GALEY & LORD BEGINS RESTRUCTURING EFFORT
Byline: Vicki M. Young / David Lipke
NEW YORK — Galey & Lord Inc. on Friday unveiled three restructuring moves in a loss-avoidance effort aimed at improving cash flow in fiscal 2002.
The textiles company will shutter its apparel-making operations in Mexico and consolidate greige fabrics operations by closing both its Asheboro, N.C.-based weaving facility and the Caroleen, N.C., spinning facility. In addition, the company is reducing headcount by 5 percent. The company said it will take a fourth-quarter charge of between $70 million and $80 million as a result.
The actions undertaken by Galey & Lord are the latest in a series of moves by textile companies who have been hard hit by ongoing difficulties in the current business environment. On Thursday, bankrupt Dyersburg Corp. said it was liquidating after 10 months in Chapter 11 court proceedings. In addition, last week Burlington Industries warned that it may need to make further cuts in operations due to low demand, while DuPont officials said that they expect the U.S. manufacturing economy to get worse in the calendar year’s third quarter.
Arthur Weiner, chief executive officer of Galey & Lord, said in a conference call following Friday’s restructuring announcement that the company has been reviewing its options for some time now, and that the moves were initiated because they met three key objectives: loss avoidance, increase of cash flow and cost reductions.
The ongoing negative effect of continued price reductions impacting the Mexican operation was a key factor in the decision to close up shop. “In the last few months, this area has decreased so much that cost reductions wouldn’t help. The loss is not temporary and could continue for some time,” Weiner said.
The closure of the Asheboro and Caroleen plants, which Weiner said would not be running at full capacities, will enable the company to move operations to its lower-cost factories. In addition, the wage and salary reductions alone will provide Galey & Lord with annual savings of $4.5 million.
Earlier in the month, Galey & Lord said that declining khaki sales dragged down third-quarter earnings at the company for the period ended June 30, while demand for denim, especially in Europe, remained healthy.
In the third quarter, the Greensboro, N.C.-based textiles manufacturer posted net income of $847,000, or 7 cents a diluted share, down 66.2 percent from $2.5 million, or 21 cents, in the year-ago quarter.
Galey noted that the quarter was adversely affected by $1.3 million in run-out costs related to strategic initiatives announced last September, which included the shuttering of a denim manufacturing facility in Erwin, N.C., and a yarn-spinning facility in Shannon, Ga., as reported. Excluding these costs, income for the quarter would have been $1.7 million, or 14 cents, meeting the First Call/Thomson Financial estimate.
Net sales slid 16 percent, to $220.2 million from $262.2 million in the same period last year.
On a conference call with analysts at the time, Wiener bluntly stated: “This is no secret to anybody…we are in an extremely unpleasant environment. There has been no discernible improvement at retail [and] we are dealing with worldwide overproduction of textiles and apparel.” The strong dollar, particularly against Asian currencies, has made the price of Asian imports highly competitive in the marketplace, he added.
At the time, the company warned that it might be forced to sell off assets to boost profitability.
The Galey & Lord apparel division suffered the steepest plunge in operating profits, as both demand and margins for its khaki fabric ebbed. Income at the unit retreated 63.7 percent, to $4.3 million, as sales declined 16.8 percent, to $103.3 million.
“There is just too much inventory in finished khaki garments,” said analyst Kay Norwood of Wachovia Securities. “Prices are being marked down dramatically, and consumers are not buying as much, which is a function of the economy. And after several years of building casual wardrobes, people have what they need and just aren’t going to buy more khaki.”
For the nine months to date, total income shrank 38.9 percent, to $1.1 million, or 9 cents, against a year-ago’s $1.8 million, or 15 cents. Sales were $673.6 million, down 5.7 percent, from $714.4 million in the year-ago period. Excluding run-out costs, income for the three quarters was $4.6 million, or 39 cents.