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Mohawk sees rug biz grow in Q2, turns focus on Karastan

Calhoun, Ga. – Mohawk Industries Inc.’s carpet segment, which includes its Mohawk Home area, accent and bath rug division, posted a slight sales growth but a stronger adjusted operating income in the company’s second quarter thanks to a variety of recently implemented initiatives.

Net sales for the carpet segment inched up 1% to $780 million from a year ago, and adjusted operating income rose 15% as a result of increased productivity, improved quality and cost reductions in operations and administration, the company said.

“Our rug business improved in the quarter and we expect that to continue,” said chairman and ceo Jeffrey S. Lorberbaum during the flooring company’s earnings call this morning. ““We introduced new products and innovations…”

Shaw Floors’ closing of its rug business in January has not yet created new opportunities or benefit for Mohawk, as “they had a huge amount of inventory they had to push through,” Lorberbaum said in response to an analyst’s question.

But the company still projects a growth trend in its own rug segment going forward.

“We expect continued improvement [in Mohawk Home’s rug business] over the next six months to a year,” he added.

The carpet price increase announced in April was fully implemented at the end of the quarter to cover raw material inflation.

Additionally, Mohawk's patented Continuum technology is stimulating growth in its new polyester collections, and the state-of-the-art yarn project to support it is 75% complete.

Mohawk is also expanding the distribution of its upscale Karastan carpets by providing a broader offering and increasing the number of retailers selling the brand – an effort evident at the recent Atlanta International Area Rug Market when the company doubled the number of its Axminster-made collections it typically launches in hopes of wooing younger, more casual living-oriented shoppers.

“The high-end Karastan brand we treat differently,” Lorberbaum explained. “We make sure we find the right retailers who can sell better quality products and we are expanding that base.”

He later added: “We anticipate improvement in the [carpet segment’s] commercial and residential businesses for the second half.”

Turning to Mohawk Industries overall results for the second quarter, ended June 28, net earnings were $153 million and diluted earnings per share of $2.08, compared to last year’s net earnings of $85 million and EPS of $1.16. Excluding unusual charges, net earnings were up $162 million compared to $134 million and EPS were $2.21, representing a 20% increase over last year's $1.84 “and the highest quarterly adjusted EPS in the company's history,” Mohawk Ind. noted.

Net sales were up 4% to $2.05 billion.

For the six months, net earnings and EPS were $234 million and $3.19 compared to $135 million and $1.89 last year. Excluding unusual charges, net earnings were $252 million versus $195 million and adjusted EPS was $3.44, an increase of 26% the year ago’s $2.73

For the six-month period, net sales rose 12% to $3.9 billion, an increase of 12% from $3.5 billion.

Lorberbaum added: "Top line growth was less than we anticipated due to slower improvement in U.S. housing and remodeling; however, profits were in line with expectations as a result of successful product introductions, productivity improvements and better cost controls.”

In the third quarter, the company expects further improvement in the U.S. market, with limited growth in Europe and Russia.

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