TEFRON SURGES SEAMLESSLY
Byline: Karyn Monget
NEW YORK — Tefron Ltd. is one smooth operator.
As the demand for allover seamless undergarments is getting bigger by the day, Israel-based Tefron is positioning itself as a major player on a worldwide scale.
Over the past four years, the company’s sales have surged as dramatically as the global appetite for seamless products, jumping to annual wholesale revenues of $128.8 million in 1999 from $78.9 million in 1997.
Sales in the fourth quarter ended Dec. 31, 1999, increased 82 percent to $40.8 million against $22.4 million the previous year. Operating income jumped 215 percent to $4.3 million from $1.4 million, and net income climbed 121 percent to $3.1 million, or 25 cents per diluted share, compared to $1.4 million, or 11 cents per diluted share in 1998.
Overall sales are projected to reach approximately $280 million in 2000 and $340 million in 2001, said Sigi Rabinowicz, chief executive officer. Overall earnings are estimated to grow 145 percent this year and 50 percent in 2001.
The lofty projections do not appear to be pie in the sky.
Already a main supplier for such big retailers as Victoria’s Secret, Gap, Banana Republic — as well as megabrands like Benetton, the licensed Ralph Lauren Intimates at Sara Lee Intimate Apparel, Calvin Klein Underwear at The Warnaco Group and Donna Karan Intimates and DKNY Underwear, both licensees at Wacoal America — Tefron and its Hi-Tex division has recently been contracted by Nike Inc. to produce $700,000 of women’s seamless apparel including sports tops and tennis separates.
The company’s Hi-Tex manufacturing process began in 1997, a highly specialized process that includes using a single machine that transforms yarn directly into a nearly complete garment, replacing knitting, cutting, sewing and traditional accessorizing functions. The high tech facilities, which are mainly robotic, are staffed primarily by former Israeli Army and Air Force personnel.
In late March, Tefron got a leg up in a small but highly competitive field when it received an initial $6 million order from Target Stores, the largest division of Target Corp., to produce a full range of private label seamless intimate apparel. Target’s private brand Honors is sold in 921 stores in 44 states.
In the fiscal year ended Dec. 31, 1998, Tefron said in its 10K report that its two largest customers were Victoria’s Secret and Warnaco and its Calvin Klein underwear brand. Sales generated by Victoria’s Secret accounted for $57.9 million; Warnaco and Calvin Klein Underwear raked in $17.6 million, and what was described as “others” — Banana Republic, Gap and Playtex Apparel at Sara Lee — accounted for $21.9 million.
Arie Wolfson, Tefron’s chairman, said the company should be able to handle the fast-growing order load because it pumped up production capabilities with a key acquisition in late 1999: Alba-Waldensian Inc., an American company with facilities in North Carolina and Tennessee.
Alba is a manufacturing specialist of seamless women’s underwear, and also does knitted medical products. The total value of the purchase was approximately $85 million. The deal secured more than 200 additional Santoni knitting machines for Tefron’s stable, which now totals 700. The merger, said Wolfson, represents a significant step up, noting that competitors generally operate around 200 such machines.
The merged group is expected to hold approximately 30 percent of the global capacity of seamless goods, he said.
According to equity research by Credit Suisse First Boston, the acquisition is expected to broaden Tefron’s customer base to include J.C. Penney, Sears, Roebuck & Co. and Lane Bryant and Express, both chains of Limited Inc.
Regarding the growing importance of seamless products, Grace Nichols, president and ceo of Victoria’s Secret stores, said: “Seamless is the future of modernism in foundations. It is starkly futuristic in appearance and is completely smooth. To the eye, this may not be a huge difference, but to the wearer, it is all about comfort. Fit and ultimate comfort are the key elements.
“Obviously,” said Nichols, “seamless in an important ingredient to the success of both our Body by Victoria and Body Bare collections.”
Regarding manufacturing partnerships with Tefron, Charles L. Nesbit, president and ceo of Sara Lee Intimates, noted, “Tefron is a leading high-quality supplier of seamless garments to the intimate apparel industry. The company has had a strong research and development function and works closely with Sara Lee worldwide on a number of initiatives.
“Of particular note, Tefron has been highly involved in the development and execution of the very successful Ralph Lauren seamless program, introduced to retail in fall 1999.
“In my mind,” continued Nesbit, “the growth of seamless undergarments, particularly products utilizing microfiber feel-good fabrics made on Santoni machines is a revolutionary trend in the intimate apparel industry. Volume in the seamless category has more than doubled every year for the past five years, and there is no sign yet that consumer demand is peaking.”
Nesbit said he believes strong growth should continue for the next five to 10 years as consumers switch to value-added feel-good products and the remarkable potential of the Santoni machines is realized.
“Like Tefron, Sara Lee is making significant capital investments in manufacturing capacity to support the growing worldwide demand for seamless products,” he said.
Richard Murray, president of Wacoal America, the U.S. unit of apparel giant Wacoal Japan, said, “We’ve just started to work with Tefron seriously. I would guess they have a very successful business and are running at full capacity. I think Tefron is the biggest company of its kind in Israel, and so far we are pleased with them.”
Murray noted, however, that demand is so huge for seamless products that “meeting minimums and getting deliveries on time continue to be a challenge.”