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Eroding U.S. Dollar Hurts Novel Denim

NEW YORK — Weak markets and a weak dollar collided to send Novel Denim Holdings Ltd. to a loss and a double-digit sales decline in its third quarter.<br><br>For the three months ended Dec. 31, the Hong Kong-based firm lost $3 million, or 34...

NEW YORK — Weak markets and a weak dollar collided to send Novel Denim Holdings Ltd. to a loss and a double-digit sales decline in its third quarter.

For the three months ended Dec. 31, the Hong Kong-based firm lost $3 million, or 34 cents a diluted share, against net income of $4.1 million, or 45 cents, in the year-ago quarter. The loss before exchange gains and losses was $800,000 compared with $2.2 million last year. Sales fell by 14.2 percent to $37.9 million from $44.2 million.

The company said that apparel sales dropped by 27.6 percent to $21.5 million versus $29.7 million last year. Sales were approximately 50 percent denim and 50 percent chinos, versus 65 percent and 35 percent, respectively, a year ago. The apparel sales decline was offset by a 13.2 percent increase in third-party fabric revenues to $16.4 million from $14.5 million in the quarter. Fabric sales were 46 percent denim and 54 percent chino, versus 36 percent and 64 percent, respectively, last year.

K.C. Chao, president and chief executive, said that the company’s financial results were lower than expected due primarily to a significant erosion of the U.S. dollar, which resulted in an exchange loss of $2.2 million on borrowings. On the plus side, “gross margins [for the quarter] continued to increase to 15.1 percent compared to 13.1 percent and 9.7 percent in the second and first quarters,” respectively, of the current fiscal year.

The company began shipping finished goods from its new South African facility and expects the plant to be operating at full capacity by June 2003.

For the fourth quarter, Novel expects to report improved gross margins and a small net loss. For the year, it expects revenue to increase by the low-single digits. Gross margins are expected to increase to 18 percent.

“While we have not reported a profitable quarter this year, we believe that our operations have improved and with the contribution from our fabric operations in China, we are comfortable with a profitable fiscal 2004,” Chao said.

The company spent $2 million in the third quarter to repurchase 646,570 shares of common stock.

For the nine months, Novel lost $12.8 million, or $1.41 a diluted share, against income of $11.4 million, or $1.24, a year ago. Sales fell by 3.9 percent to $116.4 million from $121.4 million.