Full Year 2007 Summary

·        Annual revenues of $158.6 million, 15.7% below revenues of last year.

·        Operating cash flow of $3.0 million compared with $27.8 million in 2006.

·        Operating income of $1.8 million, compared with $25.9 million in 2006.

·        EBITDA of $10.9 million compared with $35.2 million in 2006.

·        Net income of $0.5 million; fully diluted EPS of $0.02 compared with $18.4 million or $0.89 per diluted share in 2006.

 

Fourth Quarter Summary

·        Quarterly revenues of $38.9 million, 22.2% below revenues of the fourth quarter of last year.

·        Net loss of $2.4 million; fully diluted loss per share of $0.11 compared with net income of $4.7 million or $0.22 per diluted share in the fourth quarter of last year.

 

Misgav, Israel, February 28, 2008 - Tefron Ltd. (NYSE:TFR; TASE:TFRN), a leading producer of seamless intimate apparel and engineered-for-performance (EFP^TM) active wear, today announced financial results for the fourth quarter and full year 2007.

 

Fourth Quarter 2007 Results

 

Fourth quarter revenues were $38.9 million, representing a 22.2% decrease from fourth quarter of 2006 revenues of $50.0 million. The decrease in revenues in the quarter was due to a reduction in sales of active-wear products, primarily to Nike, a reduction in sales of intimate apparel, mainly to Victoria’s Secret for older Cut & Sew collections and lower sales of swimwear, mainly due to the delay of some swimwear revenues to the first quarter of 2008.

 

Fourth quarter gross margin was 5.4% compared with a gross margin of 22.2% in the fourth quarter of 2006. Operating loss for the quarter was $2.8 million, as compared with an operating income of $6.4 million (12.9% of revenues) in the fourth quarter of 2006.  Net loss for the quarter was $2.4 million, or $0.11 per diluted share as compared with net income of $4.7 million (9.3% of revenues), or $0.22 per diluted share, in the fourth quarter of 2006.

 

The decline in gross margin and the operating loss in the quarter were primarily due to the lower revenue and manufacturing levels, increased costs due to factors described below and a one-time inventory write-off of approximately $0.7 million related to obsolete inventory.

 

The significant devaluation of the US Dollar versus the New Israeli Shekel, as well as the previously identified price reductions in older collections of Tefron’s intimate apparel product line also continued to impact margins. Additionally, the higher proportion of Cut & Sew ’new generation’ products in the sales mix for Nike, which have a lower profitability than those of the Seamless products, also reduced profitability.  Finally, the short-term manufacturing challenges faced in the Hi-Tex division continued into the fourth quarter. As discussed in the prior quarter, these challenges are mainly due to the learning curve required for the manufacture of various new and complex products, which are technologically advanced and have been ordered in short production runs for a larger number of apparel categories.

 

 

Results for Full Year 2007

 

Full year 2007 revenues were $158.6 million, representing a 15.7% decrease from 2006 revenues of $188.1 million. The decline in revenue was primarily due to a reduction in sales of active-wear products, primarily to Nike, reduced sales of intimate apparel, mainly to Victoria’s Secret for older Cut & Sew collections, and a slight decline in sales of swimwear.

 

Full year 2007 gross margin decreased to 12.3%, compared with 22.8% as reported in 2006. Operating income was $1.8 million (1.1% of revenues) compared with an operating income of $25.9 million (13.8% of revenues) as reported in 2006. Net income was $483 thousand (0.3% of revenues), or $0.02 per diluted share, compared with $18.4 million (9.8% of revenues) or $0.89 per diluted share, as reported in 2006.

 

 

Management comments

 

Mr. Yos Shiran, Chief Executive Officer of Tefron, commented, “We faced a tough fourth quarter, particularly from a profitability standpoint. The primary cause was the weak US dollar, coupled with our Hi-Tex division manufacturing hurdles. While we are improving our ability to overcome these hurdles, we do expect them to continue into the early part of 2008.”

 

“We are currently working diligently to formulate a strategic and operational plan, together with the support of our new chairman, Mr. Yaacov Gelbard, intended to grow our revenue base, improve our operating efficiencies, while reducing our costs,” continued Mr. Shiran. “In the short term, we will focus our efforts on solving the manufacturing challenges in our Hi-Tex division and aim to reduce operational costs. At the same time, we will continue our efforts to broaden our customer base.”

 

Mr. Shiran continued, “On the positive side, we saw a sequential growth in active-wear revenues following a few quarters of slower sales. This was primarily due to increased orders from Nike for their ’New Generation’ products. Continuing this trend, from a revenue standpoint our first quarter looks strong. This is primarily due to continued growth in sales to Nike in both our Cut and Sew and Hi-Tex divisions, as well as a growth in sales to lululemon. In fact, supporting our long-term goals, we see this trend of strong growth in active-wear sales continuing throughout the first half of 2008, driving a growth in our overall sales. We also expect a strong increase in first quarter sales of swimwear.”

 

Mr. Shiran concluded, “Based on our current orders, we currently expect first quarter 2008 revenues of around $50 million. However, we believe that the continued weakening of the US Dollar, in addition to the temporary manufacturing hurdles of our Hi-Tex division, will continue to significantly affect our profitability in the first quarter of 2008. Accordingly, we expect to breakeven at the operating level in the first quarter of 2008.”

 

The Company will be hosting a conference call today, February 28, 2008 at 10:00am EST. On the call, management will review and discuss the results, and will be available to answer investor questions.

 

To participate, please call one of the following teleconferencing numbers.  Please begin placing your calls at least 5 minutes before the conference call commences. If you are unable to connect using the toll-free numbers, please try the international dial-in number.

 

US Dial-in Number: 1 888 668 9141

UK Dial-in Number: 0 800 917 5108

ISRAEL Dial-in Number: 03 918 0609

INTERNATIONAL Dial-in Number:  +972 3 918 0609

 

For those unable to listen to the live call, a replay of the call will be available for three months from the day after the call in the investor relations section of Tefron’s website, at: www.tefron.com