Weak demand hurts Quaker

Don Hogsett, August 2, 2004

Hampered by weaker sales, thinning margins and rising costs, decorative-fabrics producer Quaker Fabric Corp. recorded a modest second-quarter loss of $482,000, compared with a prior-year profit of $165,000.

Hobbled by weak U.S. demand — even as the company's export business held steady — sales slipped 1 percent, to $73.1 million from $73.9 million during the prior-year period.

"The overall weakness in demand for upholstered furniture that negatively affected our first-quarter financial results continued to affect our financial performance during the second quarter," said Larry Liebenow, Quaker president and CEO.

U.S. sales declined 8 percent during the second quarter, and 10 percent for the six months, offset by steady export sales and a surge in yarn sales, which almost tripled during the second quarter.

Average gross margin narrowed 130 basis points, or 1.3 percentage points, to 18.3 percent from 19.6 percent a year ago. Gross margin dollars fell 7.5 percent, to $13.3 million from $13.4 million.

Adding more pressure to the bottom line, operating costs climbed as a percentage of lower sales. Costs rose 30 basis points to 18.3 percent of sales from 18 percent last year.

Liebenow noted that this year's quarter "reflects 13 weeks of operations, and 13 weeks of fixed manufacturing costs, versus last year's 12 weeks — due to a difference in the timing of our annual plant vacation period.

As a result, this year's lower weekly production and shipping rates account for most of the 130 basis-point decline seen in our quarter-to-quarter gross-margin performance, with additional pressure placed on our margins by increases in certain payroll-related expenses, primarily unemployment taxes, through the quarter and a decline in our manufacturing performance toward the end of the quarter."

Quaker Fabric Corp.

Qtr. 7/3 (x000) 2004 2003 % chg
Sales $73,132 $73,886 -1.0
Oper. Income (EBIT) 18 1,187 -98.5
Net income (482)a 165a --
Per share (diluted) (0.03) 0.01
Average gross margin 18.3% 19.6%
SG&A expenses 18.3% 18.0%
Six months 2004 2003 % chg
Sales 157,516 164,111 -4.0
Oper. Income (EBIT) 4,688 5,903 -20.6
Net income 1,956b 2,478b -21.1
Per share (diluted) 0.11 0.15 -26.7
Average gross margin 20.4 20.4
SG&A expenses 17.4% 16.8%
a-Second-quarter results include miscellaneous income of $36,000, compared with miscellaneous expenses of $113,000 during the same period a year ago; and an income-tax benefit of $324,000 versus income-tax expense of $165,000 last year.
b-Six-month results include $52,000 in miscellaneous income versus miscellaneous expenses of $89,000 a year ago.

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