WPS down $11M in 1Q

Don Hogsett, April 30, 2001

ATLANTA — With sales falling off by more than 6 percent, and margins thinning out and costs climbing higher, WestPoint Stevens Inc. posted a first-quarter loss of $10.9 million, compared with a prior-year profit of $15.6 million.

Contributing to the loss was a $5.0 million restructuring charge tied to an overhaul of WestPoint operations.

Driving the deep loss, sales fell off sharply for a second straight quarter, declining by 6.5 percent, to $418.6 million from $447.8 million last year, a shortfall of $29.2 million. And sales would have fallen even further, by 8 percent, the company said, but were propped up by results from the newly acquired Chatham blanket business and the new Disney Home license.

It was a second straight quarter of falling sales and losses at the major mill, following a sales decline of 13.8 percent, and a loss of $8.9 million, during the fourth quarter of last year.

Caught unprepared by a profit warning, investors ran for cover in the hours after WestPoint put out the news, with shares of the major mill's stock tumbling in value by 16.4 percent, to $6.66 a share, a drop of $1.31 a share. WestPoint stock has now lost virtually two-thirds of its value during the past year, falling 66.1 percent from a 12-month high of $19.63. Even more alarming to investors, the stock is now down by more than 80 percent from a two-year high of just under $38.

Contributing to the top-line weakness, sales fell off in every product category except for basic bedding, towels and the company's retail stores. Basic bedding grew at a double-digit pace, and sales in retail stores showed a "modest increase."

Putting even more pressure on the bottom line, average gross margin was narrowed by 460 basis points, to 21.4 percent from 26.0 percent a year ago, weighed down by higher energy and raw material costs, and down-time in the plants as WestPoint worked away at its stockpiles. In one bright spot in the quarter, inventories were reduced by 15.3 percent from year-ago levels, to $405.9 million from $407.3 million last year.

And it's a rocky road that lies ahead, cautioned chairman and ceo Holcombe Green Jr. In a heads-up to investors, Green said "Given the shortfall in our first-quarter results and the lack of visibility of the economy and the retail market, we are substantially altering our earnings per share guidance for 2001 before charges associated with the eight-point plan from $1.50 to $1.55 to a much wider range of $0.90 to $1.20. The low end of the range assumes a continued decline in core sales for the remainder of the year and a continuation of the weak economic environment that existed in the first quarter and overall sales growth of 4 percent."

The high end of the range, said Green, "assumes a modest improvement in the economy and in core sales with single-digit growth in the second half of 2001 and overall sales growth of 8 percent." During the current second quarter, Green forecast sales to be flat to slightly down, and break-even earnings before one-time charges generate a further loss.

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