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Quaker profits up, but sales down

Don Hogsett -- Home Textiles Today, April 26, 2004

Helped by stronger margins and lower costs and interest expense, which offset weaker sales, first quarter profits at Quaker Fabric Corp. rose 5.4 percent, to $2.4 million from $2.3 million last year.

Hurt by weakening demand in its U.S. upholstery fabric operation, which offset strong gains in its smaller yarn operation, Quaker sales declined 6.5 percent, to $84.4 million from $90.2 million in the same period a year ago.

In a lift to the bottom line, average gross margin widened 120 basis points, or 1.2 percentage points, to 22.2 percent from 21 percent a year ago, helped by stepped-up productivity and a 7.8 percent drop in the cost of making goods. But hampered by the lower level of sales, gross margin dollars still declined 1.4 percent.

In a further assist to the bottom line, costs were pared 1.6 percent, to $14 million from $14.3 million last year, generating a cash savings of $226,000. When measured as a percentage of falling sales, costs increased 80 basis points, or eight-tenths of a percentage point, to 16.6 percent from 15.8 percent the preceding year.

Providing relief to the bottom line, Quaker rolled back its interest expense 20.8 percent, to $847,000 from $1.1 million in the prior-year period, generating a cash savings of $222,000.

Acting as a drag, inventories increased 7.5 percent — even as sales declined — to $47.3 million from $44 million last year.

Larry Liebenow, Quaker president and CEO, commented, "While overall domestic demand for furniture covered with plain and jacquard upholstery fabrics appears to be somewhat lower than it is for case goods and residential furniture covered with leather and suede products, Quaker's first quarter financial performance was solid. Our net income was up slightly from last year, despite lower overall sales. Similarly, our margin performance improved from last year's first quarter, with a gross margin of 22.2 percent, compared to 21 percent in 2003."

He added, "Domestic fabric sales were down approximately 11.2 percent versus last year, but our yarn business demonstrated significant strength during the quarter, with yarn sales approximately double what they were during the comparable period of last year, largely as a result of the effort we have made to develop new markets for our yarn products. Export sales have held constant, despite challenging global macroeconomic conditions during the first quarter."

Liebenow continued, "Although new orders during the first quarter were down about 13.5 percent from last year, they reflected a 5.3 percent increase versus the fourth quarter of 2003. Our backlog position at the end of the quarter was essentially the same as it was at the end of 2003 and at the conclusion of last year's first quarter. And our balance sheet, with a net debt to total capital ratio of 16.6 percent, remains very strong and continues to provide Quaker with the flexibility necessary to respond quickly in a dynamic market environment."

Quaker Fabric Corp.

Qtr. 4/3 (x000) 2004 2003 % chg
Sales $84,384 $90,225 -6.5
Oper. income (EBIT) 4,670 4,716 -1.0
Net income 2,438a 2,313a 5.4
Per share (diluted) 0.14 0.14 0.0
Average gross margin 22.2% 21.0% --
SG&A expenses 16.6% 15.8% --
a-First-quarter results include $16,000 in miscellaneous income, compared with $24,000 during the same quarter a year ago.


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