BURLINGTON QUARTER BRINGS MORE LOSSES
Byline: Scott Malone
NEW YORK — Burlington Industries Inc. stayed in the red for its first quarter, watching its net loss worsen to $11.5 million, compared with $5.3 million a year earlier.
But on a conference call with analysts, mill officials said they were pleased with the company’s progress in restructuring itself, adding that their focus for this fiscal year is on reducing working capital and paying off debts.
The effort to reduce inventory had a devastating effect on margins for the quarter, as the Greensboro, N.C.-based company’s apparel-fabric division idled plants for two to three weeks, reducing pretax apparel operating earnings by $5.9 million for the quarter ended Dec. 30.
“We operated with the attitude that inventory control comes first and production curtailments, when necessary, will be taken,” said Charles Peters, senior vice president and chief financial officer. “Most of our operations took extra downtime around the holidays to bring inventories down.”
At the end of fiscal 2000, the company had reduced its overall inventory to 66 days of sales, compared with 79 days of sales a year earlier — that represented a $59 million reduction in inventory, officials said. Burlington’s target is to have 60 days of inventory on hand by the end of March.
Kay Norwood, analyst with Wachovia Securities, said she was “impressed” with the company’s success in lowering inventory levels.
“What they’re going for is not just getting inventories back to where they were historically, but to change the total way they do business,” she said. “It’s not pretty while it’s going on, but it’s absolutely right. Historically, the industry has always had a high level of inventory. It’s going to enhance margins.”
Total sales for the quarter slipped 1.8 percent, to $364.3 million.
Plant idling took a dent out of the company’s Casual Wear division’s results, which saw its sales soar 32.4 percent, to $67 million, as a result of strong demand for denim in the quarter — compared with very weak demand at the end of 1999, when Levi Strauss & Co. was focusing on cutting inventory.
Despite the strong sales increase, the division recorded a $4.9 million pretax loss, only a slight improvement from a $5.4 million pretax loss recorded a year ago.
Peters said the division idled its plants for about three weeks during the quarter, racking up $1.7 million in pretax curtailment expenses. The unit’s nascent Mexican full-package jeans production business is also running high expenses as it tries to bring its jeans operation up to speed, he added.
“Costs at sewing are still bigger than they should be,” he said, adding that the company’s new jeans laundry is also running high expenses. However, he added that the firm’s Mexican denim-weaving operation is “working well.”
Another fundamental problem is that denim prices remain low, he said, adding that “although demand at retail continues to be good, a continued oversupply situation keeps costs down.”
The company’s Performance Wear division, which makes wool and synthetic fabrics for tailored clothing and uniforms, recorded a $2.7 million pretax loss, compared with $4.8 million in pretax earnings a year earlier.
The division’s sales slipped 10.2 percent, to $122.3 million, though Peters noted that was partly due to the company’s planned exit from certain low-margin sectors of the synthetic fabrics business.
Curtailments also took their toll on the unit, dragging earnings down $4.2 million on a pretax basis, as the company idled its plants for two to three weeks during the quarter.
Results at the unit were also dragged down by losses at its Mexican tailored-garment venture, which has now been closed, he added. That business lost $9 million in fiscal 2000, he added.
Despite the current slowdown in retail spending, Peters said the company is comfortable with the First Call consensus estimates for the year. Analysts expect the company to return to profitability in the second half and post break-even results or a modest loss for fiscal 2001.
“December was a difficult quarter for the entire industry, but we’re pleased that we’ve made the progress as planned in our turnaround,” said Peters. “We look forward to continued improvement in operations and a return to profitability in the second half of our fiscal year.”