Black is the new red for clothing maker Bagir Group Ltd (LON:BAGR) as it returned to profit in 2016.
The shares shot up 42% in early deals as the Israel-based company, which claims to have been in turnaround mode since 2014, moved out of the red and into the black with underlying earnings (EBITDA) of US$1.6mln in 2016, reversing a loss of US$4.3mln in 2015.
This was despite a reduction in revenue to US$64.1mln from US$75.2mln the year before.
Management said the decline in sales was expected and was largely attributable to a reduction in sales from Marks & Spencer and a shifting to sales net of fabric to a US customer.
Gross margin improved markedly to 16.4% from 11.6% in 2015, driven by a mix of cost efficiencies and higher margin sales.
“For 2016, our target was to reverse the losses recorded in the previous year, strengthen our balance sheet, reduce costs and re-focus manufacturing on three tax and labour efficient sites. We have done this successfully and I believe we are now a stronger business than we were three years ago having been through such a rigorous process,” said chief executive officer Eran Itzhak.
“The proof now will be in our ability to win new high volume retail clients and the early signs are good having secured new contracts with H&M and Haggar Clothing Co, new recruited customers in both the US and the EU and we are holding promising discussions with several further significant potential clients,” Itzhak added.
The company ran into trouble back in 2014 when it lost a customer on which it was heavily reliant. The aim now is to continue to expand the customer base to prevent a repeat of that scenario.
The company said it is targeting customers with leading online distribution platforms with a view to increasing its online sales.