Westpoint Stevens 4Q sales down 14%

Don Hogsett, February 5, 2001

ATLANTA — Lashed by a faltering consumer economy and severe cutbacks in retail buying, WestPoint Stevens, the nation's largest home textiles supplier, said its fourth-quarter sales plunged by 14 percent, far worse than originally expected, driving a deep decline of more than 80 percent in earnings before one-time restructuring charges.

In a separate move, WestPoint said it's closing down its Seneca, SC, sheeting plant, a 102-year-old facility which produces about 9 percent of the company's total output of sheets. It's the fourth WestPoint plant to be shuttered as part of a sweeping restructuring begun last summer to boost faltering profits. Picking up the slack in capacity, the major mill said it has put into place two new off-shore sourcing programs which will kick in during the second half of this year.

And the plant closings won't stop there. Holcombe T. Green Jr., chairman and ceo, told analysts and investors in a conference to expect more later this year. "We'll be making some further announcements a little later in the year."

In a heads-up to Wall Street analysts and investors, the major mill "pre-announced" its fourth-quarter results last week, providing a glimpse of what to expect when the company releases its complete set of results for the quarter and the year later this week. With sales falling off the track as retailers postponed orders and worked down their stockpiles, the company said it will report a far worse than expected profit of 11 cents per share before restructuring charges, down more than 80 percent from 56 cents per share a year ago.

While not entirely unexpected in an environment of weakening retail sales, the size of the sales and earnings shortfalls nonetheless caught many on Wall Street off guard. The company conceded that it had originally been expecting a far more modest sales decline of just three to five percent. And it had earlier guided analysts to expect earnings of 30 cents per share, almost three times as great as the profit it now said it will report.

And the bad news didn't stop there. With sales and profits both in a tailspin, the company triggered a violation of debt covenants tied to its revolving credit line which require that the company maintain a specific ratio of cash flow to debt. That alone will cost the company an extra 175 basis points, or 1.75 percent, in interest costs on its $800 million revolving credit facility plus a one-time amendment fee.

In addition, said David Meek, chief financial officer, in a conference call with investors, the violation triggers a restriction of the company's dividend payout to $6 million a year; the company is restricted from buying back its own stock; and the company's ability to make acquisitions is restricted, though not denied entirely.

Explaining the deep earnings shortfall to analysts, ceo Green blamed "slower sales growth and the related impact on margins" from temporary plant shutdowns as the company brought its own inventories into line.

Putting pressure on margins, said Green, WestPoint shut its towel plants for "16 days during the fourth quarter, and its bedding plants for 11 days."

Looking back on the year just past, Green characterized it as "a transition year" in which the mill launched a major streamlining designed to cut costs and boost profits. As part of the program, said Green, WestPoint:

  • has already shut down three mills in addition to the Seneca, SC, sheet mill identified last week;

  • eliminated about 1,100 jobs;

  • cut towel capacity;

  • identified about $38 million in annualized cost savings;

  • reduced inventories by $41 million on a year-over-year basis.

Looking ahead, Green said he's confident the major mill will be able to grow its sales by roughly 10 percent during all of 2001, with virtually all of the growth coming from new businesses, including a new private-label program at Kmart; new Disney home programs; new Ralph Lauren licenses for basic bedding and blankets previously held by rival Pillowtex; and sales from the newly acquired Chatham blanket business. Given that level of sales growth, Green said he expects earnings per share growth of about 15 percent for all of this year.

Polishing up his crystal ball, Green said, "I'm assuming the next six months will be poor, with a pick-up in the last six months."

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