Intimate apparel maker Movie Star Inc narrowed its fourth quarter loss, despite being dragged down by expenses related to its upcoming merger with Frederick's of Hollywood.

In the three months to 30 June, net loss was $363,000, or $0.02 per share, compared to a net loss of $1.5m, or $0.10 per share, in the same quarter last year. Merger-related fees totalled $439,000.

Net sales for the New York based company increased 64.6% to $13.5m from $8.2m in the same quarter last year.

Gross margin, as a percentage of sales, increased 8.0 percentage points to 30.8% for the quarter from 22.8% last time, which Mel Knigin, president and chief executive officer, attributed to a more profitable product mix, lower markdowns, and higher sales levels.

Selling, general and administrative expenses, excluding merger-related fees, rose to $4.1m from $3.9m.

For the full year the company swung to a profit of $146,000, or $0.01 per diluted share, from a net loss of $1m or $0.06 per share, for fiscal 2006. Last year's third quarter included a $1.45m insurance recovery related to Hurricane Katrina.

Net sales for the full year increased 23% to $63.5m from $51.6m the year before, helped by higher shipments to Wal-Mart which was partially offset by reduced shipments to other customers.

Gross margin for fiscal 2007 increased 4.7 percentage points to 32.0% from 27.3% in fiscal 2006. Selling, general and administrative expenses, excluding merger-related fees, were $17.4m versus $16.3m in 2006.

Merger-related fees during fiscal 2007 were $2.4m, but the company made $496,000 from the sale of its distribution centre in Petersburg, Pennsylvania.

Movie Star's merger with Frederick's is expected to close during the final quarter of calendar 2007.