2005 Vendor Report Card: Hurt But Still Standing

In an increasingly tricky environment, with more and more retailers moving off-shore, building and balancing stockpiles becomes a crucial component of profitability -- that's the cash it took to make the goods, and the profits that went away when they made too much that didn't sell. Not surprisingly, no sheet or towel maker did well, and the fastest turns were recorded by fiber and fabric producers.

It used to be that the HTT Vendor Report Card ranked suppliers each year by the size of their sales gain. But that was back in the days when sales increases were taken for granted. Bowing to new economic realities, fewer than half, four of the seven companies in this year's ranking, managed to boost their sales. Mohawk and Wellman did best, each with a gain of 17.6 percent.

With suppliers producing less and less of the goods they sell, and stepping up sourcing of lower-cost off-shore product, they're spending less to update plants and virtually nothing to add capacity. After spending more than a billion dollars over the past decade to bring new capacity on line, they're reversing course and shutting down plants, in effect becoming sourcing and marketing companies. That being the case, suppliers are getting less of a return on the money they've spent, and in 2004, only three companies out of seven, fewer than half, managed to improve their return on capital over year-before levels.

The trick in a lousy economy and a worsening sector is to step up productivity and squeeze more sales dollars out of every worker left on the payroll. Virtually the entire public textiles industry proved adept at putting the squeeze on last year, stepping up sales productivity from year-before levels. Only Quaker fell behind. But profits were another story. Only two managed to make even a dime out of each worker on the payroll, Crown Crafts and Mohawk.

The 2005 Home Textiles Today Vendor Report Card is based on data from public documents and was computed by Senior Research Specialist Janice Chamberlain and Cynthia Myers, database coordinator.

Bowing to the rapidly shifting global textiles environment, the HTT Vendor Report Card for the first time this year includes some off-shore textiles suppliers from Hong Kong, India and Brazil.

Preparing the tables and charts, the following formulas and ratios were used:

• Return on sales: calculated 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 SG&A.
• Inventory turns: cost of goods sold divided by average inventory.
• Operating margin: 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 SG&A.

Reflecting the increasingly small, and fragile, cadre of public home fashions companies, this year's Vendor Report Card ranks seven publicly reporting companies, down from eight last year and 15 just five years ago. Missing this year is Dan River, which became a private company after emerging from bankruptcy.

The HTT report card was compiled under the direction of Business Editor Don Hogsett and Director of Research Kay Anderson.