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Delta Galil Upbeat on Schiesser Buy

Second-quarter profits, sales up on eve of deal consummation.

Economic headwinds in Europe haven’t shaken Delta Galil Industries Ltd.’s confidence in its acquisition of German underwear maker Schiesser AG.

The Tel Aviv-based company, which specializes in performance innerwear and activewear, consummated the deal on July 2, two days after the end of its second quarter, for total consideration of 68 million euros, or $85 million. Isaac Dabah, chief executive officer of Delta Galil, told WWD, “Schiesser is doing well and growing on its own, and we’re now actively working to integrate our systems and realize the synergies that are available.”

While he acknowledged pockets of weakness in Europe, with the parent firm’s business in the U.S. “stabilizing and performing better for us with both retail and wholesale clients,” Dabah noted that the geographical concentration of Schiesser’s business has provided insulation against the recent downturn in Europe, which has been concentrated in the southern part of the continent.

“Schiesser does about three-quarters of its business in Germany and another 20 percent in Holland, Austria, Switzerland and the U.K.,” he said.

In the three months ended June 30, Delta Galil recorded net income of $19 million, or 79 cents a diluted share, more than triple the $5.6 million, or 24 cents, tallied in the second quarter of 2011. Excluding a capital gain and a series of nonrecurring items that added $14.4 million to profits on a pretax basis, net income in the most recent quarter rose 8.8 percent to $6.1 million.

Sales advanced 5.6 percent to $169.1 million from $160.2 million in the year-ago period, its 11th consecutive quarter of year-on-year growth. Gross margin receded to 18.9 percent of sales from 20.4 percent in the comparable period last year.

The addition of Schiesser led Delta Galil to revise guidance for the fiscal year and lift profit projections to a range of $1.37 to $1.44 a diluted share from an earlier estimate of $1.18 to $1.27. The revision incorporates the parent company’s expectation that Schiesser would contribute 25 to 35 cents to earnings per share on an annualized basis.

In the first half, net income, including special items, rose 99.7 percent to $22.9 million, or 95 cents a diluted share, as sales gained 6.2 percent to $337.2 million.

Dabah said the company remained conservative in its approach to inventories, which declined 13.5 percent to $100.9 million since the end of the second quarter of 2011.

“If the market gets better, we will chase merchandise,” he said.

In trading on the Tel Aviv Stock Exchange Thursday, shares of Delta Galil rose 2.4 percent to 38.17 Israeli new shekels, or $9.54.