Quaker Goes From Black To Red

Don Hogsett, April 25, 2005

Hammered by falling sales and weakening demand for its woven fabrics, which put margins under crushing pressure, Quaker Fabrics Corp. recorded a first quarter loss of $3.1 million, reversing a year-before profit of $2.4 million.

Sales at the producer of woven and jacquard upholstery fabrics plunged 29.8 percent, to $59.2 million from $84.4 million last year, a shortfall of more than $25 million.

"Weakness at the revenue line continues to be our biggest issue," said Larry Liebenow, Quaker president and CEO. He blamed "the continued strength of imported leather and faux suede products in the U.S. market, which has reduced demand for the woven fabrics we make, and general economic weakness in a number of the export markets we serve, particularly Europe and Mexico."

The one bright spot, said Liebenow, was Quaker's yarn operations. Yarn sales, particularly into the craft yarn segment, remained very strong, reaching $5.7 million during the opening quarter.

With sales skidding, average gross margin eroded 920 basis points, or 9.2 percentage points, to 13 percent from 22.2 percent the prior year. Gross margin dollars were slashed by more than half, falling 58.9 percent, to $7.7 million from $18.7 million.

Putting pressure on margins, said Liebenow, were a number of non-recurring factors, "including significant increases in our raw material, overtime and inventory carrying costs" tied to a supplier's exit from the acrylic yarn business.

Forced to augment its stockpiles of acrylic yarn, Quaker grew its inventories 13.9 percent, to $49.6 million from $43.5 million, despite the deep slide in sales.

Quaker Fabric Corp.

Qtr. 4/2 (x000) 2005 2004 % change
a. First quarter results include miscellaneous expenses of $88,000, compared with miscellaneous income of $16,000 during the same period a year ago; and an income-tax benefit of $2.2 million, compared with a prior-year income-tax provision of $1.4 million. Excluding the income-tax benefit, the company recorded a pre-tax loss of $5.3 million, compared with a year-before profit of $3.8 million.
Sales $59,215 $84,384 -29.8
Oper. Income (EBIT) (4,468) 4,670
Net income (3,090)a 2,438a
Per share (diluted) (0.18) 0.14
Average gross margin 13.0% 22.2%
SG&A expenses 20.5% 16.6%

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