Thomaston 1Q hurt by declining sales

By Don Hogsett -- Home Textiles Today, 11/13/2000

THOMASTON, GA -With sales falling off at a double-digit pace in the midst of a broad retail slowdown, putting margins under crushing pressure, Thomaston Mills posted a sharply widening loss in its first fiscal quarter of $3.6 million, compared with a year-ago deficit of $1.6 million.

Getting the new fiscal year off on a slow note-a big disappointment after a promising start on a turnaround-sales in the quarter ended Sept. 30 fell by 10.0 percent, to $36.6 million from $40.7 million a year ago as retailers postponed shipments on goods already ordered.

"Our retail customers have slowed in taking out their orders, and this caused lower capacity utilization in both consumer products and apparel fabrics," said Neil Hightower, president and ceo.

With the slowdown in sales triggering downtime in its plants, average gross margin was pared by more than half, contracting by 550 basis points, to 4.5 percent from 11.0 percent the prior year. Gross margin dollars fell by almost two-thirds, to $1.6 million from $4.5 million last year, generating an operating loss for the quarter despite deep and continued cost-cutting.

Providing some relief and acting as an offset to the deep margin erosion, Thomaston slashed its costs by 16.5 percent, to $3.4 million from $4.1 million last year, a cash savings of $671,000. And even with big decline in sales, the company managed to work down its overhead by 80 basis points, to 9.2 percent of sales from 10.0 percent the prior year.

But stalled-out sales and the subsequent margin contraction caused Thomaston to generate an operating loss of $1.8 million, compared with a year-ago profit of $442,000.

Cleaning up its balance sheet, Thomaston worked down its debt load by more than $8.0 million, Hightower noted, including a big 18.0 percent reduction in its revolver, to $28.3 million from $34.5 million a year ago. But with interest rates ticking up, Thomaston still shelled out $2.2 million in interest expense, up slightly from $2.1 million last year.

On the plus side, said Hightower, "The company has performed well in on-time delivery and quality, and this has helped build business for future shipment."

Polishing up his crystal ball, Hightower added: "In looking ahead, we expect continued slowness at retail through the December quarter. The entire industry operating in a challenging environment and Thomaston Mills has not been immune to the effects. Our people are putting forth tremendous effort to return to profitability, and we are seeing improvement in orders for shipment in the January quarter."

( ): Denotes loss

a-Earnings in the quarter include a $4.0 million loss from continuing operations, compared with a $1.6 million loss a year ago; a $421,000 profit from discontinued operations, compared with a year-ago loss of $6,000; a $151,000 charge for the amortization of credit agreement fees, compared with $74,000 last year; and $35,000 in miscellaneous income vs. $116,000 the previous year.