Stalling sales slam into Dan River's Q2 profits

DANVILLE, VA — With sales slashed by more than a fourth in its core home fashions business, then picking up a $12 million tab to shut down two of its manufacturing plants, Dan River Inc. recorded a second-quarter loss of $19.4 million, compared with a $3.7 million year-ago profit.

Overall sales at the diversified textiles producer declined by 24.4 percent, to $116.3 million from $153.9 million last year, an unnerving shortfall of $37.6 million, as sales fell off in each of the company's business segments.

Hardest hit was the big home fashions business, where sales plunged by 27.8 percent, to $77.4 million from $107.2 million, hammered in the midst of a bruising business environment that many industry executives are calling the worst in half a century or more. Dan River is the first of the big home fashions players to report second-quarter results, perhaps offering a preview of the continuing damage that other big mills are likely to report in coming weeks after retailers shutdown the pipeline and stopped ordering goods over the past several months.

Taking a bite out of the bottom line, Dan River put up a $12.2 million charge to cover the cost of shutting down two of its manufacturing plants, a greige goods weaving plant in Greenville, SC, and a sewing facility in Fort Valley, GA. "As demand recovers, the company plans to transfer production capacity form the closed facilities to other company facilities in Danville, VA, and Morven, NC," said Joseph Lanier Jr., chairman and ceo.

Margins came under crushing pressure, narrowing by 690 basis points, or 6.9 percentage points, to 12.6 percent from 19.5 percent a year ago. Gross margin dollars were sliced in half, by 51.2 percent, to $14.7 million from $30.1 million last year.

Dan River slashed costs by 10.9 percent, to $15.3 million from $17.2 million last year, generating a cash savings of $1.9 million. But even with the draconian cost cuts, expenses climbed higher, measured as a percentage of falling sales, rising by 200 basis points, or 2.0 percentage points, to 13.1 percent from 11.1 percent the prior year.