Tefron's Strong Relationship with Nike Boosts Sales

 |  Includes: NKE, TGT
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 (NYSE:NKE), Target (NYSE:TGT), The Gap (NYSE:GPS). A few weeks ago it reported earnings that were down from the comparable period in 2006.

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, and 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 U.S. dollar start to strengthen again by the end of the year, thus helping Tefron’s bottom line.

Nike's relationship with Tefron is extremely important to the company right now, and 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.

Disclosure: The author’s fund is long TFR as of June 1, 2007.

TFR 1-yr chart
TFR 1-yr chart