Second Quarter Summary

·         Quarterly revenues of $48.6 million, 19.7% above revenues of the second quarter of last year

·         EBITDA of $0.5 million, as compared with EBITDA of $3.2 million in the second quarter of last year

·         Operating loss of $1.9 million, as compared with operating income of $1.0 million in the second quarter of last year

·         Net loss of $2.5 million or $0.12 loss per diluted share, as compared with net income of $0.8 million, or $0.04 per diluted share, in the second quarter of last year.

14 August 2008, Misgav, Israel - Tefron Ltd. (NYSE:TFR; TASE:TFRN), a leading producer of seamless intimate apparel and engineered-for-performance (EFPTM) active wear, today announced financial results for the second quarter of 2008.

Second Quarter 2008 Results

Second quarter revenues were $48.6 million, representing a 19.7% increase from the second quarter of 2007 revenues of $40.6 million. The increase in revenues in the quarter was due to an increase in sales in all the Company’s product lines, especially active-wear, but also swimwear and intimate apparel.

Second quarter gross margin was 7.6% compared with a gross margin of 14.0% in the second quarter of 2007. Operating loss for the quarter was $1.9 million, as compared with an operating income of $1.0 million (2.5% of revenues) in the second quarter of 2007. Net loss for the quarter was $2.5 million, or $0.12 loss per diluted share, as compared with net income of $0.8 million, or $0.04 per diluted share, in the second quarter of 2007.

The decline in gross and operating margins in the quarter compared with the second quarter of 2007 was primarily due to the significant devaluation of the US Dollar versus the New Israeli Shekel. Additionally, short-term manufacturing challenges faced in the Hi-Tex division continued to increase costs. As discussed in the last two quarters, these challenges are mainly due to the learning curve required for the manufacture of various new and technologically advanced products, which have been ordered in short production runs for a larger number of apparel categories.

In addition, the significant devaluation of the US Dollar versus the New Israeli Shekel during the quarter increased the US Dollar value of the New Israeli Shekel denominated liabilities, and accordingly resulted in increased financial expenses.

First Half 2008 Results

Revenues in the first half of 2008 were $99.6 million, representing a 11.4% increase from first half of 2007 revenues of $89.4. The increase in revenues was due to an increase in sales of both the active-wear and swimwear product lines. This increase was partly offset by a slight decline in sales of intimate apparel.

The 2008 first half gross margin was 10.1% compared to a gross margin of 16.8% in the first half of 2007. Operating loss was $1.8 million compared to an operating income of $6.0 million (6.7% of revenues) in the first half of 2007. Net loss was $3.2 million, or $0.15 loss per diluted share, compared with net income of $4.6 million (5.1% of revenues), or $0.21 per diluted share, in the first half of 2007.

The Company also reports that a supplier of its swimwear division, which accounts for about 20% of the division’s manufacturing capacity for the coming season, is facing financial difficulties. The Company is currently evaluating its options and believes that it will overcome this situation and meet its production plan.

Management comments

Mr. Yos Shiran, Chief Executive Officer of Tefron, commented, “While we are pleased with our increase in revenues across all our product lines, we continued to present operating and net losses. As indicated in the prior quarter, our efforts are currently focused on overcoming the manufacturing hurdles in our Hi-Tex division which significantly pressure our margins. In the second quarter we started to see the fruits of these efforts, as demonstrated by increased production and sales in our Hi-Tex division compared to that of the last couple of quarters. We believe that this improvement will continue into the third quarter, leading to increased production capacity and improved margins for the Hi-Tex division. In addition, our strategy to expand our customer base was successful in the quarter. We achieved first time orders from several new customers, including: Eddie Bauer, The North-Face, and Wacoal, thereby diversifying and growing our revenue base. We expect to deliver these orders in the coming quarters.”

Mr. Shiran continued, “Seasonally, swimwear revenues are the lowest in the third quarter. Accordingly, while we expect third quarter revenues to be below those of the second quarter due to this seasonal reduction, which will result in an increased operating loss for the third quarter, we are looking for overall revenues in the third quarter to be around 25% higher than those of the comparable quarter last year, with growth across all product lines. Continued growth in our revenues and improvement in margins as we further implement our operational plan should lead to an improvement in our results toward year-end.”

Mr. Shiran concluded, “On a personal note, I will be leaving Tefron after seven and a half years of service. I will be passing the reins over to Mr. Adi Livneh, and I wish him the best of luck in his new position. I would like to thank Tefron’s employees and officers, which are Tefron’s cornerstone, for their dedicated contributions and efforts. While we have faced a particularly challenging period over the past year, the growth in our revenue levels proves our success in positioning Tefron as a leading developer, designer and manufacturer of high-end performance apparel in accordance with our strategy. With that, together with the improving performance of the Hi-Tex division, I feel comfortable leaving Tefron with great business potential to be realized.”

Appointment of a new Chief Financial Officer

The Company appointed Mr. Eran Rotem as a Chief Financial Officer, effective August 17, 2008. Mr. Rotem has a broad financial and managerial experience, after his service for the past six years as Chief Financial Officer of Healthcare Technologies Ltd, a company which was traded on the NASDAQ Capital Market, and of the Gamida For Life Group. Between 1995 and 2002, Mr. Rotem served as a senior manager in Ernst & Young Israel.

Mr. Rotem holds a BA in Business Administration from The Tel Aviv College of Management and he is a Certified Public Accountant.