MISGAV, Israel, August 9 /PRNewswire-FirstCall/ -- Second Quarter 2007 Highlights:
- Second Quarter Revenues Were $40.6 Million, 18.3% Below Revenues of the Second Quarter of 2006.
- Cash Flow From Operations was $2.2 Million, Leading to a Net Cash Position of $4.2 Million at the end of the Quarter.
- Operating Income for the Quarter was $1.0 Million.
- Fully Diluted EPS From Continuing Operations was $0.04 in the Quarter, Compared With $0.21 in the Second Quarter of 2006.
Tefron Ltd. , a leading producer of seamless intimate apparel and engineered-for-performance (EFPTM) active wear, today announced financial results for the second quarter of 2007.
As announced on April 27, 2006, Tefron closed the sale of its ownership interest in AlbaHealth. Accordingly, the financial statements of AlbaHealth are accounted for as discontinued operations, and the financial results described below do not include the financial results of AlbaHealth. Tefron ceased to consolidate the financial statements of AlbaHealth commencing April 27, 2006.
Second Quarter 2007 Results
Second quarter revenues were $40.6 million, representing an 18.3% decrease from second quarter 2006 revenues of $49.7 million. The decrease in revenues in the quarter was due to a reduction in sales of active-wear and intimate apparel during the quarter. This reduction was partly offset by a slight increase in sales of swimwear.
Second quarter gross margin was 14.0%, compared with a gross margin of 21.7% in the second quarter of 2006. Operating income totaled $1.0 million (2.5% of revenues), compared with $6.6 million (13.4% of revenues) in the second quarter of 2006.
The decline in gross and operating margins in the second quarter was primarily due to the lower revenue and manufacturing levels in the quarter. In addition, the significant devaluation of the US Dollar versus the New Israeli Shekel, as well as the previously identified price reductions in older collections of Tefron's intimate apparel product line also impacted margins.
Income from continuing operations was $0.8 million (1.9% of revenues), or $0.04 per diluted share in the second quarter of 2007, compared to $4.5 million (9.1% of revenues), or $0.21 per diluted share, in the second quarter of 2006.
First Half 2007 Results
Revenues in the first half of 2007 reached $89.4 million, representing a 9.8% decline from revenues generated during the first half of 2006. The decline in revenues was due to a reduction in sales of intimate apparel and a significant reduction in sales of active-wear. This decline was partly offset by an increase in sales of swimwear.
The 2007 first half gross margin was 16.8% compared to 23.0% in the first half of 2006. Operating income was $6.0 million (6.7% of revenues) compared to an operating income of $14.1 million (14.3% of revenues) in the first half of 2006. Income from continuing operations was $4.6 million (5.1% of revenues), or $0.21 per diluted share compared with $9.8 million (9.9% of revenues), or $0.47 per diluted share in the first half of 2006.
Management comments
Mr. Yos Shiran, Chief Executive Officer of Tefron, commented, "Our second quarter results were in line with our updated expected financial results which we outlined in our announcement a month ago. Our active-wear sales were significantly reduced in the second quarter mainly due to a delay in orders. Our intimate apparel product line sales were also down in the second quarter mainly due to a reduction in sales to Victoria's Secret of older Cut & Sew collections which have been under continuous price pressure since the beginning of the year. Additionally, we have been informed by Victoria's Secret that they intend to gradually transfer their sourcing of an old Cut & Sew cotton program to India beginning next year. We do not expect this to have a material impact on our 2008 intimate apparel revenues and profitability. ."
Mr. Shiran continued, "For the third quarter, we expect active-wear and intimate apparel sales to decline compared to the third quarter of last year. Seasonally, swim-wear revenues are the lowest in the third quarter, and accordingly we expect overall revenues in the third quarter to be below those of last year. We believe the lower revenue level will lead to a net loss of around $1 million in the third quarter. However, given our expectations for improved active-wear sales in the fourth quarter mainly due to positive indications received from Nike for increased 'next generation' product orders, and a seasonally stronger quarter for swimwear sales, we expect a strong improvement in sales and margins in the fourth quarter compared to the second quarter of 2007."
Mr. Shiran concluded, "While the first half of 2007 has been challenging for us, we have been successful in positioning Tefron as a leading developer, designer and manufacturer of high-end performance apparel. We are in a continuous process of looking for new customers for our products and new revenue growth drivers while looking for ways to cut costs and improve efficiencies."
Conference Call
The Company will be hosting a conference call today, August 9, 2007 at 10am EDT. On the call, management will review and discuss the results, and will be available to answer investor questions.
To participate, please call one of the following teleconferencing numbers. Please begin placing your calls at least 5 minutes before the conference call commences. If you are unable to connect using the toll-free numbers, please try the international dial-in number.
US Dial-in Number: +1-888-642-5032
UK Dial-in Number: 800-917-5108
ISRAEL Dial-in Number: +972-(0)3-918-0691
INTERNATIONAL Dial-in Number: +972-3-918-0691
For those unable to listen to the live call, a replay of the call will be available for three months from the day after the call in the investor relations section of Tefron's website, at: http://www.tefron.com/
About Tefron
Tefron manufactures boutique-quality everyday seamless intimate apparel, active wear and swim wear sold throughout the world by such name-brand marketers as Victoria's Secret, Nike, Target, The Gap, Banana Republic, J. C. Penney, lululemon athletica, Warnaco/Calvin Klein, Patagonia, Reebok and El Corte Englese, as well as other well known retailers and designer labels. The company's product line includes knitted briefs, bras, tank tops, boxers, leggings, crop, T-shirts, nightwear, bodysuits, swimwear, beach wear and active-wear.
This press release contains certain forward-looking statements, within the meaning of Section 27A of the US Securities Act of 1933, as amended, Section 21E of the US Securities Exchange Act of 1934, as amended, and the safe harbor provisions of the US Private Securities Litigation Reform Act of 1995, with respect to the Company's business, financial condition and results of operations. We have based these forward-looking statements on our current expectations and projections about future events.
Words such as "believe," "anticipate," "expect," "intend," "will," "plan," "could," "may," "project," "goal," "target," and similar expressions often identify forward-looking statements but are not the only way we identify these statements. Except for statements of historical fact contained herein, the matters set forth in this press release regarding our future performance, plans to increase revenues or margins and any statements regarding other future events or future prospects are forward-looking statements.
These forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements, including, but not limited to:
- our customers' continued purchase of our products in the same volumes or on the same terms;
- the cyclical nature of the clothing retail industry and the ongoing changes in fashion preferences;
- the competitive nature of the markets in which we operate, including the ability of our competitors to enter into and compete in the seamless market in which we operate;
- the potential adverse effect on our business resulting from our international operations, including increased custom duties and import quotas (e.g., in China, where we manufacture for our swimwear division).
- the potential adverse effect on our future operating efficiency resulting from our expansion into new product lines with more complicated products and different raw materials;
- the purchase of new equipment that may be necessary as a result of our expansion into new product lines;
- our dependence on our suppliers for our machinery and the maintenance of our machinery;
- the fluctuations costs of raw materials;our dependence on subcontractors in connection with our manufacturing process;
- our failure to generate sufficient cash from our operations to pay our debt;
- fluctuations in inflation and currency; and
- political, economic, social, climatic risks, associated with international business and relating to operations in Israel;
as well as certain other risks detailed from time to time in the Company's filings with the Securities and Exchange Commission. The Company undertakes no obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events .
SALES BY SEGMENT
Six months ended Six months ended
June 30, 2007 June 30, 2006
Segment USD % of USD % of
Thousands total Thousands total
Cut & sew 42,052 47.1% 45,753 46.2%
Seamless 47,322 52.9% 53,343 53.8%
Total 89,374 100.0% 99,096 100.0%
Three months ended Three months Year ended
June 30, 2007 ended June 30, December 31, 2006
2006
Segment USD % of USD % of USD % of
Thousands total Thousands total Thousands total
Cut & sew 17,770 43.7% 22,792 45.8% 85,951 45.7%
Seamless 22,853 56.3% 26,937 54.2% 102,153 54.3%
Total 40,623 100.0% 49,729 100.0% 188,104 100.0%
SALES BY PRODUCT LINE
Six months ended Six months ended
June 30, 2007 June 30, 2006
Product line USD % of USD % of
Thousands total Thousands total
Intimate 49,266 55.1% 50,693 51.2%
Apparel
Active wear 21,114 23.6% 31,324 31.6%
Swimwear 18,994 21.3% 17,079 17.2%
Total 89,374 100.0% 99,096 100.0%
Three months Three months Year ended
ended June 30, ended June 30, December 31, 2006
2007 2006
Product line USD % of USD % of USD % of
Thousands total Thousands total Thousands total
Intimate
Apparel 22,808 56.1% 25,267 50.8% 100,890 53.6%
Active wear 10,275 25.3% 17,275 34.7% 59,406 31.6%
Swimwear 7,540 18.6% 7,187 14.5% 27,808 14.8%
Total 40,623 100.0% 49,729 100.0% 188,104 100.0%
CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands
June 30, December 31,
2007 2006 2006
Unaudited
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,181 $ 20,073 $ 3,966
Short-term deposit 11,402 - 10,089
Marketable securities 9,868 - 4,975
Trade receivables, net 28,234 26,837 30,655
Other accounts receivable and prepaid
expenses 3,736 4,398 4,166
Inventories 24,609 22,420 28,912
Total current assets 83,030 73,728 82,763
LONG-TERM INVESTMENS:
Bank deposit - - 1,029
Severance pay fund 854 878 778
Subordinate note 3,000 3,000 3,000
Total long-term investments 3,854 3,878 4,807
PROPERTY, PLANT AND EQUIPMENT, NET 76,043 78,363 77,086
Total assets $ 162,927 $ 155,969 $ 164,656
CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands
June 30, December 31,
2007 2006 2006
Unaudited
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term bank loans $ 5,948 $ 6,398 $ 5,948
Trade payables 22,903 22,241 31,143
Other accounts payable and accrued expenses 10,633 8,145 10,402
Total current liabilities 39,484 36,784 47,493
LONG-TERM LIABILITIES:
Long-term loans from banks (net of current
maturities) 16,348 22,296 19,322
Deferred taxes 12,220 13,120 12,313
Accrued severance pay 3,427 3,143 3,298
Total long-term liabilities 31,995 38,559 34,933
SHAREHOLDERS' EQUITY:
Ordinary shares 7,518 7,292 7,411
Additional paid-in capital 106,138 98,181 101,684
Less - 997,400 Ordinary shares in treasury,
at cost (7,408) (7,408) (7,408)
Cumulative other comprehensive income 130 615 55
Accumulated deficit (14,930) (18,054) (19,512)
Total shareholders' equity 91,448 80,626 82,230
Total liabilities and shareholders' equity $ 162,927 $ 155,969 $ 164,656
CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands, except share data
Six months Three months Year ended
ended ended December
June 30, June 30, 31,
2007 2006 2007 2006 2006
Unaudited
Sales $ 89,374 $ 99,096 $ 40,623 $ 49,729 $ 188,104
Cost of sales 74,381 76,334 34,921 38,961 145,144
Gross profit 14,993 22,762 5,702 10,768 42,960
Selling, general
and administrative
expenses 8,998 8,632 4,697 4,127 17,077
Operating income 5,995 14,130 1,005 6,641 25,883
Financial expenses,
net 457 1,016 49 701 1,912
Income before taxes
on income 5,538 13,114 956 5,940 23,971
Taxes on income 956 3,335 166 1,392 5,711
Income from
continuing
operations 4,582 9,779 790 4,548 18,260
Income (loss) from
discontinued
operations - 62 - (90) 120
Net income $ 4,582 $ 9,841 $ 790 $ 4,458 $ 18,380
Basic and diluted
net earnings per
share from
continuing
operations:
Basic net earnings
per share $ 0.22 $ 0.49 $ 0.04 $ 0.22 $ 0.90
Diluted net
earnings per share $ 0.21 $ 0.47 $ 0.04 $ 0.21 $ 0.88
Basic and diluted
net earnings per
share from
discontinued
operations:
Basic net earnings
per share $ - $ - $ - - $ 0.01
Diluted net
earnings per share $ - $ - $ - - $ 0.01
Basic and diluted
net earnings per
share :
Basic net earnings
per share $ 0.22 $ 0.49 $ 0.04 $ 0.22 $ 0.91
Diluted net
earnings per share $ 0.21 $ 0.47 $ 0.04 $ 0.21 $ 0.89
Weighted average
number of shares
used for computing
basic earning per
share 21,174,775 19,906,775 21,194,630 20,107,137 20,210,722
Weighted average
number of shares
used for computing
diluted earnings
per share 21,843,126 20,919,799 21,862,557 21,365,011 20,754,566
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
Six months Three months Year ended
ended ended December
June 30, June 30, 31,
2007 2006 2007 2006 2006
Unaudited
Cash flows from
operating activities:
Net income $4,582 $9,841 $790 $4,458 $ 18,380
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Loss (income) from
discontinued
operations - (62) - 90 (120)
Depreciation,
amortization and
impairment of
property, plant and
equipment 4,335 4,151 2,146 2,050 8,719
Compensation related
to options granted to
employees 182 336 77 141 555
Increase (decrease) in
accrued severance pay,
net 53 204 (5) 205 459
Accrual of interest on
short and long-term
deposits and
marketable securities (328) - (125) - (100)
Gain on sale of and
accretion of discount
on marketable
securities (65) - - - (57)
Increase (decrease) in
deferred income taxes 60 3,979 (86) 1,381 2,128
Loss (gain) on
disposal of property,
plant and equipment,
net (395) 8 1 23 (73)
Decrease (increase) in
trade receivables, net 2,421 (859) 1,093 972 (4,677)
Decrease (increase) in
other accounts
receivable and prepaid
expenses 275 (224) 167 562 (417)
Decrease (increase) in
inventories 4,303 3,962 1,246 5,997 (2,530)
Increase (decrease) in
trade payables (8,240) (5,624) (3,092) (5,927) 3,278
Increase (decrease) in
other accounts payable
and accrued expenses 385 (1,529) 6 (705) 1,718
Net cash provided by
continuing operating
activities 7,568 14,183 2,218 9,247 27,263
Net cash provided by
(used in) discontinued
operating activities - 507 - (10) 507
Net cash provided by
operating activities 7,568 14,690 2,218 9,237 27,770
Cash flows from
investing activities:
Purchase of property,
plant and equipment (3,102) (1,164) (2,138) (562) (4,688)
Investment grants
received - 1,218 - - 1,218
Proceeds from sale of
property, plant and
equipment 681 265 2 255 335
Dividend received from
discontinued operation - 140 - 1 140
Investment in short
and long-term deposits
and marketable
securities (16,961) - (8,500) - (22,894)
Proceeds from sale of
marketable securities 12,179 - 7,680 - 6,961
Proceeds from sale of
subsidiary, net - 10,250 - 10,250 9,917
Net cash provided by
(used in) continuing
investing activities (7,203) 10,709 (2,956) 9,944 (9,011)
Net cash used in
discontinued investing
activities - (172) - (4) (172)
Net cash provided by
(used in) investing
activities (7,203) 10,537 (2,956) 9,940 (9,183)
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
Year
Six months Three months ended
ended ended December
June 30, June 30, 31,
2007 2006 2007 2006 2006
Unaudited
Cash flows from financing
activities:
Repayment of long-term bank
loans (2,974) (18,214) (1,488) (16,735) (21,188)
Proceeds from long-term bank
loans - 5,000 - 5,000 5,000
Decrease in short-term bank
credit, net - (14,713) - (8) (14,713)
Excess tax benefit from
exercise of stock options
related to employees and
directors - - - - 446
Proceeds from exercise of stock
options related to employees
and directors 85 1,622 60 1,136 3,175
Proceeds from exercise of
tradable options issued at the
secondary offering 4,290 - - - 972
Proceeds from secondary
offering of shares and options,
net - 13,834 - - 13,816
Dividend paid to shareholders (551) - - - (9,446)
Net cash provided by (used in)
continuing financing activities 850 (12,471) (1,428) (10,607) (21,938)
Net cash used in discontinued
financing activities - (544) - (81) (544)
Net cash provided by (used in)
financing activities 850 (13,015) (1,428) (10,688) (22,482)
Total increase (decrease) in
cash and cash equivalents 1,215 12,212 (2,166) 8,489 (3,895)
Decrease in cash and cash
equivalents attributed to
discontinued operations - 209 - 95 209
Increase (decrease) in cash and
cash equivalents attributed to
continued operations 1,215 12,421 (2,166) 8,584 (3,686)
Cash and cash equivalents at
beginning of period 3,966 7,652 7,347 11,489 7,652
Cash and cash equivalents at
end of period $ 5,181 $ 20,073 $ 5,181 $ 20,073 $ 3,966
Contacts
Company Contact:
Asaf Alperovitz
Chief Financial Officer
+972-4-9900803