Byline: Scott Malone

NEW YORK — Citing softening demand and rising costs, Dan River Inc. fell into the red in the fourth quarter, despite improved margins at its apparel fabrics operation. The company also warned that it expects to report a loss in the first half of 2001.
The Danville, Va.-based mill recorded a net loss of $2.3 million for the quarter, compared with net income of $2 million, or 9 cents a share, a year earlier. Net sales rose 10.9 percent, to $165.8 million.
In a conference call with analysts, company officials said that earnings were hurt by the need to take extended idle periods at the company’s home furnishings and apparel-fabrics plants in the fourth quarter, in an effort to cut inventories to better match demand.
“Fiscal 2001 will present a significant earnings challenge for Dan River,” said chairman and chief executive Joseph Lanier Jr. The company expects to post a per-share loss of 25 cents for the first half, with most of the red ink coming in the first quarter.
For the full year, he said, the company anticipates earnings of 20 cents a basic share. That would be less than half the 49 cents a share in earnings reported for 2000.
Net income for the year was $10.8 million, off 26.8 percent from $14.7 million in 1999. Sales were $663.5 million, up 5.5 percent.
The projected earnings decline for 2001 came despite Lanier’s expectation that the company should net revenues in excess of $700 million this year.
Despite the difficult market conditions in the quarter, earnings at the apparel-fabrics business improved. That unit posted $1.4 million in operating income, up 23.8 percent from a year earlier. Sales slipped 6.3 percent, to $34.1 million.
Lanier also said that demand on the apparel side appears to be picking up, saying that the company’s order backlog rose from $24 million at the end of the year to over $30 million as of last week. He attributed that to “a return to yarn dyes, which is the strength of our apparel fabrics division.”
The company is starting to hear expressions of interest from customers that it believes is related to the recent extension of trade benefits to the nations of the Caribbean Basin, Lanier, said, though he stressed that these discussions are in an early stage.
“The full results of the CBI remain to be seen, pending our customers move of [full-] package shirt programs back to this hemisphere,” he said.
Lanier also updated the status of the company’s Mexican joint venture, with Grupo Industrial Zaga. He said that its apparel plant in that country, which makes sport shirts, is starting to ship goods to a customer, though he did not say who that customer was.
The company also bought a plot of land in Mexico it had intended to build a joint-venture weaving mill on. However, Lanier said, “construction of that plant is on hold as they reexamine the cost involved there.”
CBI parity has thrown a wrench into some mills’ Mexican ventures, as the lower cost of labor in the Caribbean is expected to draw some sewing activity away from Mexico. Fabrics woven in Mexico are not eligible for CBI parity, regardless of the nationality of the owners of the looms.
Despite the hopes offered by the Mexican venture and Caribbean opportunities, Lanier emphasized that for the short term the apparel unit is taking a conservative stance.
“Our apparel fabrics division was focused on inventory levels,” he said. The company extended its normal holiday shutdown period, which usually runs from Christmas to New Year’s, by eight days. The company isn’t expecting further all-out idles during the first quarter, he added, but its mills are not running at full operating schedules.
Lanier also warned that “pricing pressures have continued across many product lines” on the apparel front, at the same time as costs have risen.
Most notable among the company’s higher costs is energy — that expense was about 60 percent higher in the fourth quarter compared to early 2000, he said. In addition, raw material prices are rising — he said that polyester prices are about 10 percent higher than they were a year ago.
For the full year, the apparel unit saw its operating profits more than double, to $10.9 million, compared with $4.4 million. Sales at that business slipped 4.5 percent, to $143.6 million.

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