DENIM, PRINTS HURT CONE MILLS 1ST QUARTER
GREENSBORO, N.C. — Hurt by lower sales in denim and decorative prints, Cone Mills Corp. reported a first-quarter loss of $1.99 million, against earnings of $7.2 million, or 24 cents a share a year ago.
Results in the latest quarter include a $700,000 charge for consolidating the Granite finishing plant into the Carlisle facility. In the year-ago period, there was a $4.7 million gain on the sale of the Olympic Products division.
In January, as part of a restructuring program, Cone sold its Greeff division to F. Schumacher & Co. and its synthetic fabrics business to Majestic Mills. Greeff is a high-end decorative print design company.
Sales for the three months ended March 30, dropped 12.3 percent to $174.7 million from $199.3 million. The weakness in denim and decorative prints more than offset strength in specialty sportswear fabric sales, the company said.
After eliminating the sales of discontinued divisions, sales were off 8 percent, Cone said. International sales sank 15.4 percent to $44.5 million from $52.6 million a year ago.
In the first quarter, the apparel segment had operating income of $6.1 million down 53.2 percent. Cone noted that all its apparel manufacturing facilities operated at less than capacity as it attempted to control inventory.
Apparel fabric sales were off 10.5 percent to $148.4 million. Excluding sales of the synthetic fabrics business, sold in January 1997, apparel fabric sales were off 9 percent. Lower denim sales because of lower volume and prices accounted for the decrease. Average denim prices were down in the first quarter as a result of a mix shift to more basic denims as well as price pressures. While unit sales of denim products continue to be strong at retail, the firm said, excessive inventory buildup in some areas is resulting in weak near-term sales of denim fabrics.
“Even though first-quarter results were disappointing, they were generally in line with our expectations,” J. Patrick Danahy, president and chief executive officer, said in a statement. “We continued to experience value-added denim inventory adjustments in some customer segments and weak fashion demand for decorative prints.”
However, Danahy added that the company is making progress with its plans to return to profitability, focusing on core businesses, aggressive marketing, cost reduction, reconfiguration of manufacturing operations and capital conservation.
Gross margins decreased to 11.4 percent of sales, compared with 15.5 percent in 1996. The decline was mainly the result of mix changes to more basic products with lower margins, cost inefficiencies associated with operating plants at less than capacity, and pricing pressures associated with temporary supply and demand imbalances arising from excess inventories.
Selling, general and administrative expenses were down 13.3 percent to $18.3 million, as a result of the sale of Olympic, Greeff and the synthetic fabric operations, as well as the cost reduction program announced in 1996. SG&A was 10.5 percent of sales, compared with 10.6 percent last year.
Looking ahead, Danahy said, “Even though we have seen some improvement in both denim and specialty sportswear markets, second-quarter results will continue to be hurt by curtailed manufacturing schedules as we reduce inventories,”
However, he noted the company should continue to see the positive results of its restructuring program as the year progresses.