Novel Denim narrowed its second-quarter loss despite ongoing difficulties with its South African operations.

This story first appeared in the November 13, 2003 issue of WWD. Subscribe Today.

For the three months ended Sept. 30, the Hong Kong-based apparel and fabric producer recorded a loss of $1.5 million, or 19 cents a diluted share, compared with a loss of $3.6 million, or 40 cents, last year.

Net sales for the period slid 12.5 percent to $32.8 million from $37.5 million last year. Garment sales fell 14 percent to $16.7 million against $19.4 million last year.

K.C. Chao, chief executive officer and president, said in a statement, “Unfortunately, our new South African garment factory and existing South African fabric operations continued as loss-making divisions and are performing below expectation, partially due to increased costs resulting from the appreciation of the South African rand versus the U.S. dollar.”

From the time the company entered South Africa, the rand has steadily appreciated against the dollar, resulting in heavier exchange losses. Eleven rand were equivalent to one U.S. dollar when Novel entered South Africa, said Chao during a company conference call. Today, says Chao, that rate is closer to seven rand to one U.S. dollar. Chao cited the continued exchange pressures and the inability to hedge operating costs as key factors negatively impacting results.

The company also announced it had received approval to transfer to the Nasdaq SmallCap Market. The transfer will take effect at the start of trading on Nov. 15. Shares had previously traded on the Nasdaq National Market.

For the six months to date, the company reported a loss of $1.2 million, or 15 cents a diluted share, compared with a loss of $9.8 million, or $1.07 a share, last year. Sales for the period fell 7.6 percent to $72.5 million, compared with $78.5 million last year.

Going forward, the company expects to incur further losses from its South African operations and expects a loss of about $1 million for the fiscal year. Net sales are expected to be approximately $150 million.

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