P'tex presents cloudy 2Q picture
Staff Staff -- Furniture Today, August 12, 2002
Rebuilding margins, still cutting costs and hacking away at interest expense as it emerges from Chapter 11 and sheds more than $850 million in debt, a slimmed-down Pillowtex Corp. recorded a second-quarter loss — before a fistful of one-time items that cloud the bottom line — of $17.8 million, less than half the size of a year-before loss of 38.3 million.
But sales, still smarting from the loss of the Ralph Lauren licenses for comforters and pillows, and under continued pressure from lower selling costs, tumbled by 9.5 percent, for the three-month period, to $210.4 million from $232.4 million a year ago.
The loss of the Lauren licenses accounted for most of the dropoff in sales, which were also hurt by a tough comparison with the year-ago quarter when Pillowtex boosted its sales in the midst of an inventory reduction program, David Perdue, ceo, told Home Textiles Today in a telephone conversation. "If you level the playing field, and look at the comparable sales picture, our sales in the quarter declined by just 2.4 percent."
Breaking out sales by category, sales were lower in towels and most bedding during the second quarter. But sales of Charisma "were quite good, very strong, and sales of pillows and pads were up in the low double-digits," he told HTT.
Helping to fuel the sharply narrowed loss, Pillowtex, helped by lower raw material costs, rebuilt its margins to 2.3 percent, recovering from a negative average gross margin of 2.7 percent the prior year. "During the second half we should see further margin improvement coming from improved running rates," said Perdue.
The big mill is still hacking away at costs, reducing operating expenses by 6.7 percent during the second quarter, to $14.6 million from $15.6 million last year, a cash savings of $1.1 million. But given the lower level of sales, costs edged up by 20 basis points, to 6.9 percent of sales from 6.7 percent a year ago.
But even with the stronger margins and lower costs, the company couldn't overcome the effects of the steep sales decline and posted a second-quarter operating loss of $9.8 million, still a substantial improvement over the year-before operating loss of $21.9 million.
The numbers — and the trend line — mostly look even better when you focus on the one-month period since emerging from bankruptcy. During June alone, Pillowtex further improved its average gross margin to 8.4 percent. But even given the lower level of sales and its impact on costs, the company recorded a small operating profit in June, $428,000, after a long string of operating losses.
In another big assist, Pillowtex slashed its interest expense by more than half, by 51.6 percent, to $8.0 million from $16.5 million.
Looking ahead to the back half of the year, Perdue told HTT, "Driving the top line is a clear priority. But that's difficult with pricing pressure so intense. It's an over-supplied market, and that leads to pricing pressure. And it's an under-branded market, which leads to commoditization, which also leads to even more pricing pressure."
The profit picture looks brighter during the second half. "We see a lot of encouraging things there. We're not where we want to be, but I'm quite pleased with the improvement."
Along with boosting sales, Perdue told HTT, "We've got to get our operating efficiencies up to generate more in the way of profits so that we can start putting some money into building and repositioning our brands. We've begun doing that already, and we're working on a major repositioning of the Cannon brand now."
|QTR. 6/29 (x000)||2002||2001||% CHANGE|
|a-Second-quarter results include a one-time gain of $856.4 million stemming from the forgiveness of debt as the company emerged form Chapter 11; a $192,000 charge for the impairment of long-lived assets, compared with a $20.1 million charge recorded in the same period a year ago; restructuring charges of $1.2 million, compared with $4.5 million last year; a $391.1 million fresh-start adjustment; miscellaneous charges of $61.3 million; and $2.9 million in preferred dividends and accretion, compared with $3.7 million last year. The prior-year period included a $4.2 million loss from discontinued operations.
b-Earnings per share data for the entire second quarter was not provided in the company's press release. The company said it recorded a $0.05 loss per share for the one-month period ended June 29, but no per share data was provided for the first two months of the period.
c-Six-month results include a one-time gain of $856.4 million stemming from the forgiveness of debt; a $31.1 million charge for the impairment of long-lived assets, compared with a $20.1 million charge recorded the year before; a $4.2 million restructuring charge vs. a $6.5 million restructuring charge in the 2001 period; a $391.1 million fresh-start accounting adjustment; miscellaneous charges of $66.6 million; a $7.2 million income-tax benefit; and preferred dividends and accretion of $7.5 million, compared with $7.4 million last year. The year-before six-month period included a loss from discontinued operations of $4.2 million.
|Per share (diluted)||_b||(5.92)||—|
|Average gross margin||2.3%||(2.7%)||—|
|Oper. income (EBIT)||(16,590)||(38,553)||—|
|Per share (diluted)||_b||(9.56)||—|
|Average gross margin||3.1%||(0.8%)||—|
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