Dan River Slashes Loss

Despite fall-off in home fashions, sales stabilize after series of declines

Don Hogsett, December 6, 2004

Danville, Va. — Hit by $7.9 million in plant closing costs, another $4 million in bankruptcy costs, and further squeezed by falling margins, Dan River Inc. recorded a sharply narrowed third quarter loss of $24 million, improving on a year-before deficit of $103.5 million.

Reversing an earlier string of steep declines, overall sales stabilized and improved 1.4 percent, rising to $105.2 million from $103.7 million, with gains in apparel and engineered fabrics offsetting an 8 percent fall-off in home fashions sales, to $70.3 million from $76.4 million a year ago.

The company said home fashions sales "decreased in all major retail distribution channels, reflecting slow retail business conditions, expiring juvenile bedding licenses and concerns from certain customers over our Chapter 11 status." Sales to Kmart, the company's single largest home fashions customer, declined $1.1 million, moving in lock step with continued sales declines at the giant mass merchant.

On a more positive note, sales of apparel fabrics rebounded strongly, jumping 29.3 percent, to $26.5 million from $20.5 million last year. And sales of engineered products shot up 23.9 percent, to $8.4 million from $6.8 million.

Taking a big bite out of the quarter's bottom line, Dan River rang up $7.9 million in plant closing and severance costs tied to the shutdown of its finishing and sheet weaving plant here and a warehouse in Portsmouth, Va. Included in that number is $1.2 million in severance benefits for about 420 workers. Bankruptcy totaled $4 million.

Putting the bottom line under crushing pressure, average gross margin was throttled down 580 basis points, or 5.8 percentage points, to 2.7 percent from 8.5 percent a year ago. Putting the squeeze on margins, the company said, was "promotional pricing of home fashions products, lower first quality manufacturing yields in apparel fabrics sportswear products, and higher per unit manufacturing costs due to lower production capacity utilization."

Partially offsetting weakened margins, operating costs were reduced 100 basis points, or 1 percentage point, to 12.3 percent of sales from 13.3 percent the preceding year. Measured in absolute dollars, costs were pared 6.1 percent, generating a cash savings of $848,000. Interest expense was slashed 61.2 percent, to $2.8 million from $7.1 million, generating another $4.4 million in savings. In another big savings, inventories were held in check, whittled 12.7 percent, to $129.5 million from $148.3 million.

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