WPS profits jammed

Don Hogsett, August 19, 2003

West Point, GA — WestPoint Stevens Inc., which last month sought Chapter 11 shelter from its creditors, recorded a second-quarter loss last week of $72.0 million, compared with a small year-before profit of $2.0 million.

Its sales, most notably in towels, were in virtual freefall, tumbling almost 19 percent; its margins were under crushing pressure. And WPS was hammered by a fistful of one-time restructuring and bankruptcy costs.

And a hard landing gets even harder when you pull out an off-setting income-tax credit of $34.8 million. Absent the big tax benefit, the major mill produced a pre-tax loss of $106.8 million.

WestPoint's sales, like those of virtually every other American textiles producer, slumped badly in a persistently weak retail environment as stores pulled the plug on orders and re-orders, preferring empty shelves to laying out cash and building stockpiles of product which may not sell, except on a markdown table. Sales dropped off by 18.7 percent, to $365.7 million from $449.6 million last year, a daunting shortfall of $83.9 million.

Hardest hit were terry sales, which slumped by 22.5 percent, to $116.6 million from $150.5 million last year, a drop of $33.9 million. Bedding sales were somewhat less hard hit, sliding by 16.0 percent, to $211.1 million from $251.3 million, a decline of $40.2 million.

WestPoint recorded a handful of bankruptcy and restructuring charges, including a $46.3 million non-cash goodwill impairment charge; restructuring costs of $11.9 million; and bankruptcy costs of $6.2 million.

With its sales slowing down and its plants running slow, margins thinned out painfully, narrowing by 730 basis points, or 7.3 percentage points, to 15.8 percent from 23.1 percent a year ago.

On the upside, the company continued to hack away at costs, reducing its overhead by 7.1 percent, or $4.7 million during the period. Interest expense was pared by 6.5 percent, saving WestPoint another $2.2 million.

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