BusinessWeek: January 11, 1993

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 Industry Outlook: Introduction

A VENUS IN BLUE JEANS

It has been 10 years since a U. S. textile company was a hot growth stock. But thanks to America's love affair with denim, that's what Cone Mills Corp. is these days. Since it reemerged as a public company in June, its shares have surged nearly 50%, to 14%. Analysts expect it to post a double-digit profit gain in 11/23, to about $50 million on $750 million in sales.

That's quite a tumaround for an obscure company that in 1984 was hobbled with $420 million in leveraged-buyout debt. At the time, imports and collapsing domestic demand had left Cone Mills with too much capacity for its main product, corduroy fabric. "It was like chasing a bouncing ball down the stairs," says Chief Executive Officer J. Patrick Danahy of the seven-year struggle that ended in the closing of eight corduroy plants. Last year, Cone used proceeds from its initial public offering to cut its debt in half, to $110 million.

Now, the company is the nation's largest denim producer, with a 25% market share. And given the back-to-basics trend of the '90s, that's a fine place to be. Cone makes denim in more than 360 colors and has an exclusive supply contract with Levi Strauss & Co. for its 501 blue jeans. It also sells to Calvin Klein, Lands End, L. L. Bean, Wrangler, Lee Apparel, and Oshkosh B'Gosh.

Imports aren't a worry at the moment, since a heavy fabric such as denim costs a lot to ship from the Far East. Besides, Cone Mills sells at 1980 prices, thanks to constant improvements in manufac turing efficiency and quality. In fact, Cone now exports about 25% of its denim. And Danahy, 48, who was named CEO in 1990, sees exports as a growth business.

CONTRARIAN MOVES. The Notre Dame University engineering grad isn't stopping there, however. He's on the prowl for acquisitions in the U. S. And because he thinks Congress will approve the North America Free Trade Agreement, he's scouting for joint ventures in Mexico and Central and South America. Next may come deals in Eastern Europe, China, and India.

Those are refreshing, contrarian moves in an industry that for years has complained about being damaged by textile imports but has done almost nothing to challenge foreign rivals in their markets.

Chuck Hawkins
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