Pillowtex cuts losses with leaner operation

Don Hogsett, April 8, 2002

Kannapolis, NC — Improving key operations as it steers toward a turnaround and prepares to emerge from bankruptcy, likely within the next 90 days, Pillowtex Corp. slashed its fourth-quarter losses by almost 80 percent to $54.5 million from $233.2 million a year ago.

And clearing away one-time bankruptcy and restructuring items that obscure the bottom line, the major mill reduced its operating loss by more than 95 percent in the closing quarter, to a more manageable $6.3 million from $130.2 million last year.

Sales in the quarter fell by 13.1 percent, to $243.6 million from $280.3 million the year before, due in large part to the sale of the company's ailing blanket division, the loss of the Ralph Lauren basic bedding license and the loss of programs at Kmart, which had earlier contributed about $86 million in annual sales.

Driving the bottom line improvement during the closing quarter, Pillowtex hacked away at costs, substantially improved its margins and reduced the interest expense it's still required to pay by more than 40 percent.

In a key operational improvement, Pillowtex strengthened its average gross margin to 8.2 percent in the closing quarter, a vast improvement over a negative 27.2 percent margin in the year-ago period, when the company was selling its goods for far less then it cost to produce them, hobbled by slowdowns in its plants and inefficient manufacturing. At the same time, the company recorded a gross profit of $20.1 million, compared with a year-ago loss of $76.2 million.

In another major improvement, Pillowtex slashed costs, reducing its overhead by more than 51 percent in the quarter, to $26.4 million from $54.0 million last year, a cash savings of $27.6 million. Measured as a percentage of sales, costs were rolled back by 850 basis points, to 10.8 percent from 19.3 percent the preceding year.

In another prop to the bottom line, interest expense on senior debt, which the company is required to pay even though in Chapter 11, was reduced by 43.9 percent, to $14.3 million from $25.6 million.

Mike Harmon, Pillowtex cfo, told HTT the gross margin improvement stemmed from a massive downsizing that resulted in the shut down of more than a dozen plants. "It's all the cost reductions and savings where we closed plants to improve manufacturing operations."

Overhead costs were pared back, he said, "by staff reductions at the corporate level."

Pillowtex, said Harmon, remains on track to emerge from bankruptcy some time within the next 90 days.

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