Denim and chino specialist Novel Denim Holdings Limited on Friday blamed its failure to improve garment production efficiencies for an expected second quarter loss of $3.6-4.0 million, or $0.40-0.45 per diluted share. The company had previously expected to report break-even results for the period ended 30 September 2002.

For the second quarter ended September 30, 2001, the company reported diluted earnings per share of $0.39. Sales for the second quarter ended September 30, 2002 are expected to be approximately $37.5 million compared to $39.8 million during the same period last year. EBITDA for the second quarter of fiscal 2003 is expected to be approximately $0.7 million compared to $7.1 million during the same period last year.

Mr KC Chao, president and CEO, added that the company's recovery from the closure of its Madagascar operation and the labour dispute in Mauritius was also challenged by "the apparel market's continued shift towards more sophisticated products and smaller production runs.

"While we are responding to the changing market and seeing certain improvements, particularly in our piece-dyed fabric operation in China, our current garment pricing and production levels continue to adversely affect gross margins. We are keenly focused on improving these margins and are further evaluating our overall operations to improve garment production efficiencies, particularly labour and fabric usage."

The company has opened its garment manufacturing facility in South Africa and is currently training its new employees with the expectation to begin producing garments for sale to the United States at the beginning of the fourth quarter.

Assuming current production levels, Novel Denim expects to report diluted earnings per share of $0.03 to $0.07 in each of the third and fourth quarters of the current fiscal year.