NEW YORK — Blaming continuing economic difficulties at its operations in South Africa and the nearby island of Mauritius, Hong Kong-based Novel Denim Holdings warned that it expects to post a net loss of $7 million to $7.5 million for its third quarter ended Dec. 31.
This story first appeared in the January 29, 2004 issue of WWD. Subscribe Today.
That would be deeper than the $3 million loss reported a year earlier.
In a statement, the company, which manufactures denim and jeans, blamed the appreciation of the South African rand in comparison to the dollar, which has the effect of making its goods destined for the U.S. market more expensive. The company said that it expects to take a $4 million write-off related to exchange losses. As of Wednesday, the dollar was worth 7.08 rand, a 19 percent decline versus 8.74 rand a year earlier.
“We have worked extremely hard over the past year to ramp up our South African garment operations to achieve profitability, but our current cost structure, the strength of the rand and competition from low-cost regions have forced us to reevaluate” the company’s position in the region, chief executive officer K.C. Chao said in a statement.
Over the past year, Novel and its affiliates have cut back on their African operations. Last year, Novel closed one of its five factories on Mauritius island, while Summit Textiles, which is also affiliated with Chao’s family, closed six of its 16 factories there.
Novel noted that its remaining operations on that island were also not profitable for the quarter, but that its Chinese plants are operating in the black. Through the first six months of its fiscal year, Novel reported a $1.2 million net loss on sales of $72.5 million.
South Africa and Mauritius are part of the sub-Saharan African territory covered by the African Growth & Opportunity Act, through which the U.S. extended duty- and quota-free treatments to garments made in the region. Many industry observers have expressed concerns that the region stands to lose share in the world apparel market to China after the nations of the World Trade Organization lift their quotas on textiles and apparel in 2005.