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Springs' 4Q profits cut by more than 57%

FORT MILL, SC — With sales and margins both under crushing pressure, and stung by mounting bad debts at its retail customers, fourth-quarter profits at Springs Industries Inc. were slashed by more than half, tumbling by 57.7 percent, to $9.5 million from $22.4 million last year.

Sales at the textiles giant inched up by 1 percent, to $534.0 million from $528.6 million, but only because of the vast roll-out of the new Springmaid program at Wal-Mart.

Putting unrelenting pressure on profits, average gross margin was trimmed by 500 basis points, to 16.2 percent from 21.2 percent a year ago, offsetting substantial savings generated by heavy cost-cutting. Acting as a drag on margins were the sharply higher cost of raw materials, combined with substantially higher sales of obsolete merchandise to wholesale jobbers as the textiles giant continued to work down inventories, said Chairman and ceo Crandall Bowles.

On the plus side, costs were reduced by 210 basis points, to 10.9 percent of sales from 13.0 percent the previous year. In absolute dollars, that's a cash savings of $10.1 million, or 15.1 percent, with overhead reduced to $58.4 million from $68.7 million last year.

Further weighing down the bottom line were customer bankruptcies and closings, which cost the company about $1.8 million in the quarter, and $6.2 million for all of last year.

Pointing to the underlying cause of the current sales and earnings slump at home fashions producers, ceo Bowles said, "Retail conditions in the home furnishings marketplace have been impacted by the effect of higher energy and interest costs on consumer disposable income and concerns over the economy. Retailer response to slowing consumer demand has been to reduce overall inventory exposure, which has impacted manufacturers to a greater extent than retail trends might suggest."

As retailers worked to reduce their own stockpiles, Bowles said replenishment in the fourth quarter fell 3 percent to 5 percent beneath Springs' expectations. The slowdown, she said, was felt "across the board, no one category more than another."

Springs, she added, was "particularly hurt by a slow juvenile season, 50 percent below last year. Both Pokemon and Disney were below our plan."

Scoping out the sales picture elsewhere, Bowles said the bedding business was virtually flat, with big gains in bed-in-a-bag offset by weakness in printed sheets and top-of-the-bed. "Our bath business was up slightly, driven by towels, which were up eight percent."

Pointing out areas of notable strength, Bowles said, "We had a strong performance in window fashions," in part due to growing strength at home improvement chains. "We had a strong performance at specialty stores."

Significantly, said Bowles, "We had linear feet space increases at major key accounts," generating market share gains.

Looking ahead, Bowles said she expects last year's bad news to carry over into the first quarter of this year, with sales declining by 3 to 5 percent. Sales are forecast to be "flat to slightly down in the second quarter, and hopefully up two to three percent for the year."

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