Against the tide,WPS sees 4th qtr. progress

Don Hogsett, February 17, 2003

West Point, GA — Bucking a soft economy and a broadly weak retail environment, WestPoint Stevens Inc. drove fourth-quarter sales up by 8.0 percent, to $466.2 million, regaining most of the ground it lost in the third quarter, when sales fell off by 10 percent in the wake of Kmart's bankruptcy and massive store closings.

WestPoint, a key supplier to Kmart's Martha Stewart home program, recorded a small loss of $61,000, recovering from a year-ago loss of $2.6 million, and improving on a steep $16.6 million loss during the preceding third quarter of 2002, when the major mill was hit by a double-whammy of more than $10 million in restructuring costs and another $3 million in bad debt stemming from the Kmart bankruptcy.

Wall Street was clearly cheered by the news — especially after the company's de-listing last month by the New York Stock Exchange — and pushed WestPoint shares up by 35.6 percent in value in heavy trading on the over-the-counter bulletin board, where the company's shares are now traded under the ticker symbol WSPT.OB. WestPoint shares climbed by $0.16 a share to $0.61, and are now up more than 103 percent from an earlier low of $0.30 a share after the stock was dropped from the Big Board.

But even with last week's bump, the textile maker's stock is still down more than 90 percent from a 52-week high of $6.05 recorded when it was still traded on the New York Stock Exchange.

Helping WestPoint to substantially narrow its losses, in addition to the stronger sales, were continued deep cost cutting, lower cotton costs and stringent inventory controls. As the company continued to apply the scythe to expenses, operating costs were reduced by 180 basis points, or 1.8 percentage points, to 12.8 percent of sales from 15.1 percent the year preceding. Measured in absolute dollars, costs were slashed by 8.6 percent, to $59.5 million from $65.2 million, generating a cash savings of $5.6 million. In another lift to the bottom line, stockpiles were cut by 7.2 percent, or $28.4 million from year-ago levels, to $$368.7 million from $297.2 million.

Acting as a drag, however, were stepped-up promotional activity, increased royalties, a less favorable product mix, increased pension expense and under-absorbed overhead in the company's plants. Weighed down by all that pressure, average gross margin narrowed by 230 basis points, or 2.3 percentage points, to 20.6 percent from 22.9 percent.

But even with the margin contraction, operating profits rose by 8.6 percent, to $36.7 million from $33.8 million last year, generating a solid operating margin of 7.9 percent, roughly flat with last year's 7.8 percent.

Hoping to focus investors on long-term performance and reduce volatility in its share-price, WestPoint said it will not longer provide sales and earnings guidance to analysts and investors. The company said it's making the move "given increasing difficulty in predicting near-term results and management's belief that providing earnings guidance has resulted in investors focusing more on the short term, thus increasing the volatility of its stock."

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