Quaker Fabric Loss Widens
July 31, 2006-- Home Textiles Today,
Hammered by low-cost imports and sliding sales, then hit by $13.7 million in restructuring and asset impairment charges, upholstery and jacquard fabric producer Quaker Fabrics Corp. recorded a widened second-quarter loss of $12.1 million, compared with a year-before deficit of $10.3 million.
With imports acting as a drag on the top line, sales tumbled by more than a third, declining by 37.8% to $42.9 million from $68.9 million during the same period last year. At $34.9 million, domestic fabric sales declined by 30.8%, while international sales fell by 23.4%, to $6.4 million. Yarn sales were hardest hit, down 84.0%, to $1.6 million.
Calling the drop in sales “disappointing,” Quaker president and ceo Larry Liebenow noted the company's strategy includes selling into more upscale domestic markets, and noted Quaker saw “a 66.2% increase in our second-quarter sales into the contract market vs. the comparable period of last year — the successful launch and first sales of our new line of decorative outdoor fabrics to upscale outdoor furniture manufacturers and the jobber and high-end residential markets — and incremental sales to specialty furniture retailers that helped to increase our average selling price per yard.”
However, the overall slide in sales put pressure on margins, which narrowed 250 basis points, or 2.5 percentage points, to 12.2% from 14.7% last year. And the combination of sliding sales and contracting margins generated an operating loss of $3.6 million, 49.0% deeper than last year's $2.4 million.
Providing some relief, Quaker continued to hack away at costs, reducing its overhead by 29.6%, to $8.8 million from $12.6 million, generating a savings of $3.7 million. But when measured as a percentage of sliding sales, costs rose by 240 basis points, or 2.4 percentage points, to 20.6% from 18.2% last year.
Taking a big bite out of the bottom line were $13.7 million in restructuring and asset impairment charges, almost four times the size of the $3.7 million in similar charges that dogged the bottom line a year ago. Putting further pressure on profits, interest expense increased by 31.4%, to $913,000 from $395,000 last year, pulling an additional $218,000 away from the bottom line.
Costing Quaker even more, inventories were scaled back by 15.0%, to $32.1 million, but that pace was less than half the 38% decline in sales. By the end of the quarter, Quaker's cash position was reduced by almost half, or 45.1%, to $398,000 from $725,000 last year.
Quaker Fabric Corp.
|Qtr. 7/1 (x000)||2006||2005||%change|
a. Second quarter results include $13.7 million in restructuring and goodwill impairment charges, compared with $3.7 million during the same period a year ago; miscellaneous expenses of $97,000, compared with $44,000 last year; and an income tax benefit of $6.2 million, compared with $4.2 million last year. The prior-year quarter included a $5.4 million goodwill impairment charge.
b. Six-month results include $14.0 million in restructuring and asset impairment charges, compared with $3.7 million a year ago; $503,000 in miscellaneous expenses, compared with $132,000; and an income tax benefit of $8.5 million, compared with $6.4 million during the first six months of 2005. Last year's first half included a $5.4 million goodwill impairment charge.
|Oper. income (EBIT)||(3,622)||(2,431)||–|
|Per share (diluted)||(0.72)||(0.61)||–|
|Average gross margin||12.2%||14.7%||–|
|Oper. income (EBIT)||(8,513)||(6,899)||–|
|Average gross margin||12.0%||13.9%||–|
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