BURLING SAYS OVERSUPPLY OF DENIM FABRIC HAS ENDED
Byline: Stuart Chirls
NEW YORK — The oversupply of fabric that has plagued denim mills for more than a year has ended, according to an executive from Burlington Industries, and domestic mills should return to near-normal production levels later this year.
“We believe that the denim glut is over,” said Charles Peters Jr., senior vice president and chief financial officer of Burlington Industries. “By the fourth quarter, we expect that most U.S. mills will be running at or near capacity.”
Peters’s comments during a presentation to analysts at Prudential Securities’ 1997 Textile and Apparel Conference. The two-day meeting ends today at the Millennium Broadway Hotel here.
Strong retail sales are helping denim mills, including Burlington Global Denim, return to normal operating schedules, but Peters said it will be some time before the same can be said for prices: “We are still expecting pricing pressures to continue for the next six months or so due to the effects of the glut. But there is no weakness in retail offtake, which has grown at an average of about 6 percent a year since 1989.”
Burlington, he noted, plans to add more than 30 million yards of denim capacity at its Mexican facility in 1998.
Peters said the cost of the denim oversupply equaled about 30 cents a share in 1996. “We expect to get about half of that back through the absorption of overhead and sharper pricing in ’98.” He called analysts’ earnings projections for 1998 of $1.30 to $1.40 per share “reasonable.”
In the year ended Sept. 30, 1996, Burlington posted net earnings of $40.9 million, or 65 cents, after nonrecurring charges of 41 cents a share, principally for the shutdown of the knitted fabrics operation. Sales in the year were $2.18 billion. The firm has yet to release results for fiscal 1997.
Overall, Burlington is projecting sustained growth for its $1.25 billion apparel fabrics business, which accounts for 60 percent of the textile giant’s total sales. The company will spend $160 to $180 million to expand and upgrade capacity across all of its production lines, including three additional plants not far from the three currently operating in Morelos, Mexico.
Sales for the Klopman division, which manufactures woven synthetic fabrics, grew 20 percent this year, thanks in part to a reallocation of assets that included a “sharing” of the dyeing and finishing facilities that in the past were used exclusively by Burlington’s Menswear division.
Menswear, which incorporates some women’s wear and uniform fabrics, will “continue to improve,” Peters said, the result of improving retail sales of men’s wear, as well as cost-cutting and restructuring in 1996 that included the closing of the mill’s knitting operation. Burlington’s Mexican Menswear operation is expected to ring up more than $100 million in sales when it comes on line in 1999. The Sportswear unit posted sales of $130 million in the year ended last month, its first year of operation.
Another firm making a presentation was Guilford Mills, whose executives noted that its sales of apparel fabrics surged 12 percent in 1996, while profits rose 28 percent.
Terrence Geremski, senior vice president and chief executive officer of Guilford, nevertheless noted, “Diversification is the key to our plans. We have engineered a shift in our product mix to increase our presence in the home fashions and automotive markets.”
Apparel fabrics comprise 38 percent of Guilford’s output, versus 85 percent in 1980. Automotive fabrics account for 36 percent, followed by home fashions at 17 percent and industrial fabrics at 9 percent.
“Demographic changes are going to guide our future strategy in apparel,” said John Emrich, Guilfrod’s president and chief operating officer. “Casual looks are growing more popular. We are also seeing tremendous growth in the shapewear market. In intimate apparel, we see ourselves as one-stop shopping, since we acquired Hofmann Laces last year. The outlook is for above-average growth.”