Byline: Evan Clark

NEW YORK — Hampered by the weakness of the euro and softness in demand from several U.S. customers, Tefron Ltd.’s third-quarter sales dropped below revised expectations and forced earnings to fall $900,000 into the red.

The loss for the quarter ended Sept. 30 was equivalent to 7 cents a diluted share and compared to year-ago earnings of $2 million, or 16 cents a diluted share. In a profit warning in October, the company had said third-quarter earnings would be approximately break-even.

Still, sales for the period increased 32.9 percent to $50.1 million during the quarter against year-ago sales of $37.7 million. In a profit warning in October, the Bnei-Brak, Israel-based innerwear manufacturer said that revenues for both the third and fourth quarters would range between $54 million and $60 million. Tefron now expects fourth-quarter results to match third-quarter earnings and sales.

Sigi Rabinowicz, chief executive, noted in a statement that the timing of the Jewish New Year reduced sales and bore some of the responsibility for the loss. In the October warning, he said, “The weakness that we have been experiencing is coming from our larger existing programs.”

While the company did not specify the accounts responsible for the softness, a research note from Rouleau said, “We believe that women’s seamless briefs may be losing some of their cache at the status level due to the widespread availability of the product and pricing pressures at the mass market level.” Discounters such as Kohl’s and Wal-Mart widely carry variations of the seamless brief.

Tefron specializes in higher-quality products, and its customer base consists primarily of specialty retailers and status brands, so it “carries a higher degree of exposure to this trend than other seamless manufacturers,” said Rouleau.

Rabinowicz said, “We intend to replace this reduced revenue by shifting sales to other existing customers, as well as increasing sales from our new products.” The company won’t be immediately able to take advantage of additional production capacity now available to its other customers. Rouleau estimates it will be “a minimum of nine months before the company’s manufacturing facilities are operating at full capacity again.”

Rabinowicz noted that, while tensions in the Mideast have forced it to reduce production at its facility in Jordan, it hadn’t affected the company in other ways. Alternative sourcing arrangements are being studied.

During the quarter, Nathan Pulwer joined Tefron as chief financial officer, succeeding Micha Korman, who was named executive vice president.

For the nine months, income increased 2 percent to $5 million against $4.9 million. Diluted earnings per share for both quarters were 39 cents. Sales for the period almost doubled to $174.4 million, compared to $88 million a year ago.

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