Seamless garment maker Tefron Ltd has reported improved second quarter profitability, helped by increased production and the shift of sewing capacity to lower labor cost Jordan - but says the ongoing conflict with Lebanon may restrict the expansion of its activewear line.

In the second quarter of 2006, income from continuing operations (which excludes the recently sold AlbaHealth business) was $4.5m, or $0.21 per diluted share, compared with $1.1m, or $0.06 per diluted share, in the second quarter of 2005.

Second quarter revenues at the company, which makes seamless intimate apparel, activewear and swimwear for customers like Victoria's Secret, Nike, The Gap, Banana Republic, Target, Warnaco/Calvin Klein and Reebok rose 21.7% to $49.7m.

Mr Yosef Shiran, chief executive officer, said revenues rose across all product lines.
Revenues in the first half of 2006 reached $99.1m, a 16.1% increase over last year's first half. Income from continuing operations was $9.8m compared with $1.9m in the first half of 2005.

"Our swimwear product line performed stronger than we had expected in the first half of the year," Mr Shiran said.

He added: "As we move beyond the summer, we expect sales of swimwear to significantly subside in the third quarter and to increase again in the fourth quarter of 2006, due to the seasonality of the swimwear business."

Commenting on the conflict situation in which the State of Israel is currently engaged, Mr Shiran, said: "To date, the conflict, which has mainly affected the northern part of the country, has had a limited effect on our ongoing business and operations.

"However, there is a possibility that the ongoing conflict will not allow us to fully increase production to meet the growing demand in our active-wear line, which is beyond our original plans for the third quarter.

"We believe that we will achieve our previously announced target for 2006 of mid-teen percentage growth in revenues and profitability levels higher than those of 2005, at around the levels seen in the fourth quarter of 2005." 

The company is to pay shareholders a dividend of $5m.