NEW YORK — Despite the recent hike in cotton prices, Wall Street expects earnings at textile firms to recover in the second half of 1994, fueled by a long-awaited pickup in apparel demand at retail.
“It’s not going to be great. There aren’t going to be any shortages, but it’s going to be a better year,” said Jay Meltzer, textile analyst at Goldman Sachs & Co.
Last year, profits for many textiles firms were clobbered by steep price cuts and high inventories in T-shirts, knitted fabrics and yarns; weakness in the print and swimwear market; a clogged denim pipeline, and weak economies in Europe.
Making matters worse, cotton prices have shot up more than 30 percent since early December, squeezing margins for many firms in the end of the fourth quarter.
Weakness in apparel fabrics dented the bottom lines for Guilford Mills, Unifi, Delta Woodside, Dixie Yarns and Texfi Industries.
Burlington Industries, Springs Industries and WestPoint Stevens also suffered poor apparel earnings, but were able to show improved operating profits as a result of reduced costs and improvement in the home furnishings and industrial fabrics segments.
Bucking the trend, Galey & Lord had strong earnings before special items, riding the popularity of wrinkle-free fabrics. Forstmann also returned to profitability in the year with the help of lower wool prices. Cone Mills had a strong year, but softened in the fourth quarter because of some inventory correction in denim.
Kay C. Norwood, at Charlotte, N.C.-based Interstate Johnson Lane, expects to see demand improve in the hard-hit T-shirt and knit market in the next several months, driven by improved consumer confidence, pent-up demand for apparel and decreasing knit inventories.
“There is still some inventory about that needs to be cleaned out, but the combination of tighter inventory controls by the big guys and a little bit of a pickup in consumer spending should lead to better results in the second half,” she said.
Edward F. Johnson, at Johnson Redbook Service, sees apparel picking up strongly as many department stores find a need to fill threadbare inventories.
“We’re seeing apparel spending improve every week, and we don’t think it’s cabin fever,” Johnson said.
Related Articles
You May Also Like
Analysts look for Burlington Industries to earn from $1.67 to $1.70 a share in its year ending in September, up from $1.18 in 1993, with the gains coming from interest rate reductions, as well as a turnaround in apparel.
Meltzer said orders for Burlington’s woven wool worsted and worsted blend fabrics and Klopman man-made fabrics are showing some improvement, and the money-losing knitted fabric group could return to profitability in the June quarter.
Guilford Mills is expected to earn in the range of $2.15 to $2.50 a share in its year ending in September, which compares with $2.11 a year earlier. All of the improvement is expected to come in the second half.
Norwood said Guilford’s warp knits segment is doing well and circular knits have improved. She also expects Guilford to be helped by new products.
Guilford would get a big boost with some improvement in the prints and swimwear market, Norwood said, but added there is “no sign of improvement so far.” Analysts expect Galey & Lord to earn $1.40 to $1.50 a share in its fiscal year ending in October, up from $1.12. Norwood said Galey & Lord continues to thrive on robust demand for wrinkle-free fabrics.
“They’re just enjoying every minute of it,” said Norwood.
Norwood added that Galey & Lord’s focus on value-added dyeing and finishing allows the company to get a higher price for cottons than other mills.
Johnson said Forstmann is being helped by relatively low wool prices and a consumer penchant for more wool products. He also expects the company to get a boost this year from Forstmann’s movement into non-wool products. Johnson looks for Forstmann to earn $1.50 in its year ended October, up from $1.25 a year earlier.
Fab Industries Inc. was another winner last year, with strong improvement in the fourth quarter helping it to show a slight increase in the year. Johnson said Fab continues to benefit from management’s ability to find niches in apparel fabrics. He expects Fab to earn $3 in the year ending in November, against $2.75 in 1993.
Meltzer said Unifi has been stung by poor demand and lower prices for open-end spun cottons, as well as weakness overseas, offsetting a solid performance by the domestic textured polyester segment. Meltzer expects Unifi to net $1.25 a share in its year ended June, down from $1.94, and thinks earnings will recover to a range of $1.50 to $1.70 for June 1995.
Cone Mills, a denim giant, had a good year in 1993, but earnings were pressured in the fourth quarter by high inventories of denim jeans at retail, and rising cotton prices. Norwood said Cone’s bottom line this year is largely dependent on whether cotton prices ease, but she expects denim inventories to be in better shape in the second half. Estimates for Cone Mills in 1994 range from $1.68 to $1.82 a share in 1994, versus $1.68 last year.
Norwood said Delta Woodside is still being hurt by weakness in the man-made fibers area. On the plus side, she said the company’s knit fabrics division is benefiting from major consolidation efforts and a revamped Duck Head apparel line is having a stronger spring season. She also expects the company to benefit from its wrinkle-free fabrics.
Analysts look for Delta Woodside to make 55 cents a share from continuing operations in the year ended June, down from $1.03 a year earlier. For fiscal 1995, however, they look for profits to bounce back to $1.50-$1.55 a share.
Texfi was in the red in both periods, hurt by oversupplies of T-shirts and yarn in the marketplace. Johnson said Texfi is “starting to gradually improve” with the help of internal consolidations and leaner T-shirt inventories at retail. Johnson looks for Texfi to net 50 cents in its year ended October.
Dixie Yarn’s earnings are also expected to bounce back this year with improved demand for yarns, particularly in knitted fabrics. Ranges for Dixie Yarns in 1994 run from 74 cents to $1, compared with 41 cents a year earlier.