Byline: Evan Clark

NEW YORK — Dan River Inc. plans to make a $7.2 million pretax adjustment, shaving 10 cents off its third-quarter earnings, to compensate for an earlier overstatement of its home fashions inventories.
An additional 10 cents will be taken off of already reported first-half earnings. Third-quarter earnings will be reported Oct. 26.
The Danville, Va.-based fabric marketer reported third-quarter sales of $175.1 million, a 12.4 percent increase over year-ago sales of $155.8 million.
Bryan Hunt, an analyst at First Union Securities, wrote in a research note that, despite the rise, sales missed his estimates by 5.8 percent. He said this shortfall “was evenly split between home fashions and apparel.”
The decelerating retail environment — a recurring explanation for shortfalls across the sector — was cited by Hunt as a “major culprit.”
He downgraded the company to “buy” from “strong buy” but added that its potential to expand revenues and margins and an inexpensive stock price continue to make it an attractive investment.
Dan River’s apparel fabrics operations, Hunt noted, “are right-sized for current business trends” adding that operating income could almost triple in 2000.
The company reported that it had improperly recorded inventory receipts from outside sources, which caused it to overestimate the value of its inventory and inaccurately reduce manufacturing costs.
Additionally Dan River said its fourth-quarter pretax profits will be negatively impacted by approximately $3 million due to higher than previously expected manufacturing costs.
Hunt said that, in addition to involving its accountants and consultants, the company will install a monitoring system to track production variances and prevent a reoccurrence.