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Springs Global cuts quarterly loss; sales continue to erode

Springs Global cuts quarterly loss; sales continue to erode

São Paulo, Brazil – Third-quarter net sales fell more than 32% but aggressive cost cutting in its consolidating business and improved margins helped Springs Global Participações S.A. cut its net loss by 30.5% to R$56.8 million – roughly USD$33.8 million, based on an average exchange rate during the quarter.

The net loss in last year’s third quarter was R$81.7 million.

The company, which lays claim as the largest home textiles manufacturer in the world, cited the U.S. economic slowdown and a 9.9% appreciation of the Brazilian real among the factors most influencing its results. It did not cite any remaining operational challenges in its own business, which in the last two years has seen direct manufacturing migrate to Mexico and South America, with some limited outsourcing to Asia. Expansion of its Brazilian business helped tamp down some of the U.S. declines, the company said. Springs has scheduled its quarterly conference call for early this afternoon (Monday), New York time.

Springs reported Q3 net sales of R$698.1 million – about USD$409.4 – compared to R$903 million during the third quarter of 2007.

Net sales from continuing operations fell 21.6%, utilizing comparable 2007 Q3 net sales of R$890.4 million, which recognizes sold off and discontinued businesses.

“The outlook for the United States and the global economic environment show no signs of improvement in the near term,” the company said in a letter to shareholders. “The retail environment in the United States remains difficult and has deteriorated during the final weeks of the third quarter and in the month of October.”

Springs made oblique references to the liquidation of Linens ’n Things and the bankruptcy filings of Mervyns and Boscov’s. It said it will make further adjustments to its business model to address those changes and improve results, “including further consolidation opportunities in manufacturing and warehousing in the United States,” as well as reductions in SG&A expense. “We are also focused on long- term strategic objectives related to the development of our brands and geographic expansion.”

Gross margins from continuing operations improved 420 basis points, to 12.7%, compared to 8.5% during the comparable period in 2007. The improvement reflects lower conversion costs associated with the move of manufacturing out of the United States, along with cost improvements in materials, warehousing and distribution.

General and administrative expenses fell 32.4%, to R$38.3 million.

By business segment, sales fell 21.9% in fashion bedding; they decreased 25.9% in bath; declined 22.9% in utility bedding; and dropped 31.2% in the “Other” segment, including Springs Direct and Canadian sales. Intermediate products, which include yarn, greige and finished fabrics, grew 27.7% during the quarter.

For the nine-month period, net sales fell 32.8% to R$2.16 billion, compared to R$2.81 billion the year before. The net loss was cut to R$70.1 million for the nine months, compared to R$201.2 million in 2007.

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