Springs looks to jump earnings after 1Q loss

FORT MILL, SC — Hampered by slower sales, weaker margins and a sharp increase in customer bad debt, first-quarter profits at Springs Industries Inc. dropped off by more than a third, falling by 34.7 percent, to $13.1 million from $20.1 million last year.

Excluding $2.3 million in costs pegged to the company's plan to go public later this year, earnings declined at a lower rate of 28 percent, to $14.5 million.

Accounting for much of the squeeze on the bottom line, sales stalled out in a punishing retail environment, declining by 3.9 percent, to $570.4 million from $593.2 million last year, a shortfall of almost $23 million.

And with prospects still meager for a recovery in consumer spending, Crandall Bowles, chairman and ceo, cautioned that sales and earnings for all of this year will fall short of expectations. "We expect that sales growth and margin improvement will be impacted by continuing retail softness and inventory reduction efforts during the second quarter, and our outlook for improvement in the second half of 2001 remains guarded," she said in a conference call with investors.

Given the unsettled outlook, she said sales for the second quarter will be flat to up 2 percent, while sales growth for all of this year will range between 1 and 2 percent. Earnings per share before one-time items will come in at $0.95 to $1.05 for the second quarter, and total $3.95 to $4.14 for all of 2001.

Acting as a drag on earnings, average gross margin weakened by 180 basis points, to 17.6 percent from 19.4 percent, pinched by higher cotton and energy costs, lower volumes and a higher rate of seconds and close-outs. Adding an extra level of pressure, the company was stung by bankruptcies among its customers, forcing the major mill to more than double its provision for uncollectible accounts, to $2.3 million from $1.0 million the previous year. Further weighing the bottom line was $2.3 million in costs pegged to the major mill's ambitious plan to go private later this year in a deal with investor and former White House budget chief David Stockman.

Somewhat offsetting the pressure on the bottom line, the company scaled back its operating costs by 60 basis points, to 11.9 percent of sales from 12.5 percent a year ago. Measured in absolute dollars, costs declined by 8.8 percent, to $67.8 million from $74.3 million, a cash savings of $6.5 million, much of that stemming from a reduction in advertising costs that supported last year's rollout of the Springmaid program at Wal-Mart.

Breaking sales out by category, Bowles said, "Bedding was down somewhat, despite strong growth in bed in a bag." Taking a bite out of the bedding business, she added, was the loss of the Disney license. Basic bedding, the pillow and pad business, showed "strong growth," she added.

Bath, she said, grew by a strong 8 percent, driven by shower curtains and accessories.

a-Earnings in the quarter were reduced by a $2.3 million provision for uncollectible accounts, up 125.0 percent from a similar provision of $1.0 million last year; earnings were further reduced by a $2.3 million in merger costs related to a proposal to take the company private later this year.