Troubling year for suppliers

Don Hogsett, July 19, 2004

New York — 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 some thing 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.

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