WestPoint narrows loss as sales slowly improve

Don Hogsett, August 23, 2004

Putting behind it a $46.3 million one-time charge that dogged the bottom line a year ago, WestPoint Stevens, working its way through Chapter 11, narrowed its second-quarter loss 66.7 percent, to $24 million from $72 million last year.

More than 70 percent of the quarter's loss, a total of $17.4 million, stems from various bankruptcy-related items, including $8.4 million in lawyer's fees and other bankruptcy costs and $9 million in various restructuring charges.

Sales improved 4.7 percent in a notably weak period for most U.S. home fashions producers, rising to $383 million from $365.7 million last year.

Driving the gain was a huge 29 percent increase in bath products sales as the major mill picked up business and expanded its market share in towels after the collapse of the former Pillowtex Corp.

Acting as a drag, though, sales of bedding products slipped 3 percent, the company said, due to slower sales of accessories. Taking a further bite out of the top line was the shutdown of 20 WestPoint Stevens retail stores and the ongoing liquidation of its United Kingdom operation.

Still hacking away at costs, the major mill reduced expenses 200 basis points, or two full percentage points during the second quarter, to 14.7 percent of sales from 16.7 percent the preceding year. Measured in absolute dollars, WestPoint whittled its costs 7.6 percent, to $56.3 million from $60.9 million a year ago, generating a cash savings of $4.6 million.

But offsetting lower costs were weakened margins, which thinned 210 basis points, or 2.1 percentage points, to 13.7 percent from 15.8 percent, caught between rising cotton prices and lower selling prices as retailers continue to put the squeeze on suppliers.

Inventories remained tightly controlled, rising far more slowly than sales, and inching up just 0.4 percent, to $417.3 million from $415.5 million, compared with the 4.7 percent growth in sales.

M.L. "Chip" Fontenot, CEO, said the major mill is pushing ahead with its plans to emerge from bankruptcy. "The company is in the final stages of revising its business plan" and continues to negotiate new terms for a final plan of reorganization with its various creditor groups, he said.

Fontenot commented, "The retail environment was more challenging for home fashions in the second quarter as retailers experienced slower sales growth in textile home furnishings."

WestPoint Stevens Inc.

Qtr. 6/30 (x000) 2004 2003 % chg
Sales $382,992 $365,695 4.7
Oper. Income (EBIT) (3,967) (3,236) --
Net income (23,994)a (72,047)a --
Per share (diluted) (0.48) (1.23) --
Average gross margin 13.7% 15.8% --
SG&A expenses 14.7% 16.7% --
Six months 2004 2003 % chg
Sales 782,632 744,958 5.1
Oper. Income (EBIT) 8,414 6,696 25.7
Net income (38,873)b (88,953)b --
Per share (diluted) (0.78) (1.78) --
Average gross margin 15.4% 17.6% --
SG&A expenses 14.3% 16.7% --
a-Second quarter results include a $3.5 million restructuring and impairment charge, compared with $11.9 million during the same period last year; miscellaneous income of $1.8 million, compared with miscellaneous expense of $7.9 million last year; bankruptcy expenses of $8.4 million versus $6.2 million a year ago.
b-Six month results include an $8.3 million restructuring and impairment charge, compared with $13.3 million last year; miscellaneous expense of $1 million, compared with $10.4 million a year ago; bankruptcy expenses of $16.5 million versus $6.2 million a year ago; and an income-tax benefit of $38.9 million versus $89 million in 2003.

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