Revenues in the first half of 2007 reached $89.4 million, representing a 9.8% decline from revenues generated during the first half of 2006. The decline in revenues was due to a reduction in sales of intimate apparel and a significant reduction in sales of active-wear. This decline was partly offset by an increase in sales of swimwear.
The 2007 first half gross margin was 16.8% compared to 23.0% in the first half of 2006. Operating income was $6.0 million (6.7% of revenues) compared to an operating income of $14.1 million (14.3% of revenues) in the first half of 2006.
Income from continuing operations was $4.6 million (5.1% of revenues), or $0.21 per diluted share compared with $9.8 million (9.9% of revenues), or $0.47 per diluted share in the first half of 2006.
Mr. Yos Shiran, Chief Executive Officer of Tefron, commented, "Our second quarter results were in line with our updated expected financial results which we outlined in our announcement a month ago. Our active-wear sales were significantly reduced in the second quarter mainly due to a delay in orders."
"Our intimate apparel product line sales were also down in the second quarter mainly due to a reduction in sales to Victoria's Secret of older Cut & Sew collections which have been under continuous price pressure since the beginning of the year. Additionally, we have been informed by Victoria's Secret that they intend to gradually transfer their sourcing of an old Cut & Sew cotton program to India beginning next year. We do not expect this to have a material impact on our 2008 intimate apparel revenues and profitability. ."
Mr. Shiran continued, "For the third quarter, we expect active-wear and intimate apparel sales to decline compared to the third quarter of last year. Seasonally, swim-wear revenues are the lowest in the third quarter, and accordingly we expect overall revenues in the third quarter to be below those of last year. We believe the lower revenue level will lead to a net loss of around $1 million in the third quarter."
"However, given our expectations for improved active-wear sales in the fourth quarter mainly due to positive indications received from Nike for increased 'next generation' product orders, and a seasonally stronger quarter for swimwear sales, we expect a strong improvement in sales and margins in the fourth quarter compared to the second quarter of 2007."
Mr. Shiran concluded, "While the first half of 2007 has been challenging for us, we have been successful in positioning Tefron as a leading developer, designer and manufacturer of high-end performance apparel. We are in a continuous process of looking for new customers for our products and new revenue growth drivers while looking for ways to cut costs and improve efficiencies."
The Company will be hosting a conference call August 9, 2007 at 10am EDT. On the call, management will review and discuss the results, and will be available to answer investor questions.
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