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Dan River doubles 3Q profits despite sales slide

Getting a lift from sharply stronger margins, and staging a strong earnings recovery in its two core businesses, home fashions and apparel fabrics producer Dan River Inc. more than doubled its third-quarter profits, to $4.7 million from $1.8 million last year.

But sales at the diversified textiles producer fell by 7.9 percent, to $147.4 million from $159.4 million last year, as a deep slide in sales of home fashions more than offset a big rebound in the apparel fabrics unit.

Home fashions sales fell back by 14.4 percent, to $105.9 million from $123.7 million last year, stung by lower sales of Martha Stewart Home products and absent last year's aggressive inventory reduction, which helped to boost the top line, but at the expense of margins.

On the upside, said Joseph Lanier Jr., chairman and ceo, the slowed mass merchant sales and the absence of inventory liquidation improved the product mix and provided a big lift to margins, more than doubling operating profits in home fashions during the period.

"Our home fashions segment had an improved product mix during the third quarter of 2002, as we sold more higher-end products to department and specialty stores on both an absolute and relative basis. The improved mix, along with cost reductions related to the plant consolidation implemented earlier this year, led to substantially improved margins for the segment in the third quarter. Operating income for the home fashions segment was $13.6 million during the third quarter, compared to $6.7 million in the same quarter last year."

With sales climbing higher in the apparel fabrics business by 24.2 percent, to $31.3 million, and running rates improving in its plants, margins improved in that other core business as well.

Between the stronger mix of home fashions product and improved running rates in apparel, Dan River's overall gross margin rate almost doubled during the period, climbing to 21.0 percent from 12.2 percent a year ago.

Dan River segment results

Quarter 9/28 (x000) 2002 2001 % change
( ): loss
Home fashions
Sales $105,857 $123,681 -14.4%
Op. income 13,632 6,719 102.9
Apparel fabrics
Sales 31,272 25,185 24.2
Op. income 1,681 (2,356)
Engineered products
Sales 10,282 10,524 -2.3
Op. income (531) (174)
Nine months 2002 2001 % change
Home fashions
Sales 329,059 361,174 -8.9
Op. income 31,157 9,879 215.4
Apparel fabrics
Sales 100,154 91,221 9.8
Op. income 1,427 (4,630)
Engineered products
Sales 30,558 32,854 -7.0
Op. income (1,141) (911)


Dan River Inc.

Qtr. 9/28 (x000) 2002 2001 % change
(loss)
a-Third-quarter results include miscellaneous expense of $103,000, compared with miscellaneous income of $647,000 in the prior-year period; and an income-tax provision of $3.2 million, compared with a year-before tax benefit of $6.1 million. The 2001 quarter included a $1.0 million charge for the amortization of goodwill.
b- Nine-month results include miscellaneous operating costs of $310,000; miscellaneous income of $105,000, compared with $695,000 last year; a $7.8 million income-tax provision, compared with a year-before tax benefit of $12.6 million; and a one-time charge of $20.7 million stemming from a change in accounting. 2001 results include a $244,000 loss from the company's stake in a joint venture.
Sales $147,411 $159,390 -7.5
Oper. income (EBIT) 14,500 3,782 283.4
Net income 4,699a 1,812a 159.3
Per share (diluted) 0.21 0.08 162.5
Average gross margin 21.0% 12.2%
SG&A expenses 11.2% 9.8%
Nine months
Sales 459,771 485,249 -5.3
Oper. income (EBIT) 31,355 3,516 791.8
Net income (17,479)b (10,857)b
Per share (diluted) (0.79) (0.50)
Average gross margin 18.0% 10.9%
SG&A expenses 11.2% 10.2%


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