Dan River back in black

Launching an earnings turnaround after a long string of losses, Dan River Inc. parlayed sharply stronger margins, deep cuts in debt and interest expense, and a profit recovery in the long-battered apparel fabrics business, into a second-quarter profit of $3.7 million, bounding back from a year-before loss of $6.1 million.

Sales at the diversified textiles producer slipped by 4.9 percent, to $153.9 million from $161.9 million last year, as a steep decline in the core home fashions business was partially offset by strengthening sales in the long-troubled apparel fabrics business.

Home fashions sales were off by 8.4 percent, to $107.2 million from $117.0 million last year, up against a tough comparison with last year when the company rolled out a large juvenile program, said Joseph Lanier Jr., chairman and ceo.

"Additionally, sluggish consumer demand and the absence of aggressive inventory reduction efforts contributed to the lower sales."

Despite the shortfall in sales, operating profits in the core home fashions business more than quadrupled, shooting up by 356.5 percent, to $12.2 million from $2.7 million last year. In a major turnaround, the long hampered apparel fabrics business recorded a $1.3 million operating profit, reversing a prior-year loss of $1.8 million

"Our profit improvement came as a result of better manufacturing performance from increased capacity utilization, lower raw material costs, and an improved product mix compared to the second quarter of last year," said Lanier. The higher running rates and lower cotton costs lifted average gross margin to 19.5 percent, up from 10.7 percent the prior year. In a slight offset to the substantially wider margins, the lower level of overall sales pushed costs modestly higher, to 11.1 percent of sales from 10.4 percent a year ago.

In another big lift to the bottom line, Dan River substantially whittled down its debt and interest expense. Long-term debt was reduced by 18.4 percent, to $244.0 million from $299.0 million last year, generating a $1.3 million savings in interest payments, down 15.0 percent, to $7.1 million from $8.4 million.

With a strong second quarter under his belt, Lanier said he's buoyant and bullish about the back half of the year. "Barring something unforeseen with the economy, we should continue the momentum we have shown during the first half." Lanier said he's comfortable with an earlier earnings forecast of $0.30 to $0.40 per share for the second half, "and we now believe earnings per share should come in at the upper end of that range."

Dan River Inc.

Qtr. 6/29 (x000) 2002 2001 % change
a-Second-quarter results include miscellaneous operating costs of $310,000; and miscellaneous income of $148,000, compared with miscellaneous expense of $1134,000 in the prior-year period. Results in the year-ago second quarter include a $889,000 charge for the amortization of goodwill; a $177,000 loss from the company's share in a joint venture that has since been dissolved; and an income-tax benefit of $3.0 million.
b-Six-month results include a $1.7 million charge for the amortization of goodwill; $207,000 in miscellaneous income, compared with $48,000 the preceding year; a $244,000 loss from the company's share in a former joint venture; and a $6.6 million income-tax benefit. Included in the six-month results are a one-time increase in income-tax expense of $2.8 million, attributable to tax-law changes associated with the Job Creation and Worker Assistance Act; and a $1.4 million pre-tax charge for bad debt expense tied to the Kmart bankruptcy. Excluding these one-time items, the company would have reported net income of $2.2 million, or $0.10 per diluted share.
Sales $153,942 $161,858 -4.9
Oper. income (EBIT) 12,918 497 2,499.2
Net income 3,658a (6,139)a
Per share (diluted) 0.16 (0.28)
Average gross margin 19.5% 10.7%
SG&A expenses 11.1% 10.4%
Six months
Sales 312,360 325,859 -4.1
Oper. income (EBIT) 16,856 (267)
Net income (1,477)b (12,659)b
Per share (diluted) (0.07) (0.58)
Average gross margin 16.6% 10.2%
SG&A expenses 11.2% 10.3%

Linda Cahan | Contributing Editor, Gifts and Decorative Accessories

Contributing Editor, Gifts and Decorative Accessories

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