NEW YORK — "We at Cone are fascinated by the opportunity to make something out of this mess."
Those were the words of John Bakane — chief of one of the handful of major U.S. textile mills that has managed to avoid bankruptcy in recent years — on a day when his company reported that its net income had improved by 25.1 percent in the first quarter, despite a 3.4 percent sales slip.
Greensboro, N.C.-based Cone Mills Corp. also said Thursday it is holding off on its previously reported plan to sell to W.L. Ross & Co. $27 million in convertible debt, which had been intended to finance a new denim plant in Mexico. Bakane, who serves as Cone’s president and chief executive officer, said the company wants to hold off and see if it can pick up an existing plant on the cheap, rather than building on its own.
Industry sources have speculated that Cone would be interested in buying bankrupt Burlington Industries Inc.’s Mexican denim operation. Wilbur Ross, the head of W.L. Ross, serves as the head of Burlington’s unsecured creditors’ committee.
Bakane declined to comment on whether Cone was specifically interested in Burlington’s assets.
"There are a lot of different discussions going on with different parties in different parts of Latin America," he told WWD. "I don’t want to put anybody on the spot."
Bakane acknowledged in a conference call with financial analysts that buying existing denim capacity, rather than building a new plant, would have advantages. Given the weak economy, the denim supply in North America surpasses demand, which is keeping prices down and hurting margins. Building a new plant would tend to exacerbate that problem, sources said.
In a statement, Bakane said that Ross "remains supportive of Cone and its strategy to acquire low-cost denim capacity in Latin America and will work with the company to find a capital structure solution that allows it to realize its strategy."
The convertible debt plan had aroused the ire of dissident Cone director Mark Kozberg, who had threatened a proxy battle on the plan, which he contended would water down Cone’s stock. Cone said in the statement that it would delay releasing its proxy until mid-year while it determines its denim expansion plans and how to finance them.Cone still has a few months to decide since bids for Burlington’s Mexican mill aren’t due until July 10. An auction is set for July 21.
Meanwhile, Cone’s existing denim capacity drove its first-quarter profit improvement.
For the three months ended March 30, Cone’s net income came to $1.8 million, or 3 cents per diluted share, up from $1.4 million, or 2 cents. Sales slipped 3.4 percent, to $102.3 million.
The denim unit saw its operating profits rise 32.4 percent to $7.7 million, while sales grew 2.9 percent to $84.5 million. Cone’s commission finishing unit saw profits tumble to $8,000, from $1.1 million, while sales fell 23.3 percent to $11.6 million. The home fashions unit also saw sales fall and slipped into the red.
The company’s existing Mexican operation, the Parras-Cone joint venture, contributed $2.6 million to Cone’s earnings before interest, taxation, depreciation and amortization, up from $1.2 million last year.
Still, firm executives acknowledged that earnings came well below their initial expectations of 6 cents to 7 cents per share.
Lower denim prices and a slow startup to a Turkish denim venture intended to supply Levi Strauss & Co.’s European operations hurt results. Denim profits improved because the firm ran its denim mills at full capacity during the quarter, executives said.
Still, Bakane warned that the denim business —?and apparel demand in general —?is slowing, making it hard to tell how the rest of the year will go. These results matched up with jeans giant’s VF Corp.’s report earlier this week that its quarterly domestic jeans sales were off 7 percent.
"We’re seeing traffic-related weakness in basic jeans sales at retail," he said. "While spring is not a big season for jeans sales, the mood currently in the soft-goods pipeline is one of caution and delay in placing orders."
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