Improvements in European
markets, especially UK margins, and further penetration of the U.S.
market will drive profits forward,” Arafa’s chief financial officer
said on Sunday”

The firm, which specializes in
men’s wear and exports 75 percent of its goods, mainly to Europe, said
it was not eying international acquisitions, but is studying a local
acquisition in the casual wear business .
It’s still at an early stage.
We just signed a non- disclosure agreement,” Ahmed Selim said in an
interview, declining to disclose the name of the target firm .
Arafa said this month it had
set up a venture with an Italian shirt maker to start production in
October. It did not give the shirt maker’s name or other details .
.Arafa, which recently changed
its financial reporting year, posted net profit in the year to January
31 of $10.2 million, compared to $27 million in the 10 months to
January 31, 2009. It blamed the fall mostly on weak British and
European markets .

“Our volumes are up, but in
terms of absolute value it declined … our functional currency is the
dollar, so as the euro declined … the value of the business
declined,” Selim said .

Selim said Arafa was expecting profit in 2010/11 to match levels before the world downturn, which hurt retail spending .

We’d like to move back to our
normal profitability range north of the $20 million range. This is our
target for 2010/2011,” he said, adding Arafa aimed to keep revenues

Arafa earlier reported revenue of $332 million in 2009/10, saying this was 14.5 percent fall on a year earlier .

The firm said in May it had
hedged its euro currency income for a period of 12 months ahead at an
average U.S. dollar/euro rate of 1.47 versus a spot rate of
approximately 1.25 .

Going forward we’d like to
move away from the UK market in order to reduce concentration risk,” he
said, adding that the firm would focus on the German and French markets .

Arafa controls 20-22 percent of the British men’s formal wear market for items like suits and shirts .

Arafa, which makes garments for
various European brands, has recently begun manufacturing for Zara and
Massimo Dutti, owned by Spain’s Inditex, Selim said .

We’re just beginning to put our foot in the Iberian Peninsula,” he added .

He said in the U.S. market,
which generates 13 percent of revenues for the firm, Arafa aimed to
boost sales above $50 million in fiscal year 2010/11 from $44 million a
year earlier .

Arafa is moving its factories
to the qualified industrial zone (QIZ) of Beni Suef in southern Egypt.
Goods made in QIZs can be exported to the United States free of tariffs
and quotas provided they include a certain percentage of Israeli inputs

Helping shrink costs, labor is also cheaper in southern Egypt. Labor accounts for over 40 percent of Arafa’s costs .

The U.S. market provides me
stability. There is no FX risk. We have a competitive edge against
India, China, all these guys, because of the QIZ,” said Selim .

We are in discussions to enter
the U.S. market via a production arrangement with one of the big
department stores, but ultimately, long-term, we would like to have our
own brand as well, like the UK and the Italian market,” Selim said .

Arafa now sells casual wear in the U.S. market but is eying the formal wear market there as well, he said .