GALEY & LORD SHOWS PROFIT IN QUARTER
Byline: Scott Malone
NEW YORK — Galey & Lord Inc. Thursday surprised Wall Street — and offered new hope about U.S. denim business — by returning to profitability, reporting net income of $202,000 for its second quarter, compared with a $1.1 million loss a year ago. The profit of 2 cents per diluted share was well ahead of the First Call consensus, which had expected a loss of 2 cents per share.
Sales were $251 million for the three months ended April 1, up 5.7 percent from $237.4 million. The results were boosted by soaring denim volume and an improvement in the New York-based company’s fledgling full-package garment production operation.
With the other two top public denim mills, Burlington Industries Inc. and Cone Mills Corp., set to report their earnings next week, the news reinforced analysts’ beliefs that the denim business should continue to pick up over the course of the year. “It sounds like denim really has turned,” said Kay Norwood, analyst with Wachovia Securities Inc., adding cautiously, “I hate to say that, though. I hope I don’t jinx it.”
Bryan Hunt of First Union Capital Markets said, “The denim business had a nice rebound from last quarter. The year-ago comparisons were easy because of Levi’s, as well as some other large customers, really getting out of the market.”
With its prior inventory excesses now addressed, Levi Strauss & Co. has resumed more normal purchasing patterns, but depressed prices remain a concern for the mills.
“I think pricing will improve late in the June quarter or early in the September quarter,” said Hunt, “but if someone comes in with a lowball contract, they say, ‘Thanks, but no thanks.’ They’ve all been walking on business.”
The First Call estimate for Burlington is a profit of 2 cents per share, even with last year, and, for Cone, an 8-cent loss per share versus a 2-cent profit last year.
Galey’s Swift Denim division reported operating income of $1.5 million, compared with a $239,000 operating loss in the prior-year quarter. Sales were up 39.9 percent, to $91.9 million, compared with $65.7 million.
In a statement, Galey chairman and chief executive Arthur C. Wiener said the strong sales volume has continued into the company’s third quarter. “The current quarter is giving us the greatest forward visibility to our business that we have had in some time,” he said. “Galey & Lord Apparel Fabrics and Swift Denim are enjoying robust sales and are operating at full capacity. The same is true for Swift Europe.”
The company’s apparel-fabrics unit reported operating income of $10.6 million, up 31 percent from $8.1 million. Sales were $117.2 million, off 4.7 percent from $123 million.
For the six months, Galey reported a $689,000 net loss, compared with profits of $2.3 million, or 19 cents a diluted share, in the prior-year period. Sales were $452.1 million, off 6.5 percent from $483.5 million.
Galey & Lord shares were up 3/8 to close at 2 3/8 on the Big Board Thursday.