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Quaker Fabric says 4Q sales, income down

By Furniture Today Staff -- Furniture Today, February 23, 2005

FALL RIVER, Mass. (BUSINESS WIRE) -- Quaker Fabric Corp. has reported net sales of $68 million, a net loss of $1.9 million, and diluted and basic losses per share of $0.11 for the three-month period ended January 1, 2005.

These statistics compare with net sales of $80.5 million, net income of $3.3 million, and diluted and basic earnings per share of $0.19 and $0.20, respectively, for the fourth quarter of fiscal 2003.

Favorable settlement of the company's claim for certain federal R&D tax credits added about $2 million, or $0.12 per share, to the company's net income for the quarter.

Results of operations for fiscal 2004 were net sales of $289.1 million, a net loss of $2 million, and diluted and basic losses per share of $0.12; compared to net sales of $325.3 million, net income of $7.9 million, and diluted and basic earnings per share of $0.47 and $0.48, respectively, for fiscal 2003.

"While 2004 got off to a reasonably strong start, it was a major disappointment for Quaker. Weakness at the revenue line was our biggest issue, with net sales for the year down 11.1%. Our new yarn sales initiatives showed significant strength, with 2004 net sales of $20.4, up 92%. Our international net fabric sales were down approximately 10.2% for the year, 12.2% for the quarter. Net sales into the domestic residential market, however, at $232.8 million for the year, were down 15.3%. This revenue loss reflects a continuation of intense competition in the domestic market, including market share gains from furniture coverings, particularly leather and faux suede, coming into the U.S. from Asia. The current popularity of those products at the consumer level has reduced the size of the market for the woven plain and Jacquard fabrics Quaker makes," said Larry Liebenow, Quaker's president and CEO.

"For Quaker, in addition to lower sales, weak demand in the domestic residential market led to a 17.2% drop in new fabric orders during the fourth quarter, a significant deterioration in our margin performance and pushed our SG&A expenses as a percentage of revenue up to 19.1% for the year. Higher energy and raw material prices and the more than $700,000 of professional fees we incurred in connection with our Sarbanes-Oxley Act compliance efforts exacerbated the other problems created by our revenue shortfall," added Liebenow.

"The deterioration in our financial results led us to seek waivers from our two major financing sources to deal with various covenant issues in our loan documents. We are currently working to put new loan agreements in place consistent with our operating and financing needs," Liebenow said.

"We took aggressive action during the second half of the year to reduce our operating costs going forward," he added. "These actions included staffing reductions intended to both reduce overhead and bring our production rates in line with demand as well as the execution of a lease on an additional 540,000 square feet of manufacturing and warehousing space in Fall River that will allow us to consolidate operations at four of the facilities we are currently leasing under a single roof. Additional company-wide cost cutting measures intended to further reduce our annual fixed operating costs by approximately $6.0 million, plus a reduction in force affecting approximately 275 members of our production staff, are being implemented now."

"At the same time, we are working hard to build volume in both the domestic and international residential markets, to continue the growth of our yarn and contract programs and to introduce a new range of products for the outdoor furniture segment. Also, the new family of products we developed to compete in the general suede category is selling well. And so are the innovative textured products we introduced to meet the needs of our middle to better end customers. We also intend to expand our business by bringing fabrics into the U.S. market that we don't have the equipment to make ourselves, as a complement to our overall product offering," Liebenow explained.

"In addition, we will be using the results of a market study we commissioned during December to refine our strategy going forward so that the core competencies we have developed in the design, technology, supply chain and new product development areas can be used to best advantage to further our profitability objectives. We are also planning to move ahead with some adjustments in our pricing to deal with the pressure placed on our margins by significant raw material and other cost increases," Liebenow added.

"It is clear that domestic market conditions are likely to remain both challenging and highly dynamic. At the same time, we believe that we are aggressively dealing with the cost and pricing issues in our core business. We have also made substantial progress in addressing the raw material sourcing issues raised by Solutia's recent decision to exit the acrylic business. We believe we are taking the additional product/market initiatives necessary to achieve our longer-term objectives. And we are excited about the potential these efforts - together with Quaker's low debt levels and strong development, design and service capabilities - represent for our company's future," he concluded.

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