JERUSALEM — Tefron Ltd., the Israeli manufacturer of seamless and cut-and-sew undergarments and activewear, is coming apart.

This story first appeared in the December 31, 2009 issue of WWD. Subscribe Today.

With the news that Victoria’s Secret, one of the company’s largest and most long-standing customers, decided to move some of its production to India, which resulted in the loss of $23.5 million in revenues for Tefron, the textile company ended up reporting an $8.3 million net loss for the third quarter of 2009 on a 45 percent decline in revenues, to $21 million from $38.3 million.

Besides Victoria’s Secret, Nike is Tefron’s other largest customer, and it appears relations with the activewear firm are also at risk, with neither U.S.-based company placing substantial orders with Tefron during the last year. Sales in all of Tefron’s markets fell, with sales in Europe down 60 percent from the same period last year.

In a statement to the Tel Aviv Stock Exchange, Tefron said it believes the economic repercussions of the global crisis have not yet run their course, but the company has instituted a series of streamlining measures that have helped cut costs this year.

In the meantime, the stock exchange has suspended trading in Tefron shares since early December, and the debt-ridden company received a three-week extension of credit until the end of this month from the banks in order to stay in business. Tefron owes the banks $35 million. Israel’s three largest banks provided Tefron with $29 million in credit at the end of September.

“If the banks don’t approve the business plan and cancel our credit frameworks, the company’s continued operations will be at risk,” Tefron said in its statement to the exchange.

Tefron executives have declined to comment to the press. The company is controlled by First Israel Mezzanine Investors Fund, run by chief executive officer Ishai Davidi, and Mivtach Shamir Holdings Ltd., headed by chairman Meir Shamir. Located in western Galilee, known as a peripheral area of Israel, the factory provides significant employment opportunities for many low-income residents of the area, including Israeli Arabs and recent immigrants from Ethiopia and Russia. As such, the Histadrut Labor Federation, a quasi-governmental labor group, is working with the company’s owners to save the plant and jobs.

Shamir and Davidi have told Israeli newspapers that they “will do whatever is needed” to save the textile plant.

At the height of its success, Tefron had annual sales of around $200 million and an estimated 5 percent share of the $10 billion U.S. intimate apparel market. The company’s customers included Victoria’s Secret, Nike, Adidas, Gap, Banana Republic and Calvin Klein, as well as discount retailers Target and Wal-Mart. With a logistics and customer service plant in North Carolina, and research and development and production in Israel, Madagascar and Jordan, Tefron was seen as an example of how to manufacture and sell on a global basis.

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