Byline: Michael McNamara, with contributions from Thomas J. Ryan
NEW YORK--Boosting exports and expanding value-added offerings are high on textile companies' agendas for next year, judging from a group of executives who outlined the strategies of their respective firms at Prudential Securities' 1995 Textile and Apparel Conference. Most of them said apparel fabrics will continue to be key product segments for their companies, citing new markets and better products as the key weapons in the fight against shrinking margins brought on by higher raw material costs--particularly cotton. The 10 textile industry participants in the conference were George Henderson 3rd, president and chief executive officer, Burlington Industries; Charles A. Hayes, chairman and ceo, Guilford Mills; Holcombe T. Green, chairman and ceo, WestPoint Stevens; John A. Boland 3rd, president and ceo, Dominion Textile Inc.; John L. Bakane, executive vice president and chief financial officer, Cone Mills; Neil H. Hightower, president and ceo, Thomaston Mills; T. Eugene McBride, president and ceo, Dyersburg Corp.; Gerald B. Andrews, president and chief operating officer, Johnston Industries; Walter Y. Elisha, ceo, Springs Industries, and E. Erwin Maddrey 2nd, president and ceo, Delta Woodside Industries. The conference was directed by Jack Pickler, Prudential's first vice president and its senior textile and apparel analyst. From time to time, Pickler interjected his observations into the discussions. The two-day meeting ended Thursday at the Millennium Broadway Hotel (formerly the Hotel Macklowe). "Margins right now are difficult, but good things are going on in apparel," said Henderson. "I wish we knew exactly what the cotton price situation will be, moving forward. But we're in the textile business, not raw materials price forecasting." Henderson told the 75 or so financial executives in attendance that to increase Burlington's shareholder value, the company will continue to focus on what it calls its "growth markets" in apparel: Burlington Ms., Denim, Burlington Klopman, Burlington Madison Yarn and the Raeford Uniform operation. Pickler noted that denim in particular continues to be Burlington's star performer. Margins in the division appear to be widening as the operations continue to run at healthy rates with modest price increases, he said. "The challenging part of our business," said Henderson, "has been and continues to be our knitted apparel fabrics business." He said he aims to get the division "back in the black in 1996." While higher raw material costs have contributed to the poor performance of Burlington's knit business, it hasn't been the major factor, Henderson said. "[Knitted fabrics] has been an embarrassment, mainly through our own doing," Henderson said. "We're going to cut down on our closeouts and seconds, which had been driving that business, and focus on fashion-forward products delivered on a timely basis." Turning to the benefits of the North American Free Trade Agreement, Henderson said, "Imports from the Far East seem to have flattened out, with...Mexico taking increased share. We're making Mexico a key part of our North American operations." Hayes told the group that Guilford is beginning to reap the benefits of a massive, five-year restructuring, moving from a "commodity product-based operation to a value-added mill." "Since 1990, half of our customers are brand new," said Hayes about Guilford's strategic shift. Hayes said that through the development of advanced dyeing and finishing techniques, Guilford has avoided "falling into the mix with everyone else." "Plus," he said, "you can get better margins with new types of fabrics. You knit for show, dye for dough." Hayes, a 45-year employee of Guilford, said the restructuring has also meant a $200 million investment in upgrades, including a new computer system. "But the most important thing has been the passage and implementation of NAFTA and GATT," said Hayes, who has spearheaded Nu-Start, a Mexican apparel manufacturing training facility 90 miles from Mexico City. Nu-Start is a joint venture between Guilford, DuPont and Alfa, a Mexican diversified holdings company. "Getting apparel production back to North America is going to benefit not only Guilford, but the entire textile and apparel industry," Hayes said. "We see a strong North American business helping our overall export business as well." Two other firms that are making exporting a top priority are Dominion and Cone. Dominion's Boland said cost pressures will be eased and market efficiencies improved by increasing global trade. Dominion, the Montreal-based parent company of denim fabric maker Swift Textiles, was the only non-U.S. firm participating at the meeting. "Market focus and speed are crucial," said Boland, noting that Dominion will continue to invest in what it calls its core businesses, such as Swift, while divesting from "businesses that don't really fit." One such business, Boland said, is its yarn operations. While generating fiscal 1995 sales of $332.7 million, or 23 percent of Dominion's overall sales, "it just doesn't fit our strategic profile," Boland said. "We just don't want to repackage raw material," he added. "We want to leverage our knowledge and competencies to support relationships in the market." As for Swift, Boland said he wants to build on the company's "value-added approach to the market, and that includes using the top raw materials." "We're going to be disciplined when it comes to our cotton purchases," Boland said. "U.S. cotton may be high in price, but it's of high quality, there's a reliable supply and it's close by." Cone, which already exports 25 percent of its denim, has spent "in excess of $58 million [since 1992] on building our international denim business," said Bakane. Bakane said Cone's 1995 business will be characterized by a strong denim market and an inability to pass on higher cotton costs, noting: "In the near term, cotton prices will continue to be volatile. It's hard to tell how much weather and insect infestation will affect prices." While apparel isn't the largest piece of WestPoint Stevens' business, it is an important one, said Green. He said the company plans to spend $5 million a year on Alamac Knits, WestPoint's sole apparel fabrics manufacturing division. Of WestPoint's 1994 overall sales volume of $1.3 billion, Alamac contributed $249.9 million. "With the weak apparel climate, coupled with higher cotton costs, Alamac has gone through a difficult period," Green said. "I really wish I knew the answer for sure, but I believe cotton is going to come down to the 75 cents to 80 cents per pound range. That will help Alamac's performance." Cotton, now selling at about 85 cents a pound compared with 74 cents a year ago, went as high as $1.25 this summer. Prudential's Pickler said he believes that in the short term, Alamac will continue to feel market and cost pressures. Moving away from the value-added approach, Thomaston Mills' Hightower said the company will "maintain its focus as a low-cost producer." "We're going to spend $120 million over the next five years, improving on-time delivery and service," Hightower said. Dyersburg's McBride said fleece fabrics, made from 100 percent virgin polyester and from recycled polyester fiber, "will continue to be a key focus, as we look to increase our market penetration." McBride said children's wear represents "a great opportunity for our fleece products, an area we'll pursue heavily in 1996." Two mills whose focus is away from apparel fabrics are Johnston Industries and Springs Industries. Johnston, primarily a home and industrial fabrics manufacturer, will take the next year to restructure operations to absorb the merger of Wellington Sears Co., expected to be completed in January. Andrews said the merger will make Johnston a $350 million company, compared with $263.3 million last year, when apparel fabrics accounted for 4.1 percent of sales. Andrews said synergies resulting from the merger will lead to efficient operations. Johnston plans to sell its investment portfolio, Jupiter National, which Andrews said has been volatile and doesn't fit with the company's strategy. He expects Johnston to gain between $20 million and $25 million from this sale. Johnston also intends to take on long-term debt for the first time in order to reduce its short-term debt, and plans $30 million in capital spending this year versus $32 million last year. These restructuring moves, along with higher cotton and polyester prices, are expected to keep earnings under pressure this year. Springs Industries Inc. is continuing to increase its dominance in home furnishings fabrics, Elisha said, noting that home furnishings fabrics should represent about 80 percent of sales at the end of 1996, with specialty fabrics--which includes apparel fabrics--at 20 percent. Springs' 1988 mix was 42 percent home furnishings and 58 percent specialty fabrics. The shift reflects several acquisitions, including Dundee Mills and Dawson Home Fashions in June, as well as a company effort to emphasize home furnishings. Springs' earnings are expected to be flattish for the remainder of the year due to rising costs and poor demand in some areas, including apparel fabrics. However, the second half should benefit from 3 to 5 percent price increases on some home furnishings products. Elisha noted that sales per associate hit $100,000 last year and added that NAFTA and GATT should boost future sales. Maddrey of Delta Woodside said he expects margins in the second half to be under severe pressure, principally due to high cotton and synthetic fiber costs, and to continuing weakness in demand for print fabrics. Reflecting the move to value-added products, he noted that Delta Mills, the company's woven business that accounts for about half of sales, is converting many of its plants to produce bottom-weight finished fabrics--one area of strength for the company--while exiting the commodity gray goods business as part of a $150 million modernization program started last year.
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