NEW YORK — Sales were down and losses continued for a fourth year for Tefron Ltd. in 2003. That hasn’t stopped investors — optimists that they are — from spurring share prices to highs for the year.
According to its annual report filed with the Securities and Exchange Commission on
April 1, the Bnei-Brak, Israel-based seamless intimate apparel and activewear manufacturer reported its smallest loss in four years. For the year ending Dec. 31, losses came in at $3.5 million, or 28 cents a diluted share. Comparatively, the company reported losses of $17.5 million in 2002, $10 million in 2001 and $4.5 million in 2000.
Over that same period, return on equity has improved to -0.01 percent last year from -0.3 percent in 2002, -0.15 percent in 2001 and -0.06 in 2000.
Despite this, shares of Tefron have swelled, reaching a 52-week high of $6.35 in early March from a low of $3.02 in July of 2003, a 110.3 percent improvement. Since March, shares have continued to hover near the high mark. Shares traded up 2.6 percent to close at $6 on Friday in New York Stock Exchange trading.
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Perhaps more surprising is the fact that the spike has occurred at time when sales have slowed and the company is investing heavily to expand its business.
Sales took a hit in 2003, floundering 14.3 percent to $163.1 million from $190.3 million the previous year. More troubling was the fact that the sales decline was largely attributable to two prominent clients.
Sales to the company’s largest client, Victoria’s Secret, fell 34.3 percent in 2003 to $62.2 million from $94.7 million and accounted for 38.2 percent of total sales. In the previous year, Victoria’s Secret accounted for 49.8 percent of total sales.
Sales to Gap and Banana Republic sank 41.8 percent to $9.2 million in 2003, against sales of $15.8 million the previous year.
As explained in the annual report, the company’s sales fluctuate due to the absence of long-term purchase contracts with customers and sales arrangements that contain no minimum purchase requirements.
Another factor negatively impacting results has been the company’s expansion into activewear products, which has required significant investments in new equipment and greater material costs.
Even with a dramatic surge in sales, the company faces sizable debt loads. According to the report, the company has long-term debt repayment obligations of $11.7 million in 2004, $25.2 million in 2005, $20.1 million in 2006 and $11.5 million in 2007. This does not include an additional $31.8 million in short-term debt on the books as of Dec. 31, 2003.
Refinancing agreements have been established that will allow the company to pay its debt at $7 million per year until 2012. However, the company only generated $2.9 million in cash from operating activities in 2003.
Currently, the company’s total debt-to-equity ratio stands at 2.42, compared with 0.31 for the industry and 0.85 for the Standard & Poor’s 500 Index.
— Ross Tucker with contributions from Dan Burrows