Dawson would not confirm its plans yesterday. But it warned that its next set of figures would be marred by a large one-off cost relating to the Morgan businesses. 'We anticipate making a very substantial provision in our accounts for the current year,' it said.
Mark Puleikis, textiles specialist at Smith New Court, summed up City expectations. He said: 'I think they will bite the bullet and close Morgan down.'
Conservative estimates envisage a write-off of between pounds 20m and pounds 30m, although some analysts are contemplating figures twice as high. Exact details of the provisions have yet to be worked out and a full statement is expected from Dawson within three weeks. The provisions will cover write-downs of stocks and fixed assets and satisfy redundancy terms for employees.
Morgan Apparel makes low-grade T-shirts and sweat shirts typically for sale in discount stores such as K-Mart and Wal-Mart. It has suffered from falling demand and prices and lost pounds 8m in the six months ended 25 September.
The board position of Philip Kemp, Dawson's director responsible for Morgan Apparel, is understood to be safe but senior operational managers in the US have already left the company.
Trouble at Morgan Apparel has undermined Dawson's share price in recent months. The price fell 12p at one point yesterday to 130p - its lowest level since September 1990. An afternoon rally saw the shares recover to close at 134p.
Dawson was obliged to make a statement yesterday to avoid creating a false market. In the week prior to the announcement the share price slipped from 158p to 142p.
The company emphasised that while it was encountering acute difficulties at Morgan Apparel other sections of the group were trading well. 'At our other US businesses demand for JE Morgan Knitting and Duofold performance wear products remains buoyant.'
In addition, sales of branded jumpers such as Pringle and Ballantyne are benefiting from economic recovery in Britain.
Mr Puleikis added: 'I have altered my recommendation on Dawson shares from sell to hold but I retain fundamental doubts.'
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