ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Sunday, February 4, 1996 TAG: 9602020045
SECTION: BUSINESS PAGE: G-1 EDITION: METRO
SOURCE: JEFF STURGEON STAFF WRITER
LAST WEEK, THE MARTINSVILLE SWEAT SHIRT MAKER of Martinsville reported lower profits for 1995. This year, it won't owe the millions in one-time costs related to debt and administration that socked recent earnings. It can focus on selling shirts.
Newcomer competitors and better manufacturing technology combined to unleash a storm of trouble on much of the fleecewear apparel industry in the late 1980s. Tultex Corp. of Martinsville, though, has almost built itself a new roof.
The protections put in place are designed to buffer against higher costs that depress profits, keep off a downpour of debt and make a place for a new division.
Tultex is a home-grown sweat shirt company, founded in 1937 on the popularity of fleece, a soft, warm napped cotton fabric originally used for garment linings because it feels good against the skin.
The company's annual profits 10 years ago were high enough to run the general operations of the city of Martinsville in 1994 - about $25 million. Last year's profit wouldn't have funded the 50-member Police Department.
"The industry was tremendously profitable through the '80s," said O. Randolph Rollins, executive vice president, general counsel and chief financial officer. "Then some quite larger competitors - Fruit of the Loom, VF [Corp.] and Sara Lee - entered the picture."
The new players installed improved manufacturing technology and competed fiercely enough to drop prices of goods and forever reorder the dynamics of the industry, Rollins said.
In the last three years, Tultex had to rethink its mission, its products and its consumers. It realized its future probably was no longer in making low-profit-margin blank sweat shirts and similar fleecewear, but in making them, decorating them and selling them for higher profits. This, according to Rollins, was its strategy:
Tultex bought another company's business in knits, jackets and hats all done up in the logos of big-league sports and colleges and universities. It also bought a hat company and launched a T-shirt business.
It set out to make a name for its generic blank fleecewear. National TV ads touted the name, Discus Athletic, and slogan, "The Way America Plays."
Last year, Tultex came to terms with the reality that it could not keep a union out of its headquarters plants, where 2,300 - about a third of its hourly work force - are employed. It went to the bargaining table with a serious offer for the newly formed union local. Pressing the message that the workers can't prosper if the company doesn't, the company argued it must keep employee costs in line with competitors. The new pact does that.
But workers won raises and Tultex's guarantee to retain all Martinsville sewing jobs for the life of the contract - an important concession at a time when the U.S. garment industry is cutting sewing jobs in favor cheaper production in foreign countries.
Also last year, Tultex dodged a menacing large payment on its debt by a refinancing, delaying the largest payments 10 years - to what it hopes will be better times.
The overall strategy needs time to work, company executives concede. Tultex last week posted its lowest annual profit in at least 20 years - $1.8 million, or 2 cents per share, down 80 percent.
Profits were $8.6 million, or 25 cents per share, in line with some analysts' expectations and 39 percent higher than 1994's profit, not counting the one-time gain and losses.
Rollins conceded that Tultex has for some time been smaller and less profitable than its competitors and paid a lot of interest on its substantial debt, and that those factors are caution flags.
These criticisms, made by Fitch Investor Service of New York in March 1995, are "still essentially true," Rollins said. "If you were to ask that question five years from now, then we better have eliminated some of those cautions."
The reasons behind the sour 1995 results illustrate current challenges facing Tultex and to some extent its competitors.
Like its brethren in the business, the company rides with gritted teeth the whoop-de-doos of retailing, in which sudden dips in consumer spending create piles of unsold goods and trim expected cash.
During the most recent weak period for retailers - the month of December - Tultex sold 12 percent fewer goods than in the same period a year earlier. Not only that, it decided the difficult times warranted sticking $5 million - $1.10 of every $100 of quarterly revenue - in a fund to soften the blow when retailers don't pay for orders.
While many quickly chalk up a season of slower sales to general economic worries, others said the causes run deeper.
Clothing companies have never before faced as much competition for the consumer dollar, according to industry analysts at Value Line, a New York investment research firm. Personal computers, cellular phones, new cars and health care take a bigger chunk of consumers' disposal income these days. Plus, the trend toward more casual dressing has reduced the need for new garments, although Tultex products match the new casual style.
As if Tultex needed an additional reason to keep its prices low, it must bid against competitors for the right to place goods on the shelves of some of the retailers through which it does business.
If retailers such as Wal-Mart are going to keep their prices low, they must demand them from Tultex, Rollins said.
"To get business from Wal-Mart, any competitor - or Tultex - has to be willing to meet them in terms of what they expect to pay. Since it's such a big account, it's going to create a lot of competition to get that business," Rollins said. "For that reason, it is important for us to keep our costs as low as we can."
Tultex said it constantly evaluates buying new equipment, keeping what it has or moving production overseas. There are plans on a drawing table in Martinsville to eliminate a storage operation where large amounts of raw fabric are stored in metal bins, awaiting dyeing and cutting. Instead, Tultex may be able to better coordinate knitting schedules and fabric needs.
It has announced plans to close a sewing factory in Marion, N.C., and lay off its 140 employees. The sewing work will be shifted to Mexico. Due to the light weight of T-shirts and low level of Mexican wage rates, the company can obtain sewing services for less there than here even with shipping costs figured in, Rollins said.
Rollins noted that Fruit of the Loom of Chicago announced more substantial cuts: 3,200 employees and six plants.
Tultex's greatest recent labor upheaval came in connection with an August 1994 union campaign at its Martinsville facilities - a campaign triggered by cutbacks that Tultex attributed to delayed and canceled retail orders.
But in contrast to the bitterness of the union's campaign for adherents, both sides said they are on workable terms.
"We have not had a single arbitration case in the first year of the contract," said Bruce Raynor, Southern regional director for the Union of Needletrades, Industrial and Textile Employees, to which members of the new union at Tultex belong. "It's unusual."
For his part, Rollins described worker productivity as having stayed high. The decision to make a deal with the union - rather than adopt a hard line certain to drag out talks - was "a significant policy change, and so far I think it has worked out quite well for us," he said.
Marking progress toward a goal to carry more kinds of products, the company now generates about one-third of its sales from goods it is specially licensed to produce. This resulted from the 1992 purchases of Logo 7 Inc. of Indianapolis and Universal Industries Inc. of Mattapoisett, Mass.
Logo 7 pays licensing fees of between 5 and 15 percent of gross garment sales for the right to sell items ranging from golf shirts to windbreakers with the names and insignia of professional sports teams and colleges and universities. It has been an NFL licensee since 1971, but now is licensed by all big league sports and higher educational institutions.
Logo 7 creates its designs, buys blank goods from Tultex and other suppliers and adds the insignia through screenprinting or embroidery at an Indianapolis plant. Sometimes the company supplies the design to a contractor in the United States or a foreign country, who does the rest. Universal is in the same business, except it deals in hats.
Analysts such as Pamela Singleton, who follows Tultex for Merrill Lynch Global Securities Research in New York, applaud Tultex for becoming strong in the licensed goods business, because it has made the company more diverse and has given it the potential for greater profits.
Of late, this is a bright spot on the company's financial statements. "They did really well in the licensed sports business, which looks like it is starting to recover" in the fourth quarter, Singleton said.
Recover? The downside of this business became evident when baseball players struck midseason in 1994 and the matter dragged into 1995; when hockey team owners last season temporarily locked out the players; and when professional basketball stars created uncertainty about the 1995 season by trying to decertify the players' union. Sales of licensed goods slowed noticeably.
"If the teams aren't playing, the customers aren't buying," said Jack Pickler, an analyst at Prudential Securities Research in Richmond.
Although Logo 7 was the company's top-performing division at year end, Tultex isn't through paying for it and a 4-year-old automated warehouse and distribution center in Martinsville.
When profits missed projections, Tultex got uneasy about its financial cushion. In March of that year, it paid to restructure its debt, which threatened to swamp the operation's cash flow. The outlay for getting new credit and paying off old debt early came to $3.7 million.
It was one of a series of whopping one-time charges that suggest why Tultex had relatively few dollars to post in the profit category.
Circumstances mounted to ding Tultex again. An accounting industry standards organization that sets rules Tultex must follow to remain a public company ordered an accounting procedure change related to advertising that cost $4.9 million.
On top of all that, the company had to buy cotton in the range of 80 to 83 cents per pound, up from an average of 72 cents in 1994. Cotton prices are expected to hold at least through the first half of this year.
To hear company executives tell it, the company is positioned to prosper because Tultex has undergone something of a rebirth.
There is perhaps no better symbol of this hope than Tultex's investment in December in a third company, Wide Open Performance Wear Inc. of Charlotte, N.C., which makes NASCAR-related apparel.
Wide Open, of which Tultex owns a 43 percent share, expects sales of $6 million this year. Tultex sees Wide Open as an investment, but the company hopes to supply garments to the venture and expects to distribute the printed goods to retailers.
"What we have in 1996," Rollins said, "is a company that has moved itself away from being a manufacturer of one product to a company that is much more market- and marketing-oriented. It's looking much more toward what the consumer [wants to buy], rather than to produce only the things we are set up to produce and hope that they buy it."
LENGTH: Long : 197 lines ILLUSTRATION: PHOTO: Cindy Pinkston. 1. Julia Lampkin, a knitting machineby CNBoperator, has worked for Tultex in Martinsville for 23 years. She
feeds thread into the machine, which weaves it into fleece fabric.
2. O. Randolph Rollins, Tultex's chief financial officer, general
counsel and executive vice president, show off one example of the
company's efforts to diversify. The company no longer simply makes
sweat shirts - it also prints on them the logos of sports teams and,
as of December, NASCAR racing. color. KEYWORDS: PROFILE