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Tarrant Apparel to Sell Its Operations in Mexico

Disappointing venture into manufacturing is being abandoned. The company will shift its focus to private labels.

August 17, 2004|Dawn Wotapka | Times Staff Writer

Tarrant Apparel Group wants out of Mexico.

The struggling designer and wholesaler of casual clothing, reporting Monday that its losses more than doubled in the second quarter, said it would sell most of its Mexican manufacturing operations.

Tarrant said the $47.1-million sale would "close a disappointing chapter" in the company's nearly two-decade history and allow it to focus on developing the private labels and brands it sells to such customers as Limited Brands Inc., Federated Department Stores Inc. and Target Corp.

Tarrant said that one of its shareholders, Kamel Nacif, who leases some of the Mexican facilities from Tarrant, had agreed to buy a Tlaxacala denim and twill plant and other property.

For The Record
Los Angeles Times Wednesday August 18, 2004 Home Edition Main News Part A Page 2 National Desk 0 inches; 27 words Type of Material: Correction
Tarrant Apparel -- An article in Tuesday's Business section about Tarrant Apparel Group's operations in Mexico misspelled the name of the Mexican state of Tlaxcala as Tlaxacala.

He will pay 4.72 million shares -- or the proceeds from selling them -- plus $40.2 million in promissory notes.

Shares of Los Angeles-based Tarrant gained a nickel Monday to close at $1.45 a share on Nasdaq.

Based on that price, the stock portion of the deal would be valued at $6.8 million.

The sale, which should be completed by the end of the year, will let Tarrant concentrate on developing private labels and "return the company to profitability in the near future," Chairman Gerard Guez said in a statement.

Tarrant is unloading its Mexican manufacturing operations because of significant debt, rising overhead and a change in World Trade Organization quota policies that could bring increased competition from developing countries with lower labor costs, the company has said.

The decision is a smart one, said Barry Kitt, manager of Pinnacle Fund in Texas, which holds 2 million Tarrant shares. "They put a big investment there and it was a mistake," he said. "They realize it was an error."

The company's stock briefly traded above $40 in the late 1990s before falling to the low single digits. One problem was that running the Mexican factories demanded more expertise than Tarrant had, Kitt said.

Purging the Mexican operations probably won't cost Tarrant any customers and the company will "have a better operating model to make the business make sense," he said.

For the quarter ended June 30, Tarrant reported a loss of $68.6 million, or $2.39 a share, compared with a loss of $32.6 million or, $1.94, in the year-earlier period.

The per-share loss in the latest quarter was curbed by a 70% increase in the number of shares outstanding.

Sales fell 51% to $38.5 million from $78.2 million. The company attributed the loss to order declines and a $78-million charge for the impairment of its Mexican assets.

Tarrant said it would post a "substantial net loss" for the year because of the sale of the Mexican operations, reduced orders and a "slower than anticipated transition of customers" to manufacturing sources in Asia.

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