Tefron: Sexy Lingerie, Ugly Financials
Written by: Aaron Katsman | June 1, 2007
By Aaron Katsman
Tefron (TFR), a textile company that manufactures boutique-quality everyday seamless intimate apparel, active wear and swimwear sold throughout the world by such name-brand marketers as Victoria’s Secret, Nike (NKE), Target (TGT), The Gap (GPS) and others, reported earnings a few weeks ago that were down from the comparable period in ‘06.
While that may not seem to bode well for them, when you do a bit of digging, you can see that the numbers weren’t so bad, and we could see a turnaround coming in 2nd half ‘07, maybe even continuing on through ‘08. The strength of the Israeli Shekel had a profoundly negative effect on earnings. As I have mentioned before, most analysts, myself included, believe that we will see the US dollar start to strengthen until the end of the year, thus helping Tefron’s bottom line.
Most important for Tefron is clearly its relationship with Nike. It looks as if this relationship is in very good shape. Yos Shiran, Tefron’s CEO mentioned, “As pointed out during the last quarter, we anticipated a temporary decline in active-wear sales in the first half of 2007, with a strengthening of active-wear sales in the second half of 2007. We reaffirm our assessment and see second half growth driven mainly by our sales to Nike as they prepare to launch their next generation of performance apparel. We believe that our working relationship with Nike remains strong, and we have received positive indications from Nike for next generation products, backed up by raw materials commitments, demonstrating the importance of Tefron as a key supplier to Nike.”
This is extremely important, especially going into the 2008 summer Olympics in Beijing, where Nike uniforms will be prominently displayed.
With a net cash position of $3.9 million, and a PE of around 12, the stock may be an interesting addition to a portfolio in the next six to twelve months.
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Disclosure: Author’s fund is long TFR as of 6/1/07.
Aaron Katsman is the lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.
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