Old But Good Read
As Speizman illustrates, small textile-centered companies can be winners for speculators. "Textiles have pronounced cycles," says Stuart Vaughn, managing director of Scott & Stringfellow's North Carolina offices. "But year in and year out, people make a lot of money in them."
Speizman recently wrote off $89,000 for used equipment it had taken back. "That amounted to a penny or two a share in earnings," says Thad Faison, analyst with Interstate/Johnson Lane, broker for last fall's stock offering. Such a write-off would have been petty cash for, say, Burlington Industries, with its $2 billion-plus sales.
But upturns also result from a small company's ability to remake itself. The company Morris Speizman started in 1937 manufactured its own machines, which were used to produce stretch fabrics in the '70s and '80s. When that fabric became an icon of bad taste, Speizman was caught with its double-knit pants down: Having sold hundreds of mechanical knitters "with recourse," it was forced to take back $80 million worth.
"Over the years, we manufactured over 5,500 of our own mechanically oriented machines, the Amy," says Josef Sklut, vice president for finance of Speizman, "Our foreign friends were busy developing electronic machines. We didn't have the working capital to catch up, and they were spending millions on R&D." With Speizman's son, Robert, as CEO, the company struck a deal with Italian machine maker Lonati: Speizman would abandon manufacturing and get U.S. distribution rights from Lonati, which sells 75% of the world's computerized sock-knitting machines. The Lonati machines accounted for 72% of sales last year. Revenue has nearly doubled since 1990, while earnings soared from $309,000 in 1990 to $2.3 million in both 1992 and 1993.
With things looking up, management moved last year to turn a family-controlled company into a full-fledged public corporation. Speizman Industries netted $9.3 million in an offering last fall; shares in public hands increased from 850,000 to 2.6 million. Robert Speizman sold 400,000 shares, about $4.75 million, but held on to 705,000 shares -- 32%. Three outside directors, including former Rexham Corp. CEO Scott Lea, joined the board of directors.
Such a heavy reliance on a single supplier obviously can be a problem. "Any time you're buying offshore, you've got some extra risk," Interstate's Faison says. But Speizman experienced only a few minor delays in deliveries last year and no significant order cancellations, Sklut says.
Alba-Waldensian is a slightly larger but equally obscure textile company. It employs 950 making hosiery, medical-specialty products, women's intimate wear and other lines. Like Speizman, the company has gone through tumultuous times but appears to be rebounding. "We did some downsizing several years ago and shed some low-margin lines," Irwin says. "Our sales dropped, but we increased profitability."
Bolstered by the acquisition of an imported-goods distributor, Alba-Waldensian's sales rose 25% last year. (Excluding the acquisition, sales were up 9%, Irwin says.) Net income fell 37% to $984,478 due to one-time charges of nearly $1 million because of expected losses from a key customer's bankruptcy filing and expenses from an acquisition that fell through. Excluding those charges, earnings would have topped $1.6 million, about 90 cents a share. That may explain why the stock, which has fluctuated between $5.88 and $12.13 in the past two years, was trading at $11.25 at the end of May.
Adding to the speculative nature of Alba-Waldensian is the 50% ownership of Clyde Engle, a Chicago financier who has invested with varying degrees of success in small Tar Heel companies, including Wellco Enterprises of Waynesville and Sunstates Corp. (formerly Acton Corp.) of Raleigh.
Lida, meanwhile, shows how the strength of a niche can quickly turn into a weakness. The company achieved success with novel manufacturing techniques such as printing directly on stretch materials. But its real secret was hitting the market when demand for IPOs was red-hot. The Kier family took out 75% of the $28.5 million raised from investors, but its success quickly attracted imitators and margins evaporated.
In 1993, despite a slight sales increase to $88.6 million, the company lost $3.2 million, compared with profit of $1.9 million the previous year. In response, the Kiers cut their pay 33% and reduced staff by 8%. "Our current efforts are focused on generating expanded sales," CEO Isaac Kier says.
