Steep declines continue for struggling Dan River

Don Hogsett, May 31, 2004

With sales still tumbling more than 20 percent, and margins under crushing pressure as its plants run slow, Dan River Inc. recorded a first quarter loss of $21.5 million, compared with a year-before profit of $2.8 million.

For a fifth straight fiscal quarter, the diversified textiles producer recorded a top-line fumble, with sales declining 17.9 percent, to $121 million from $147.4 million the prior year, a shortfall of more than $26 million. It was a fourth-straight quarter of double-digit declines, following respective drops of 24.4 percent, 29.6 percent and 28.2 percent during the three preceding quarters.

Sales dropped off at a double-digit pace in each of the company's three business centers, and hardest hit was Dan River's core home fashions segment, where sales fell 20.2 percent, to $86.6 million from $108.4 million last year.

Dan River said roughly half the decline "is attributable to lower sales to our largest customer, Kmart Corporation, due principally to the unfavorable comparison caused by the rollout of a major program in the first quarter of fiscal 2003." In general, Dan River said, "Sales were lower in all major channels of distribution, with the exception of the institutional bedding area, with volume, price and mix all contributing to the decrease."

Dan River reported the quarterly results as part of a 10Q filing with the Securities and Exchange Commission.

In a departure from past practice, the company severely restricted distribution of the quarterly results to the minimum required by federal securities regulation, choosing not to issue a press release.

Providing a modest lift to the bottom line, Dan River continued to slash overhead, reducing its costs 7 percent, to $16.7 million from $18 million, generating a cash savings of $1.3 million. The reduced operating expenses, the company said, stemmed from lower salary and benefit costs tied to staff reductions and lower incentive compensation costs paid to executives after the company missed its earnings targets.

Eroding the bottom line, in tandem with the falling sales, average gross margin plunged to 3.8 percent from 18.8 percent a year ago, a daunting drop of 115 percentage points, hurt by slowdowns in the company's plants and a less profitable product mix.

Dan River Inc.

Qtr. 4/3 (x000) 2004 2003 % chg
a-First-quarter results include $226,000 in miscellaneous expenses, compared with miscellaneous income the prior year of $137,000; bankruptcy costs of $1.8 million. During the prior years, Dan River recorded $440,000 in pre-tax income from the sale of surplus equipment as part of a plant consolidation program; and an income-tax provision of $2 million.
Sales $121,041 $147,372 -17.9
Oper. income (EBIT) (12,141) 9,751
Net income (21,456)a 2,750a
Per share (diluted) (0.97) 0.12
Average gross margin 3.8% 18.8%
SG&A expenses 13.8% 12.2%

First quarter segment results

Home Fashions 2004 2003 % change
Sales $86,557 $108,414 -20.2
Operating income (5,339) 11,525
Apparel Fabrics
Sales 25,682 29,059 -11.6
Operating income (4,940) (636)
Engineered Products
Sales 25,682 29,059 -11.6
Operating income (4,940) (636)

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