly shopped abroad in search of lower-cost product and mothballed some of their now-redundant plants.

Given the tumultuous state of the business and the crushing debt loads crippling some players, it comes as something of a surprise that the eight public companies included in this year's Home Textiles Today Vendor Report Card actually made money last year — at least on paper. The eight remaining players — down from 10 last year and 15 just four years ago in 2000 — recorded a profit of $434.8 million, recovering from a prior-year loss of $366.3 million.

But the earnings number for the entire industry is substantially skewed by just one company, specialty textiles producer Polymer Group, which came out of bankruptcy with a one-time gain of $541 million, generating a paper profit of $499.4 million. Pull Polymer's one-time gain out of the equation, and the industry still lost money during 2003, a $101.7 million deficit. Still, that's a big improvement on the $366.3 million that the industry lost the previous year.

As for the top line, the picture is also problematic given the absence of Pillowtex and Springs. The eight companies still in the sample reported sales of $9.7 billion, a 2.4 percent rise over the $9.5 billion the same eight companies reported the year before.

Reflecting the continuing contraction of the American textiles industry, last year's sales total of $9.7 billion was smaller by 10.6 percent than the $10.9 billion the industry reported in 2002. And the total was down 16.8 percent from the $11.7 billion that 12 public companies reported in 2001.

Given the consolidation that has swept the industry, this year's eight companies in the Report Card is down almost half from the 15 companies included in 1995. Then, the industry had composite sales of $12.6 billion — greater by almost a third, 29.2 percent — than the $9.7 billion that eight public companies had last year.

Among the companies that have fallen off the Vendor Report Card since 1995, in addition to Pillowtex and Springs, are such once-familiar names as Burlington Industries, Collins & Aikman, Cone Mills, Guilford Mills, Dixie Yarns, Thomaston Mills, DHA, Conso Products, and Dakotah.

Back then, the industry may have been bigger, in terms of sales and the number of public companies, but it wasn't much more profitable. In fact, the 15 companies in the 1995 Report Card earned just $199 million, compared with this composite profit of $434.8 million for seven fewer companies last year.

Remarkably, some key performance metrics, like average gross margin, look considerably better now than they did back in '95. Last year, the industry recorded a composite average gross margin of 26.8 percent, down from 29 percent in 2002. That's still a lot better than the composite margin of 18.1 percent rung up in 1995.

Margins may be stronger now, but costs have also climbed, acting as an offset and putting pressure on the bottom line. During 2003, operating costs, as a percentage of sales, totaled 14.2 percent, sharply higher than the 10.6 percent in 1995. Measured on a year-over-year basis, 2003 costs edged modestly higher from the 13.9 percent of 2002.

Composite results of 8 textiles companies
Figures, excluding percentages, in $000s

2003 2002 % chg
Sales $9,746,196 $9,516,127 2.4%
Net income 434,806 (366,314)
Operating income 676,535 813,299 -16.8
Average gross margin 26.8% 29.0%
SG&A as % of sales 14.2 13.9
Net debt coverage 39.8 40.4
Source: Home Textiles Today market research


Profitability Measures Sales
Company* net income x$000s % change '02-'03 % change '99-'03 return on sales return on equity net sales x$000s % change '02-'03 % change '99-'03 op. income x$000s % change '02-'03 operating margin gross margin SG&A as % of sales inventory turns net debt coverage fiscal year end
Mohawk Inds. $310,149 9.0% 97.2% 6.2% 13.5% $5,005,053 10.7% 55.8% $542,029 3.8% 10.8% 27.2% 16.3% 4.8x 10.3% 12/31/2003
WestPoint Stevens (133,284)1 1 -8.1 14.0 1,646,202 -9.1 -12.6 52,341 -59.4 3.2 17.2 14.1 3.7 194.8 12/31/2003
Wellman (106,697)2 3 4 -9.6 -22.9 1,109,275 9.4 30.6 14,004 -72.3 1.3 7.3 6.0 8.7 72.3 12/31/2003
Polymer Group5 499,3796 7 1393.48 64.1 843.5 778,538 3.0 -12.5 40,651 118.8 5.2 17.5 12.3 6.1 146.9 1/3/2004
Dan River (153,028)9 10 -32.1 -192.5 477,448 -22.1 -24.1 (12,028) -2.5 10.8 13.3 2.8 -238.8 1/3/2004
Quaker Fabric 7,93911 -31.3 283.0 2.4 4.7 325,337 -11.0 29.4 14,801 -35.8 4.5 21.6 17.0 5.4 26.3 1/3/2004
Culp12 7,22013 -129.014 2.3 7.0 318,116 -6.3 17,303 -1.3 5.4 18.3 12.9 5.3 29.8 5/2/2004
Crown Crafts 3,12815 27.616 17 3.6 17.0 86,227 -9.0 -73.0 7,434 -14.9 8.6 22.7 14.1 4.5 54.5 3/28/2004
*Companies are ranked by dollar volume of sales.( ): Denotes loss Source: Home Textiles Today market research
1. Includes pretax restructuring and impairment charges of $49.6 million in 2003 and $6.6 million in 2002 and income tax benefits of $61.3 million in 2003 and $7.1 million in 2002. 2003 also includes a $31.5 million pretax charge for Chapter 11 expense.
2. After preferred dividends and accretion of $10.1 million; includes a $135.3 million pretax impairment charge, a $10.2 million pretax restructuring charge, a $54.4 million income tax benefit and $112,000 in net earnings from discontinued operations.
3. Includes a $23.7 million net loss from discontinued operations and a $197.1 extraordinary charge, the cumulative effect of an accounting change.
4. Includes $946,000 in earnings from discontinued operations. a $17.4 million pretax restructuring charge, a $5.7 million income tax benefit and a $1.8 million extraordinary charge, the cumulative effect of an accounting change.
5. 2003 figures represent the combined results for the 10 months ended Jan. 3, 2004 and the two months ended Mar. 1, 2003.
6. Includes a $6.8 million pretax plant realignment charge and a $540.5 million pretax reorganization gain.
7. Includes a $317.9 million pretax asset impairment charge, a $1.1 million pretax charge for plant realignment costs, a $3.6 million pretax special charge, a $15.4 million pretax foreign currency loss, $14.9 million in pretax Chapter 11 reorganization expense, a $3.3 million income tax benefit and a $12.8 million extraordinary charge, the cumulative effect of an accounting change.
8. Includes a $2.9 million pretax investment gain and a $739,000 pretax foreign currency gain.
9. Includes a $5.8 million income tax benefit.
10. Includes a $20.7 million extraordinary charge, the cumulative effect of an accounting change.
11. Includes a $1.4 million pretax non-recurring gain.
12. As of press time, Culp had not yet filed its annual SEC report. Figures are from unaudited company reports. Comparative information for 1999 is not available.
13. Includes a $1 million pretax restructuring credit and a $1.7 million pretax charge for the early extinguishment of debt.
14. Includes a $13 million pretax charge for restructuring and asset impairments, a $1.6 million income tax benefit and a $24.2 million extraordinary charge, the cumulative effect of an accounting change. 2002 net loss was $24.9 million.
15. Includes a $2,000 pretax gain on the disposition of assets and a $25,000 foreign currency translation gain.
16. Includes an $11,000 pretax loss on the disposition of assets, a $1.8 million pretax restructuring charge and a $35,000 foreign currency translation loss.
17. 1999 net loss was $29.1 million.


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