WPS sales slowdown continues through 2Q

WESTPOINT, GA — With sales tumbling across the board in a persistently weak retail environment — and with the mix of business skewing toward low-price, low-margin products — second-quarter sales at WestPoint Stevens continued their protracted decline, falling by 13.1 percent, to $401.7 million from $462.0 million last year — a drop of more than $60 million.

And the fall would have been even further were it not for the recent acquisition of the Chatham blanket and throw business. Excluding the extra sales from Chatham, sales fell off by 14.0 percent.

Without any leverage from sales, margins thinned out and costs climbed higher, generating a $17.5 million loss, compared with a prior-year loss of $89.8 million. Skewing the year-over-year comparison, though, the deficit in the year-ago quarter included more than $107.6 million in restructuring charges. Pull those out to create a level playing field, and this year's loss of $17.5 million loss was up against a pro forma profit last year of $17.9 million.

Putting earnings under crushing pressure, average gross margin eroded by 820 basis points, to 17.9 percent from 26.1 percent a year ago. Playing havoc with margins, said Chip Fontenot, president and coo, has been a profound shift in business, away from high-margin, high-profit, value-added department store products to low-margin, solid-color, mass merchant business. Taking another big bite out of margins are higher cotton costs.

Trying to stabilize the mix of business, said Fontenot, WestPoint has intensified its efforts to build sales to the big-box specialty channel. "Our business has been out of sync, and we're really focusing on the specialty channel and making substantial progress with that customer base," he told analysts and investors on a conference call. "We are seeing some significant movement there," he said, adding that sales to the specialty channel grew at a double-digit pace during the second quarter.

Capitalizing on the weakness of a competitor, bankrupt Thomaston Mills, Fontenot said WestPoint is aggressively pursuing some of that company's bed in a bag and its institutional businesses. "We have been very aggressive there."

Working to drive sales in the current third quarter, Fontenot said the major mill has already begun shipping product under an expanded Ralph Lauren licensing agreement, putting down comforters, bed pillows and blankets on to retail shelves. And products from the new Disney Home program will ship within the next few weeks, he said.