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Sales shrink WPS loss

Helped by stronger sales, as well as deep cuts in costs and interest expense, WestPoint Stevens Inc. recorded a narrowing first-quarter loss of $14.9 million — down 12 percent from a year-before deficit of $16.9 million — as it works it way through bankruptcy and a sweeping overhaul of operations.

With robust sales in bed and bath, WestPoint finally reversed a string of sales declines — as deep as 19 percent during last year's second quarter — boosting sales in the opening quarter 5.4 percent, to $399.6 million from $379.3 million.

Also helped by an improving retail scene, as well as the Pillowtex Corp. collapse, bath sales surged 10 percent in the opening quarter, while bedding improved 9 percent.

WestPoint has consistently improved sales over the last three fiscal quarters, from a 19 percent drop in last year's second quarter; to a sharply narrowed 3 percent third-quarter drop after the Pillowtex collapse; to a 2 percent decline in last year's fourth quarter; and now an actual increase.

And total company sales would have climbed even higher but for a steep drop in international sales and the company's retail outlets, following the closing of the European operation and the earlier closing of 19 stores.

One of WestPoint's foreign subsidiaries, WestPoint Stevens (Europe) Ltd., has filed for bankruptcy protection in the United Kingdom and is the process of being liquidated. Combined sales of those two non-core business dropped 31 percent during the quarter. Showing signs of improvement, same-store sales in the remaining retail stores improved 6 percent, the company reported.

Helped by the stronger sales and continued cost cutting, WestPoint recorded an operating profit of $12.4 million, up almost a fourth, 24.7 percent, from $9.9 million.

Driving the improvement were deep cuts in costs, which offset margin contraction. Counted in real dollars, costs were slashed 12.1 percent, to $55.8 million from $63.5 million last year, generating a cost savings of $7.7 million. When measured as a percentage of improving sales, costs declined 270 basis points, or 2.7 percentage points, to 14 percent from 16.7 percent.

Lower costs more than offset weakened margins which narrowed 230 basis points, or 2.3 percentage points, to 17.1 percent from 19.4 percent a year ago. Gross margin dollars fell 7.1 percent, to $68.2 million from $73.4 million.

M.L. "Chip" Fontenot, WestPoint president and CEO, commented, "The first quarter saw continued improvement in the retail environment. Against this backdrop, we are maintaining the high service levels that our customers expect from WestPoint Stevens and remain adequately funded," with $134 million available at the end of the quarter under the major mill's $300 million debtor-in-possession financing.

Fontenot said WestPoint continues "to move forward" as it hammers out a new Chapter 11 plan of reorganization.

WestPoint Stevens Inc.

Qtr. 3/31 (x000) 2004 2003 % chg
Sales $399,640 $379,263 5.4
Oper. income (EBIT) 12,381 9,932 24.7
Net income (14,879)a (16,906)a
Per share (diluted) (0.30) (0.34)
Average gross margin 17.1% 19.4%
SG&A expenses 14.0% 16.7%
(loss)
a-First-quarter results include $4.8 million in restructuring and impairment charges, compared with $1.4 million in the year-before period; $2.8 million in miscellaneous expenses, compared with $2.5 million last year; $8.2 million in Chapter 11 expenses; and an income-tax benefit of $6.3 million, compared with $9.5 million a year ago.


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