WPS 1Q turnaround sends stock soaring

WESTPOINT, GA — Buoyed by stronger sales and sharply improved margins, textiles giant WestPoint Stevens climbed back on track with a first quarter profit of $2.0 million, recovering from a year-ago loss of $10.9 million.

It was a strong dose of good news for West Point after a two-year restructuring and a long trough of hit-or-miss earnings, in which the company made money in only four of the nine prior fiscal quarters.

Wall Street, which had been expecting another loss, clearly relished the news. Freshly bullish about the company's prospects, investors triggered a rally in WestPoint stock, which rocketed up by more than 40 percent in early trading last Thursday in the hours after the company put out the good news. By mid-afternoon, WestPoint shares had zoomed up by 41.3 percent, climbing from $0.99 a share to $3.39 in unusually heavy volume. Shares of WestPoint stock have now more than tripled in value in the past few weeks, rising 253.1 percent from a 52-week low of $0.96 a share.

The news sent out a powerful signal to Wall Street and investors, confirming a growing sense of a first-quarter sales revival and raising hopes that a badly hammered industry may finally be finding its footing. WestPoint's good news had something of a ripple effect, helping to lift other home fashions stocks like Dan River, which moved up by almost 12 percent in value, to $2.07 a share, in an otherwise down day for stocks.

Helping to fuel the earnings rebound, sales in the opening quarter rose by 3.9 percent, to $435.1 million from $418.6 million last year, even after the bankruptcy of a major customer, Kmart, and a subsequent slowdown in sales to the troubled discounter. Growth, the company said, was driven "by strong double-digit increases in accessory products, more than offsetting a modest decline in sheets and WestPoint Stevens' retail stores."

And WestPoint profits would have been even stronger, the company noted, but for the $2.6 million after-tax hit it took when Kmart filed for bankruptcy protection.

In a big prop to the bottom line, margins widened substantially, more than offsetting somewhat higher operating costs. Average gross margin improved by 340 basis points, or 3.4 percentage points, to 24.8 percent from 21.4 percent the prior year. Fueling the margin improvement, said the company, were lower raw material costs; a more favorable mix of product, notably high-margin accessories; and increased production efficiencies.

Holcombe Green Jr., chairman and ceo, commented, "We are extremely pleased that we were able to increase sales in the first quarter despite the effects of Kmart's recent downsizing. Clearly our focus on key growth accounts and our expanding emphasis on accessory products are paying off. Furthermore, we continued to control inventories and ran our plants full. Most importantly, we are comfortably in compliance with all financial covenants and continue to have substantial liquidity."

Looking ahead, WestPoint said it expects to put up a profit of $0.45 to $0.50 cents per share for all of this year and expects its sales to rise by about 4 percent from year-ago levels, "even after accounting for an expected sales decline from Kmart."