Springs stands out with profit in 2Q

Don Hogsett, July 23, 2001

In what is likely to be the last set of numbers coming out of Springs Industries for the next few years at least — the family-led company is soon to go private in a buyout — the textiles giant posted a second-quarter profit of $17 million, down 12.8 percent from $19.4 million last year.

While earnings may be down at a double-digit pace in a crushing environment for textiles producers, Springs is the only one of the nation's big three major mills to make any money at all — a singular accomplishment in a protracted industry downturn. Both of its peers, WestPoint Stevens and Pillowtex, posted losses during the first quarter, and will lose money again when they report their second-quarter results.

Helping to trigger the relatively modest earnings shortfall, sales fell off by 4.6 percent in a persistently sluggish retail environment, to $546.9 million from $573.1 million last year. But that's only because of the loss of the Disney program — valued at $50 million to $60 million a year in sales, roughly $13 million to $15 million each quarter — and a downturn in the company's institutional businesses, said Tom O'Connor, executive vp and president-marketing group. Remarkably, sales were actually up, "slightly," said O'Connor, in the company's core bed and bath business. "The most important thing is that we are increasing our market share in our core products in a very difficult environment."

Indeed, noted Crandall Bowles, chairman and ceo, sales increased a hefty 6.7 percent at the company's 10 largest customers.

Taking a bite out of the bottom line, in addition to the lower sales level, was substantial margin erosion as the company worked off its stockpiles. Average gross margin contracted by 190 basis points, to 18.4 percent from 20.3 percent a year ago. "We continue to work on inventories levels to be sure we're moving an appropriate quantity of off-quality goods, and that's having a negative impact on margins. And in the current retail environment, there's a skew to more promotional goods, and that's hurting margins as well."

Further pressuring margins, said O'Connor, were sharply higher medical costs, as well as rising energy costs.

Partially offsetting weakened margins, the major mill pared its costs by reducing or eliminating bonuses based on sales performance. Expenses were whittled down by 70 basis points, to 12.0 percent of sales from 12.7 percent the preceding year. Measured in absolute dollars, costs were sliced at a double-digit pace, by 10.3 percent, to $65.4 million from $72.9 million, a reduction of $7.5 million.

In another big lift to the bottom line, interest expense was slashed by 21.0 percent, to $6.3 million from $8.0 million, a cash savings of $1.7 million.

Springs Industries Inc.

Qtr. 6/30 (x000) 2001 2000 % CHG
a-First-quarter results include a $1.2 million provision for uncollectible accounts, compared with $1.3 million last year; $1.2 million in merger-related expenses; partially offset by $500,000 in income stemming from the partial reversal of a $2.9 million year-ago charge for severance benefits related to plant consolidation.
b-Six-month results include a $3.5 million provision for uncollectible accounts vs. $2.3 million last year; $3.5 million in merger-related costs; and $500,000 in income stemming from the partial reversal of a $2.9 million year-ago charge for severance benefits related to plant consolidation.
Sales $546,942 $573,128 -4.6
Oper. income (EBIT) 35,379 43,188 -18.1
Net income 16,950a 19,444a -12.8
Per share (diluted) 0.93 1.06 -12.3
Average gross margin 18.4% 20.3%
SG&A expenses 12.0% 12.7%
Six months
Sales 1,117,322 1,166,352 -4.2
Oper. income (EBIT) 67,929 83,927 -19.1
Net income 30,073b 39,551b -24.0
Per share (diluted) 1.65 2.16
Average gross margin 18.0% 19.8%
SG&A expenses 11.9% 12.6%

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