Investment house Gmul Sahar has rated Delta Galil Industries (Nasdaq:DELT) a Buy although its second-quarter results fell below expectations.
Analyst Galit set Delta a price target of NIS 55, 27% above the market.
Delta Galil makes intimate apparel for men and women, as well as socks, baby clothes, leisurewear and fabrics. Its sells to retailers such as Polo Ralph Lauren, Donna Karan, Calvin Klein, Marks & Spencer, C&A, Gap, and Banana Republic. Sidemand does not foresee substantial growth in Delta's activity as long as the United States and European economies are slumping. The longer the slump, Sidemand added, the less consumers will spend.
Delta's profit margins are today being pulled between two counter-forces, Sidemand wrote. The slowdown is pressing textile manufacturers' prices and earnings, on the one hand. On the other hand, she sees signs that the shekel, the euro and the pound sterling will regain strength against the dollar, which would work in Delta Galil's favor. In any case Delta is taking hedging measures to protect it against a slide in the euro or pound, she wrote.
Delta Galil's operating profit for the second quarter dropped by $5 million because of currency erosion, she wrote.
Meanwhile, Delta Galil has taken measures to improve efficiency. It has dismissed 600 employees at plants in Israel and Scotland, and relocated production to cheap-labor countries such as Jordan and Egypt. In addition, it consolidated the marketing activity of acquired companies Wundies and Inner Secrets, and closed its plant in the north of Israel.
The measures will boost profitability, Sidemand predicts, but aren't enough to restore Delta Galil's profit margins of recent years.
Second quarter sales came to $136 million, generating an operating profit of $6.4 million, compared with predictions of $8 million. Net profit dropped to $2.9 million, compared with $6.5 million in the second quarter of 2000.
Sideman predicts that Delta Galil will net $18.3 million this year, compared with $22 million in 2000.