Dan River down $2.3M despite home sales spike

By Don Hogsett -- Home Textiles Today, 2/26/2001 12:00:00 AM

DANVILLE, VA -With demand for its products weakening in a sluggish retail environment, and its costs climbing higher, putting margins under crushing pressure as it works down its stockpiles, Dan River Inc. posted a fourth-quarter loss of $2.3 million, even as the rollout of a new Martha Stewart bedding program drove sales higher at a double-digit pace.

And with the retail business still becalmed moving into the new year, the diversified textiles producer warned it expects to lose money through the first half of the year as it slows down production to bring inventories into line.

Getting a big lift from the rollout of a Martha Stewart bedding program at Kmart, Dan River home fashion sales shot up by 19.4 percent, to $120.9 million from $101.2 million last year, a gain of $19.7 million. Growing sales of home fashions offset continuing declines in the company's apparel fabrics and engineered products segments, driving overall company sales up by 10.9 percent, to $165.8 million from $149.5 million last year.

But while Dan River was shipping lots more of its home fashions products, given the big lift from Martha Stewart, it made a lot less money doing it, given weakening retail demand and plant downtime. Operating profits in the home business declined by 59.3 percent, to $4.5 million from $11.1 million the preceding year.

As margins thinned out in the wake of production curtailments, Dan River posted a fourth-quarter deficit of $2.3 million, compared with a a year-before profit of $2.0 million. Pulling at the bottom line, average gross margin thinned by 360 basis points, to 14.1 percent from 17.7 percent a year ago. Gross margin dollars declined by 11.6 percent, to $23.4 million from $26.4 million last year.

"Our fourth quarter was burdened with lower margins due to an unfavorable sales mix, higher manufacturing expenses due to increased energy, raw material and wage costs, and additions to inventory and claims reserves," said Joseph L. Lanier Jr., chairman and ceo. "These factors, coupled with softening retail demand during the quarter, put significant pressure on our margins. This pressure is likely to continue until industry inventories are more in balance with retail demand."

Dan River Home Fashions Results

Dan River Inc.

( ): Denotes loss

a-Fourth-quarter results include miscellaneous expense of $208,000 compared with other income last year of $130,000; a $96,000 loss form its share of a joint venture; and an income-tax benefit of $1.2 million.

b-12-month results include miscellaneous income of $226,000, compared with $603,000 the prior year; and a $226,000 loss from its share of a joint venture; prior-year results included $2.9 million in after-tax gains resulting from a $1.5 million tax benefit from the charitable donation of the company's Riverside Long Mill; a $1.1 million gain on the reversal of reserves established in prior years for the demolition of the Riverside property; and a gain on the sale of equipment written down in 1998. Excluding one-time items in 1999, net income was $11.8 million.