New WPS programs bolster 3Q earnings

Don Hogsett, Staff Staff, October 8, 2001

West Point, GA — Making an unexpectedly strong showing in a continued weak environment for home fashions producers, textiles giant WestPoint Stevens said its third-quarter sales jumped up by 5 percent as it continues to roll out new programs, and profits before one-time charges will meet or beat Wall Street expectations.

Crucially, the company's cash flow remains strong, enabling it to pay down debt, stay on the right side of all of its debt covenants, and dodge the bankruptcy that many on Wall Street feared was all but inevitable.

The surprisingly good news — at a time when many U.S. textiles mills are losing money and some have shut shut their doors forever — was cheered by Wall Street and investors, and provided a big shot in the arm to WestPoint stock.

When the news hit the street, it triggered a massive surge of interest in WestPoint shares, which virtually doubled in value in just one day's hectic trading, jumping up by 98.8 percent, or $1.62 a share, to $3.26 a share from $1.64 the day before.

Triggering the jubilation among analysts and investors, Chairman and ceo Holcombe Green Jr. said the company's cash position is strong and that it's paying down debt, easing fears that the company might be forced into bankruptcy. "Importantly, we have reduced our total indebtedness over $50 million during the quarter, have ample liquidity of over $125 million and are well in compliance with all financial covenants," said Green.

In more good news, sales climbed about 5 percent in the third quarter, to $513 million from $488 million last year, reversing a long slide that had hobbled profits and sharply eroded the value of WestPoint stock. Once a high-flyer, trading for almost $38 a share, the stock has dropped in value by more than 95 percent over the past three years.

Picking up steam from the rollout of several new programs, WestPoint said it will report a solid 5 percent gain in sales after several straight quarters of deep declines, most notably a harrowing 13.1 percent drop recorded in the second quarter.

Offering up the view from Wall Street, analyst Kay Norwood of Wachovia Securities, Charlotte, NC, said, "The good news is the liquidity and the comment about the debt covenants. That was everybody's great fear. It's good news that the sales were higher, but better news that they have the liquidity they need. It means the company won't have to file bankruptcy, and for a while there it sure looked like that's where they were headed. That's the really good news."

Tempering somewhat the good news about the top line, Norwood pointed out, "It is good news, but not as good as I was looking for. Virtually all of that is coming from the roll-out of new programs — the Disney and the Chatham business and the expanded Ralph Lauren — and not from replenishment business. Take out all that new business, and their continuing sales were probably lower."

Not so, said Lorraine Miller, WestPoint senior vp of investor relations. "It's not just new business. There's a lot of core businesses that are showing improvement."

Importantly, said Miller, "business with mass merchants and specialty stores is doing better. It's been tough out there, but it looks like we've found the bottom, definitely."

In addition to the brightening sales outlook, she noted, WestPoint will record a profit during the third quarter, "both before and after one-time items." Indeed, said Miller, that profit could turn out to be stronger than Wall Street is expecting.

Boosting the profit outlook, she said, are stronger margins at the major mill. "They're better. It's partly a better mix, more accessories business, and better operating results. There's no unplanned downtime in the quarter."

Overall, said Miller, "We're pretty much on target with where we said we'd be. We've been saying all year 'Wait until October.' Well, we weren't kidding."

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