By  on July 12, 2010

Tefron, Israel’s second-largest manufacturer of seamless intimate apparel, activewear and swimwear, is in turnaround mode under new leadership.

Chief executive officer Amit Meridor, appointed in January to succeed Adi Livneh, wants to grow sales by increasing efficiency and planning, strengthening relationships between Tefron’s development and manufacturing teams and creating a more streamlined cost structure.

There’s a sense of urgency because the manufacturer reported a $3.8 million gross loss and an operating loss of $20.9 million for 2009.

The company needed a $30 million line of credit from Israel’s three largest banks. The signing of the credit line in December closed “the chapter on what has clearly been a challenging period for our company,” then-chairman Jacob Gelbard said. Gelbard was replaced this month by Arnon Tiberg, former president and ceo of Delta Galil Industries, Israel’s number-one manufacturer of intimate apparel and textiles.

Meridor arrived from Nilit Fibers Ltd., an Israeli producer of high-quality yarn and fibers, where he managed the export department. He also has executive managerial experience in business development, special situations and turnaround programs.

“The whole issue is how to manufacture in Israel at a high level and quality, and to be on time with the exports,” he said. “Now we’re focusing on delivering on time, which means that, if something needs to be delivered on Aug. 25, everything has to be in line for that to happen.”

Meridor has made significant job cuts but declined to specify how many. He said the cost structure now fits Tefron’s current level of service, allowing it to be more competitive.

The company reported a gross profit in the first quarter of $0.9 million, compared with a gross loss of $2.16 million in the fourth quarter of 2009 and a gross profit of $5.5 million in the first quarter last year. First-quarter revenues were $25.8 million compared with $22.3 million in the fourth quarter last year and $47 million in the first quarter of 2009. Revenues last year totaled $115.5 million, a 33.5 percent decrease from $173.8 million in 2008. The drop was attributed to lower sales in all the company’s product lines, primarily because of the worldwide economic slowdown.

Even without the pressures of the recession, Israel’s textile businesses have always had to be creative in their business models. Given the small local market, the only way to survive and grow was to appeal to customers abroad. Those that succeeded did so by adapting sophisticated technology and by creating niche products. Moving part of the production to lower-cost countries in the Middle East such as Egypt and Jordan has helped generate profits, in addition to free trade agreements with the U.S. and European Union.

Like Delta Galil, Tefron began its business manufacturing underwear for the Israeli army in the Seventies.

In 1997, Tefron created its Hi-Tex division, purchasing the machinery of Italy’s Santoni and producing its first seamless panty. The machines use state-of-the-art, computer-controlled, circular-knitting technology and have enabled Tefron to produce a wider range of fabrics, styles and product lines, as well as capture about 30 percent of the seamless-underwear market worldwide.

The company began working with well-known brands, including Patagonia, Victoria’s Secret, Calvin Klein and Lululemon Athletica, and in 2006 launched a joint Center of Excellence with Nike at Nike’s world headquarters in Beaverton, Ore. Tefron was the manufacturer of the NikePro seamless garments used at the 2008 Summer Olympics in Beijing.

Meridor said Tefron’s problems stemmed from manufacturing and timely delivery, particularly because of its cut-and-sew departments. Most textile companies worldwide outsource their cut-and-sew work to countries where costs are lower, such as Bangladesh, India and China. Delta Galil has outsourced to Egypt for years. Despite outsourcing a portion of its sewing and manufacturing to Jordan, China and Cambodia, a significant operation remained in Israel, which became too expensive for the company.

Tefron “had losses for all kinds of reasons, and all because of execution,” Meridor said. “What got hit the most was cut-and-sew because of prices here in Israel. It’s just not economic to do that here in Israel, and we lost on that segment.

“The textile world requires short delivery times and quality for the big brands,” he said. “You have to be able to do mass production and do it in a cost-efficient manner.”

With 40 percent of the business in cut-and-sew garments, the company is looking to Bangladesh, Egypt, India and China for that segment of the business, and is continuing to sew in Jordan. That transition is under way,Meridor said.

“In this business, there’s a lot of sewing and you have to know how to do offshore work,” Meridor said. “Jordan does great work — as good as China or India. That, along with our duty free agreements, gives us a break of 15 to 30 percent, and that helps us succeed.”

The company has some new customers, including the National Football League, and is working with NFL licensee Reebok, creating new uniforms that help increase support for athletes but don’t rip easily. Tefron also will be developing army uniforms in the U.S. and Europe.

“We’re in textile, but all our smarts are in our technology, so we have to go through the growing pains like any other technology company,” Meridor said.

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