Dan River widens loss to $27.2 million

DANVILLE, VA. — Picking up an $8.4 million tab for a sweeping overhaul of operations, then paying almost $7 million more in bankruptcy costs and lawyer fees, Dan River Inc. recorded a worsening second quarter loss of $27.2 million, up from $19.4 million last year.

Sales at the diversified textiles producer slipped 5.4 percent, to $110 million from $116.3 million a year ago, with most of the damage to the top line done by a big $4.4 million drop in sales to Kmart, the company's single largest customer.

Sales in the core home fashions business slid 5.6 percent, to $73.1 million from $77.4 million last year, largely reflecting the hit at Kmart, where Dan River is represented in the Martha Stewart line. Home fashions sales, the company said, decreased "across all channels of distribution except in the hospitality and healthcare sheeting area, where sales increased $5.1 million, reflecting improved hotel industry occupancy rates and a major new customer."

Hit hard by thinning margins and lower operating rates in its plants, as well as the decline in sales, the home fashions unit recorded an operating loss of $4.3 million, reversing a small profit the year before of $788,000.

Elsewhere, sales in apparel fabrics fell 6.2 percent, to $28.2 million from $30 million; and sales in engineered products dipped 1.7 percent, to $8.7 million from $8.9 million.

Taking a bite out of the bottom line, Dan River recorded a pre-tax charge of $8.4 million to cover costs of an ongoing overhaul of operations and continued downsizing. Included are $3.9 million in costs tied to the shutdown of a Mexican manufacturing operation and a $2.6 million charge from an adjustment to the value of assets held for sale. Another $1.9 million went for severance and benefits associated with staff reductions and shift eliminations. A further bite of $6.9 million came in the form of bankruptcy costs and lawyer fees.

Dan River recorded a $9.1 million operating loss during the second quarter, sharply worsening from a year-before loss of $599,000.

Creating more pain at the bottom line, average gross margin thinned considerably, narrowing to 3.9 percent from 12.6 percent a year ago, reflecting rising raw material costs, downward pressure on selling prices and plant curtailments.