WestPoint Wallows in Its Own Words

Thursday Thud:

Textile talk: When WestPoint Stevens(WXS Quote - Cramer on WXS - Stock Picks) announced fourth-quarter earnings on Feb. 8, it forecast first-quarter earnings of 10 cents a share and said, "We are quite positive about the outlook for 2001." Since then, its CFO, seen as the prime architect of the company's turnaround, has quit and been replaced; its customers have reported bloated inventories and, oh yes, today WestPoint reported first-quarter earnings -- make that a loss -- of 10 cents a share. None of this is good news for WestPoint investors.

WestPoint is loaded with debt of more than $1.6 billion, while cash (up from the fourth quarter thanks to asset sales and additional borrowings) was a mere $520,000. The situation isn't going over well with analysts who focus on bonds, who are perhaps the most insightful in debt-up-to-their-eyeball situations such as this. WestPoint's bonds currently trade in the high 50s. In a report to analysts a week ago, Lehman Brothers credit analyst Christine Daley said she doesn't think the bonds will have value until they reach the mid-40s. "We do not like this credit," she wrote, adding that it reminds her of prebankruptcy Pillowtex(PTEXQ Quote - Cramer on PTEXQ - Stock Picks). Longtime readers of this column will remember its saga, which was detailed here. At the time, the company kept trying to spin Wall Street on how it would improve profits while cutting costs. Sort of like WestPoint is saying these days.

Daley's bottom line: The company is saddled with way too much capacity for the times, its projections are too aggressive and "we are beginning a period of disappointing earnings going forward."

The company, meanwhile, continues to talk about a positive future. As its current forecasting track record shows, however, that's easier said than done.

Short squeeze: An item here Wednesday mentioned the growing list of companies that are urging investors to have their shares called away from short-sellers. One was Biospherics (BINC Quote - Cramer on BINC - Stock Picks). As it turns out, a few days before CEO Gilbert Levin was telling shareholders what to do, he filed to sell 50,000 shares of the company stock. That's 50,000 out of his holdings of 1.4 million shares; along with his wife, a director and vice president for communications, he owns a combined 2.9 million shares. A drop in the bucket, sure, but it's the principle (if not irony) of the matter! Levin's nephew, who happens to be the company's CFO, didn't return a call from my associate, Brian Harris. (Without ever peeking at the company's Securities and Exchange Commission filings, I think we're starting to get a hint of why the company has been a magnet for shorts.)