BURLINGTON WARNS LAYOFFS POSSIBLE
Byline: Scott Malone
NEW YORK — Another round of cutbacks could soon come at Burlington Industries Inc.
Burlington executives, who this year have made profitability a lower priority than cutting debt, warned Tuesday that the overall outlook for the fabric business remains unclear and said that if demand does not pick up in the months ahead, it may have to embark on another round of capacity reduction.
That news came as the Greensboro, N.C.-based mill, citing an overall slowdown in demand, reported flat third-quarter earnings on a 16.4 percent drop in sales.
“We will be looking at improving our operating efficiencies by further reducing capacity in order to return the company to profitability,” said chairman and chief executive officer George Henderson in a statement.
Burlington has steadily downsized its operations over the past 2 1/2 years, closing plants, exiting unprofitable market segments and eliminating about 4,500 jobs in the U.S. and Mexico.
In a conference call with Wall Street analysts, chief financial officer Charles Peters offered no specifics on which operations the company was considering cutting.
“In these kinds of environments, you don’t rule anything out,” he said.
He explained that this year the company has repeatedly had to idle its plants in an effort to trim inventories in the face of cooling consumer demand and nervous retail buyers. In the third quarter alone, those idle periods cost the mill between $11 million and $12 million.
The firm doesn’t see any clear evidence to suggest that it would be able to run its plants at full capacity in the near future, he said.
“We cannot continue indefinitely to incur losses from under-absorbed overhead, so we will make capacity adjustments if we feel these conditions are likely to persist,” he said.
Peters added that the company’s jeans-making operation has been losing money because of spotty demand.
“We are not satisfied with the garment operations,” he said.
In the late Nineties, a number of top U.S. textile companies decided to start making apparel to maintain a higher level of demand for their fabrics. However, those efforts have been plagued by problems — many companies have found the transition from making fabrics to making garments to be far more complicated than anticipated.
Last September, Burlington shuttered the Cuernavaca, Mexico, garment plant operated by its Performance Wear division, which was producing tailored pants. The company reported a similar situation to what it is now facing at its jeans plant and laundry — keeping the facilities running at full capacity.
It is the desire not to have to worry about running plants full while demand for apparel waxes and wanes that led many of the country’s top apparel marketers to shift their production to outside contractors over the past decade.
For the quarter ended June 30, Burlington recorded net income of $1.5 million, or 3 cents a diluted share, essentially flat with last year’s third-quarter figure. However, in both this year’s and last year’s quarter, the firm recorded several one-time charges.
Overall, the 2001 figure was boosted $2.1 million by one-time events related to restructuring, a loss on a joint venture with Unifi and an interest payment related to a Mexican tax refund. The 2000 number was reduced $3.1 million by one-time charges and gains related to restructuring, the Unifi joint venture and amortization expenses.
Sales for the quarter were $351.1 million, down from $419.8 million. The company said much of the sales decline was related to discontinued operations.
In its apparel-fabrics businesses, Burlington also experienced sales and margin declines. The Performance Wear segment, which makes wool and synthetic fabrics for tailored clothing, recorded income before taxes of $5.4 million, off 27 percent, on sales of $123.7 million, down 19.4 percent.
Peters said the division was hurt by the general slowdown at retail, with sales in the moderate-priced segment “soft,” though sales of better-priced fabrics were “steady.”
The Casual Wear denim division suffered a $2 million pretax loss, compared with pretax earnings of $1.4 million a year earlier. Sales were down 8.8 percent to $60.3 million.
In addition to the troubles at the jeans operation, the unit was hurt by an overall glut in the domestic denim market.
“The denim market continues to suffer from overcapacity and most denim manufacturers are under financial pressure,” Peters said. “These factors are continuing to keep prices weak.
The company said it paid off $40 million in debt during the quarter, bringing its total debt reduction for the year to date to $77 million. Its goal is to reduce its debt by $100 million this year. Peters said that of the $40 million used to pay debt paid in the quarter, $37 million came from selling assets from discontinued operations. At the end of the quarter, the company’s long-term debt was $821.6 million
Burlington also said it had reduced its inventories to $238 million by the end of the quarter, $89 million lower than they had been in June 2000.
One observer said that Burlington’s focus seems appropriate given current conditions.
“These guys are doing exceptionally well in a tough environment,” said Ethan Schwartz, vice president at Credit Research & Trading, based in Stamford, Conn. “I think they do realize that times are brutal and that they need to take radical measures to put the business on a sounder footing.”