Plunging sales and one-time charges conspired to deepen Novel Denim Holdings Inc.’s loss in the fourth quarter.
For the three months ended March 31, the Hong Kong-based manufacturer reported a net loss of $13.4 million, or $1.63 a diluted share. By comparison, last year the company posted a smaller loss of $9.4 million, or $1.01. Novel said fourth-quarter results were depleted by a nonrecurring pretax charge of $9.3 million for asset impairment, inventory write-downs, the closure of a garment factory in Mauritius and currency exchange losses. Sales for the period fell 23.8 percent to $28.6 million from $37.5 million a year ago.
“Our historical competitive advantages such as a low-cost production base and favorable trade relationships with the EU and the U.S. for our Mauritius and South Africa operations are diminishing,” said chief executive officer K.C. Chao in a statement, “requiring us to realign our manufacturing and operating costs to those of our competitors, primarily in Asia.”
Notwithstanding the SARS effect, Novel’s operations in China did perform in line with expectations, the company said, and contributed approximately $3 million in operating income.
By segment, denim represented about 58.8 percent of all garment sales, with chinos contributing 41.2 percent. Geographically, U.S. customers carried the bulk of Novel’s business at 61 percent of total garment sales, but that was down from approximately 71 percent a year ago.
For the full fiscal year, Novel swung to a loss of $26.2 million, or $2.96 a share, versus last year’s earnings of $2.1 million, or 22 cents. A change in accounting principle cut $308,000, or 3 cents, from the bottom line. Sales for the year declined 8.6 percent to $145 million from $158.6 million in the prior year.
In guidance, Novel said it expects full-year earnings to break even on sales growth of approximately 3 to 6 percent.