NEW YORK — The acquisition of Cone Mills’ apparel corduroy business by Majestic Mills last month should be a good deal for both firms, according to executives from the two companies as well as industry analysts.
The move gets Cone out of apparel corduroy, a business it has been deemphasizing for the past two years, allowing it to put more muscle behind its core business in denim, along with its specialty fabric offerings.
At the same time, it provides an easy expansion route for Majestic, the largest U.S. converter of corduroy fabrics, when for the first time since the mid-Eighties, the domestic corduroy market is showing upbeat activity.
Majestic purchased the apparel corduroy segment of Cone’s business Dec. 27, for an undisclosed amount.Under terms of the transaction, which was announced Dec. 27, Majestic got all of Cone’s inventory of finished corduroy production, its forward commitments and all apparel corduroy bookings. The purchase price was not disclosed.
In addition, Majestic and Cone have entered into a partnership whereby Cone, acting as a contractor, will cut, dye and finish apparel corduroy exclusively for Majestic. The deal does not include real estate or machinery.
Plans call for no Cone employees to be displaced.
With the acquisition, Majestic is broadening its range of offerings in cotton corduroys. Additions include a 19-wale cord, which is aimed at the better children’s and dress markets; a heavyweight wide wale for the outerwear market, and a 16-wale and an 8-wale for general apparel applications.
Fred Baumgarten, Majestic president, said that about 10 years ago corduroy fell out of fashion and became a commodity-type fabric.”From what we are seeing, it’s starting to come back into fashion,” he said.
Various industry executives said corduroy used to be an alternative to denim. However, with the myriad looks and finishes developed in denim, corduroy went from being “the other choice to a forgotten fabric,” said one executive requesting anonymity.
Now, however, said Baumgarten as well as others, corduroy is regaining fashion status, particularly in Europe, and the trend is starting to be felt here.
“With this deal, along with the general increase in the corduroy business, we expect about a 50 percent increase in our total business in 1994,” said Baumgarten. “We wouldn’t have made this deal if the signs didn’t point to a resurgence in corduroy.”
Majestic, which is privately held, had sales “in the $25 million to $50 million range,” Baumgarten said, declining to be more specific.
Meanwhile, at Cone, one of the top denim producers in the U.S., the corduroy business has been shrinking for a number of years. In February 1992, citing declining demand for corduroy, along with the increased number of casual wear imports, Cone began what it called “an orderly withdrawal from the market.” Cone’s corduroy production had dropped from 143 million square yards in 1980 to about 23 million in 1991.
As part of that plan, Cone discontinued its commodity corduroy and its Encore bottomweight piece-dyed businesses, both at its Granite Finishing plant at Haw River, N.C.
Still, Cone didn’t abandon the corduroy market altogether, instead putting what remained into a specialty fabrics division, NorthPointe, which Cone established in August 1992. NorthPointe continues as a division for Cone’s man-made fabrics for sportswear and career apparel, a variety of yarn-dyed flannels and piece-dyed shirtings and custom printing operations.
Cone had 1992 sales of $705.4 million, $520 million in apparel fabrics. While the firm doesn’t break out apparel fabric sales by type, denim accounted for nearly 60 percent of its total sales.
“We’ve decided we could be more profitable by focusing on areas other than corduroy,” said Jerry Kennedy, Cone’s executive vice president and head of NorthPointe. Analysts said Cone’s exit from the corduroy business won’t have an immediate impact on it’s bottom-line performance.
Ed Johnson, director of the Johnson Redbook Service, is continuing to estimate fourth-quarter earnings of 38 to 41 cents, against 39 cents a year ago. For the year, Johnson is estimating $1.71 versus $1.47.
“Cone has been making a conscious effort to focus on denim, which is by far and away their key category,” Johnson said. “Even though they dominated the corduroy market at one time, Cone had become less of a factor in the corduroy business. It had been phasing out of the corduroy business for some time, so it’ll have no real impact on [immediate] results,” added Jay Meltzer, textile and apparel analyst at Goldman Sachs. He agreed with Johnson that the move should bolster Cone’s efforts in denim.
The deal even got a nod from another key player in the corduroy market.
“This is a tremendous opportunity for Majestic to service those customers that Cone was servicing, as jeans people are getting interested in corduroy in a major way,” said Arthur Wiener, chief executive officer of Galey & Lord, the largest producer of corduroy fabrics in the U.S. “Cone was a class operation in that part of the business.”