Russell Corporation saw RML shares jump more than 8% on Friday after a late report Thursday that it would cut approximately 2,300 jobs worldwide and shift more production off-shore on the way to saving $35 million to $40 million annually on a pre-tax basis. The cuts are expected to affect about 90 positions in corporate and division offices, but will hit hardest in Alexander City, Ala., where the company will cut about 550 jobs as it shutters an older production facility. Of the 1,700 jobs to be cut in the in the U.S., approximately 1,200 will eventually be replaced in Honduras and Mexico.
A shift to more off-shore production is expected to net $22 million to $25 million in annualized cost savings as RML ramps up its newest and soon-to-be largest textile facility in Honduras. That facility in currently on track to produce one million pounds of goods a week by the end of the third quarter and will be expanded to twice that size. The two million pounds per week schedule is roughly equivalent to 100 million sweatshirts or 200 million t-shirts annually. The off-shore move will also include a shift of more sock production to Hondura — which currently produces about 80% of RML socks — to include finishing and packaging. The company will maintain a smaller factory in Alabama for custom work and private label work, but the sewing of team uniforms will continue its move to Mexico. RML said it will also complete the transition of its Huffy backboard production to China and will close the Wisconsin facility, saving the company about $5 million on a pre-tax basis.
RML is also reducing SG&A costs in the Russell Athletic division and expects to net roughly $8 million to $10 million in annual savings through the moves. Moving Comfort will be consolidated under the Russell Athletic group and RML also sees other savings in restructuring the RA corporate, Mossy Oak, private label, and activewear businesses. Word on the street is that about half of the Moving Comfort staff will be eliminated as RML shifts back-office functions to Russell, but leaves sales and merchandising as a separate unit.
Much of the restructuring is being done under the watchful eye of a Six Sigma team. The $5 million plus investment in that program and other IS spending is expected to pave the way for growth and better customer service. RML estimates that it lost $25 million to $30 million in sales in 2005 because of its inability to service its customers. The after-tax cost of the restructuring is expected to be $45 million to $52 million, with projected annualized pre-tax cost savings in the range of approximately $22 million to $26 million on an after-tax basis. Approximately one-half of the charges are expected in the 2006 fiscal year, with approximately 20% of the savings expected to be realized in 2006, approximately 80% in 2007, and the full impact in 2008 and beyond.
RML said 2005 sales came in at approximately $1.435 billion, shy of the $1.45 billion to $1.46 billion range forecast in October. Diluted EPS before charges is now expected to be in the 83 cents to 89 cents per share range, versus earlier forecasts for a range of $1.25 to $1.35 per share.
For 2006, RML sees sales in the $1.45 billion to $1.48 billion range, which reflects mid-single-digit growth, excluding the loss of about $30 million to $40 million in the loss of a boys fleece program at Wal-Mart. The company expects diluted EPS in the $1.10 to $1.25 per share range for 2006, excluding restructuring charges of approximately 66 cents to 78 cents per share associated with the restructuring.
>>> The announcement also included an acknowledgement that the market has shifted to performance apparel in a big way. That revelation will cause Russell to step up its efforts in the area, including adding Dri-Power to fleece for Fall 06 and adding moisture management capabilities to cotton tees…