A look from KN Karen Neuburger.

Delta Galil Industries Ltd. sales dropped 2 percent in the second quarter to $249.5 million from last year’s $255.5 million.

The soft top-line performance in the U.S. wasn’t enough to offset stronger sales in Europe and Israel. Net income in the second quarter was $7.8 million, which also dropped 16 percent from last year’s $9.3 million. Diluted earnings per share were 30 cents versus last year’s 36 cents for the same period.

“While we experienced a challenging U.S. retail environment in the second quarter, which is expected to continue into the third quarter, this was partially offset by improvements in all of our other business segments and regions, reflecting the strength of our diversified business model,” said chief executive officer Isaac Dabah.

The company’s net financial debt rose to $106.6 million at the end of June 2016 from last year’s $71.1 million. The increase in debt stemmed from the acquisition of PJ Salvage and investments in production plants.

“As part of our growth strategy, we announced during the quarter the acquisition of contemporary premium brands, including the businesses and brands of Seven For All Mankind, Splendid and Ella Moss from VF Corporation,” said Dabah. “We are now working to maximize the benefits these brands bring to Delta, as they further diversify our product offering and distribution channels, while adding significant strength to our structure.”

With regards to the investments in production, Delta Galil said it was on track to launch new factories in Vietnam with Seamfree and Cut & Sew factories opening in the fourth quarter and a Socks factory opening in 2017.

Delta Galil doesn’t expect the softness in the U.S. market to change and told investors to expect earnings to come in at the lower end of the previous guidance range for the year. Delta had guided investors to full-year earnings in the range of $1.93 to $2.02 and sales between $1.0 to $1.1 million.