NEW YORK — Rising sales and a drastic reduction in costs spurred Tefron to triple-digit earnings gains for the first quarter.
“We have demonstrated a solid start to 2006, continuing on our growth strategy from last year,” Yos Shiran, chief executive officer of the Israeli manufacturer of seamless apparel, said in a statement. “We are looking for a significant increase in our activewear revenues in the second half of the year as we work to further expand our product lines while entering into new categories.”
In addition to posting strong earnings, the company announced that it has formed a joint venture with China’s Langsha Knitting Co. and Japan’s Itochi Corp. Under the agreement, which is expected to take effect within several months, Tefron will provide knitting machines to manufacture seamless underwear for the Asian market. The company will hold a 50.1 percent equity stake in the venture.
“The joint venture provides us with facilities, man power, management and infrastructure in China,” Shiran said. “It also provides us with an existing sales and distribution channel through a leading brand. We see significant long-term potential in this joint venture.”
For the three months ended March 31, earnings skyrocketed 344.9 percent to $5.4 million, or 26 cents a diluted share, compared with earnings of $1.2 million, or 7 cents, in the same period a year ago.
Sales for the period rose 8 percent to $56.8 million from $52.6 million, driven by the firm’s activewear and swimwear segments. Activewear sales grew 17.5 percent to $14 million, compared with $12 million in the year-ago period. The surge was largely attributable to Nike, which made large purchases for its Nike Pro apparel line. Patagonia and Reebok are also customers for Tefron’s activewear segment.
Swimwear made substantial gains, posting a 21.3 percent sales increase to $9.9 million compared with $8.2 million. However, the company noted that swimwear sales are typically strongest during the first quarter.
Intimate apparel maintained its position as the company’s largest business segment; volume rose 4.5 percent to $25.4 million compared with sales of $24.3 million in the year-ago period. Tefron controls about 30 percent of the seamless underwear market, according to its Web site.
Earnings were also helped by sizable reductions in expenses. Cost of sales fell 870 basis points to 75.5 percent of sales, or $42.9 million, compared with 84.2 percent of sales, or $52.6 million, in the year-ago period. Shifting sewing operations to Jordan allowed the company to save substantially on labor costs. Funds generated from the company’s public offering on the Tel-Aviv stock exchange during the quarter were used to pay down its short-term debt, which helped further reduce expenses.
Trading volume of Tefron shares on the New York Stock Exchange surged on Monday following the announcement. Shares reached a new 52-week high of 12.70 before closing at 12.48.