Dan River boosts sales, margins

DANVILLE, VA — Boosting sales in its core home fashions and apparel fabrics units — and at the same time virtually doubling its margins, while hacking away at costs and slashing debt and interest expense — Dan River Inc. recorded a $4.2 million fourth-quarter profit, recovering from a year-ago loss of $10.0 million.

Skewing the year-over-year comparison, and hampering year-ago profits, last year's closing quarter included a $4.4 million non-cash charge tied to a plant consolidation, and $3.5 million in bad debt expense stemming from the Kmart bankruptcy.

With earnings coming in at $0.19 a share, more than double the $0.09 that analysts had expected — Wall Street pushed the stock up by 14.4, or $0.39 a share, to $3.09, when the news came out Feb. 4. The next day the stock shot up again, this time rising another 7.3 percent, or $0.23 a share, to $3.37. In just two days the stock had rocketed up by 24.8 percent.

The closing quarter marked a second straight profit for Dan River after a long string of see-saw profits and losses. More importantly, it marks the first time in more than a year that the company has managed an increase in home fashions sales, a business hit by Kmart's bankruptcy and store closings and under pressure as competitors nibble away at its bed-in-a-bag franchise.

Home fashions sales rose by 3.1 percent, to $112.1 million from $108.7 million last year. And operating profits in the home business climbed to $12.5 million from $1.0 million, getting a lift from stronger margins and an improved mix of business.

Giving another lift to the quarter, the apparel fabrics business, battered by low-cost imports, recorded a small profit of $730,000, recovering from a year-ago loss of $3.9 million. Apparel fabrics sales improved by 13.3 percent, to $31.3 million.

Driving the overall bottom line improvement, average gross margin virtually doubled, to 19.5 percent from 10.7 percent last year, when margins were crushed by the Kmart bad debt expense. In another big lift, operating costs were cut by 140 basis points, to 11.4 percent. Measured in absolute dollars, costs were pared by 6.5 percent, to $17.4 million, a savings of $1.2 million.

Working down debt, the company cut interest expense by 19.3 percent, to $5.9 million, producing a savings of $1.4 million. During the year the company paid down $73.4 million in long-term debt.