Troubling year for suppliers

Carpets & Fibers gain ... : In a brutally challenging year for the eight remaining players in the Home Textiles Today Vendor Report Card, down from 10 just a year ago, only three managed to increase their sales during 2003. Worth noting, not one of those recording a sales gain is a pure-play home fashions supplier. The closest to home is Mohawk, but even then most of the gains come out of its core floor coverings business, notably its new Dal-Tile hard floor coverings business. Springs Industries, now a private company, no longer reports it sales; but, if it did, it would easily top the ranking with what insiders report was a sales gain well into double digits.

An industry loses ground: In past years, vendors were ranked by the greatest sales and earnings gains. But that was back in those palmy days when textiles producers were actually making money or building sales. But last year, only three of the eight companies in the sample, fewer than half, improved their sales — Mohawk, Wellman and Polymer Group — not a single pure-play home fashions supplier among them. All the others declined, Dan River losing more than a fifth of its sales, declining by 22.1 percent. Ditto profits. Only three of the companies made earnings gains — Mohawk, Crown and Polymer. And even then, Polymer's gain existed only on paper. Emerging from bankruptcy, Polymer recovered from a year-before loss on the strength of a non-cash gain of $541 million stemming from its reorganization.

Operating income as a percentage of sales

Closer look: Cutting through the thicket of one-time charges and gains that can obscure a company's bottom line, and zooming in on operations, only two players — recovering Polymer Group and Mohawk Industries — managed to boost their operating profits last year. Polymer doubled its operating profits as it recovered from earlier weakness, and Mohawk was up 3.8 percent. Only Mohawk in the entire sample managed a double-digit operating margin — operating profits measured as a percentage of sales. Crown Crafts, an infant and juvenile products producer, nailed down second place, offsetting lower sales by slashing costs to generate a margin of 8.6 percent.

The 2004 edition of the Home Textiles Today Vendor Report Card is based on data from public documents and was computed by senior research specialist Janice Chamberlain and database coordinator Cynthia Myers.

Formulas used include:

Return on sales: figured by dividing net income by net sales;

Return on equity: net income divided by shareholder equity;

Gross margin: net sales minus cost of goods sold divided by net sales;

SG&A as a percentage of sales: selling, general and administrative expenses divided by net sales;

Net debt coverage: net interest expense divided by operating income. Operating income is defined as net sales minus cost of goods sold and selling, general and administrative expenses;

Inventory turns: cost of goods sold divided by average inventory;

Operating return on sales: operating income divided by net sales;

Return on invested capital: operating income divided by total assets. Operating income is defined as net sales minus cost of goods sold and selling, general and administrative expenses.

This year's Report Card ranks eight publicly reporting companies, down from 10 last year and 15 in 2000. Missing this year are Springs Industries Inc., now privately held and no longer reporting its results, and Pillowtex Corp., which suspended operations and liquidated its business last year. The Report Card was compiled under the direction of business editor Don Hogsett and director of research Kay Anderson.

Return on invested capital

The returns are thinning out: With U.S. textiles producers actually producing fewer goods themselves, and stepping up sourcing of low-cost product from abroad, they're spending less and less money to add capacity or modernize their plants. After spending more than a billion dollars over the past 10 years to add capacity, cash-strapped vendors are now reversing course and shutting down some of the capacity they spent so much to add.

In 2003, the vast majority of suppliers, seven of the 10 in that year's Vendor Report Card, substantially improved their return on capital. Not so last year. Struggling to keep their noses above water, only two companies bettered the prior year's return, Culp and Polymer Group. All the others lost ground.

Inventory turns

Fiber, fabrics, move fast: In an increasingly competitive sales environment for domestic producers — with more and more retailers bypassing U.S. producers and doing their own sourcing — building and balancing stockpiles becomes a critical component of the bottom line. That's not just product sitting on a warehouse pallet, that's the cash it costs to make the goods, and the profits that might have been. Not surprisingly, in today's complex sales environment, not a single sheet or towel producer made the cut last year. The fastest inventory turns were recorded by fiber and fabric producers.

Sheets and towels bring up the rear: Lagging far behind, U.S. home fashions producers were slow to move the goods. WestPoint managed a turn of just 3.7 times, and Dan River was further behind at just 2.8 times.