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MADAGASCAR CHARGES SINK NOVEL EARNINGS

NEW YORK -- The costs and charges associated with its move out of Madagascar exacted a substantial toll on Novel Denim Holdings' fourth-quarter finances, as the company expected, but recovery is anticipated to commence during the current...

NEW YORK — The costs and charges associated with its move out of Madagascar exacted a substantial toll on Novel Denim Holdings’ fourth-quarter finances, as the company expected, but recovery is anticipated to commence during the current quarter.

This story first appeared in the June 14, 2002 issue of WWD.  Subscribe Today.

The denim and chino maker posted a quarterly loss of $9.4 million, or $1.01 a diluted share, for the quarter ended March 31, reversing year-ago profits of $3.5 million, or 38 cents. Sales rose by 6.5 percent to $37.5 million from $35.2 million last year. Garment sales fell by 10.2 percent to $26.2 million from $29.1 million, offset by a 45.7 percent increase in third-party fabric sales to $8.9 million from $6.1 million.

Costs associated with the disruption to production and the closure of the plants totaled $5.2 million. Additionally, Novel Denim recorded a $2.4 million fixed asset impairment charge of equipment in Madagascar, the setting of recent political instability. Before these charges, it reported diluted loss per share of 19 cents.

“We responded well to the events, but this dispute enacted a meaningful financial toll,” K.C. Chao, chief executive, said on a conference call. “The company is now focused on negotiating the removal of our garment equipment and raw materials from Madagascar in what continues to be a difficult environment.”

Chao said the firm plans to move the equipment to its operations in Mauritius and South Africa once the terms are completed.

“Our fabric business is seeing improved profitability, particularly as a result of the increased demand for African-produced fabric required for duty-free entry into the U.S.,” Chao said.

Looking ahead, Novel Denim said it reaffirmed its previous guidance of $1 a diluted share for the first quarter, including $1 million exchange loss, but excluding the final costs associated with the Madagascar closure, which will likely include about $2 million for final shipment, operating obligations and costs for moving equipment in the quarter.

For the full year, income fell 82.7 percent to $2.1 million, or 22 cents a diluted share, from $12 million, or $1.29, in 2001. Sales rose 14.9 percent to $158.6 million from $138 million.