Textiles start to look like a deal

Don Hogsett, May 13, 2002

New York — Deep-pocket investors are starting to discover the bargains in a textiles industry that Wall Street shunned long ago, and investor Jeffrey Feinberg of JLF Asset Management has bought a 5.23 percent stake in textiles titan WestPoint Stevens.

According to a 13G federal filing made on May 4, Feinberg said he had acquired a total of 2.6 million shares of the company's common stock for investment purposes.

Lorraine Miller, investor relations chief at the textiles producer, characterized Feinberg as a "passive investor" with substantial holdings in a variety of consumer products companies. "It's encouraging that a big investor sees value in WestPoint stock," she said.

There is a very real resurgence of investor interest in the long-depressed textiles arena, said Jeff Stewart, high-yield analyst at Wachovia Securities, Charlotte, NC. "Absolutely, I think so. I think the momentum is with us. And a little bit of demand — given all the capacity taken out of the industry last year — could have a really big impact on some of these companies."

And the demand would seem to be there, at least for the present, Stewart said. "Companies like Springs are seeing sales growth of 10 percent to 11 percent. That's real good, especially for this sector."

Even though the value of WestPoint shares has more than doubled in recent weeks, to a recent level of $4.95 a share, the stock is still down 18.2 percent from a 52-week high of $6.05. And it's down more than 85 percent from a trading range in the mid-$30s that it reached only three years ago before a broad and steep slide in the value of textiles stocks.

Miller described Feinberg as "an institutional investor who focuses on retail and consumer products companies." Among Feinberg's other investment, said Miller, are Bed Bath & Beyond, Federated Department Stores and Estée Lauder.

Miller said Feinberg is a 'friendly, passive investor in the company," and noted that WestPoint Stevens has in place a shareholder rights plan, a so-called poison pill, "so the company cannot be taken off guard."

Drawing the attention of Wall Street and investors, stocks of textiles producers like WestPoint, Dan River, Mohawk and Crown Crafts have advanced sharply in recent weeks, signalling a long-awaited turnaround in the textiles sector. The move may be especially noteworthy and may suggest a resurgence in the broader markets, since historically the textiles industry has led the economy into, and out of, recessions.

Helped, in the case of WestPoint Stevens and Dan River, by stronger-than-expected first-quarter earnings, textiles stocks have enjoyed an impressive run-up in value over the past four weeks.

Since the close of trading on April 4, WestPoint stock has more than doubled in value, shooting up by 111.9 percent, to a price last Wednesday of $4.98 a share from just $2.35 four weeks earlier. Dan River's share price more than doubled as well during the same four weeks, zooming up to $4.98 a share from $2.35.

And they weren't alone. During the same month-long time frame, shares of other textiles stocks climbed higher, if not quite so spectacularly high, easily beating the Dow, the Nasdaq and the S&P 500 during the same period. Shares of Mohawk Industries jumped up by 7.8 percent, to $65.02 from $60.30; Crown Crafts shares, still at depressed levels despite a return to profitability, advanced by 32.6 percent, to $0.57 from $0.43; Quaker Fabrics shares moved up by 15.8 percent, to $13.90 from $12.00; and shares of fabric producer Culp Fabrics rose by 4.9 percent, to $9.60 from $9.15.

And at WestPoint Stevens, it's not just the stock price that's been moving up, Stewart noted. "At one point, the WestPoint bonds were trading at $0.30 on the dollar, but now they're up to $0.70 or $0.80. That's a pretty dramatic move. People are buying. They're taking another look at the industry," he said.

The big question, Stewart thinks, is whether it's sustainable. "I think the first quarter represents a lot of pipeline filling. So it depends on how sustainable it will be and what happens with consumer demand, whether it holds up."

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