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Tarrant Apparel Group Announces Fiscal 2005 Third Quarter Results
PR Newswire - November 10, 2005 16:02

~ Net Sales Increase 83% ~ ~ Earnings Per Share Increase to $0.06 ~

LOS ANGELES, Nov 10, 2005 /PRNewswire-FirstCall via COMTEX/ -- Tarrant Apparel Group (Nasdaq: TAGS), a design and sourcing company for private label and private brands casual apparel, today announced financial results for the third quarter and nine months ended September 30, 2005.

Third Quarter Results

In the third quarter of 2005, net sales increased 83% to $69.6 million from $38.1 million reported in the same period last year. The increase was primarily due to higher sales in the Company's Private Brands business, which amounted to $22.6 million compared to $2.8 million in the third quarter of 2004. Private Label sales also increased in the quarter, to $47.0 million from $35.3 million reported in the same period last year.

Gross profit for the quarter increased 252% to $14.5 million from $4.1 million in the year-ago period. The improvement in gross margin to 21% from 11% reflects an increased contribution from the higher-margin Private Brands business as well as improved margins in the Private Label business. Selling, general, and administrative expenses in the current period were $10.2 million compared to $7.6 million in the third quarter last year and reflect the overall increase in sales for the quarter as well as continued investments to build the Private Brands business. As a percentage of sales, selling, general, and administrative expenses improved to 14.7% versus 19.9% for the same period last year.

Net income for the quarter ended September 30, 2005 was $1.7 million, or $0.06 per diluted share, compared to a net loss of $4.0 million, or $0.14 per diluted share, in the same quarter of last year.

Barry Aved, President and CEO of Tarrant Apparel Group, commented, "We are extremely pleased with the progress made on our strategic initiatives, and the significant top and bottom line gains compared to last year. Our Private Brands posted solid growth due to the continued success of our American Rag and Alain Weiz brands as well as contributions from newly launched brands, such as JS by Jessica Simpson, Princy by Jessica Simpson, and Gear 7 that were not included in our results last year. The launch of multiple new brands, including House of Dereon by Tina Knowles, which will ship in November, is a remarkable accomplishment.

"During the same period, we nearly doubled our margins and grew the Private Label business by expanding the product mix beyond casual bottoms and attracting new customers with our proven design and marketing expertise. Although lower than our initial expectations, we are very pleased with our results. That said, we are humbled by the uncertainties of predicting the timing and degree of acceptance that any new brand faces, and have acquired great respect for the difficulty in providing accurate guidance."

Nine Month Results

Net sales increased 39% to $164.9 million in the first nine months of 2005 compared to $118.7 million in the same period last year. Net income for the nine month period was $2.5 million, or $0.08 per diluted share, compared to a net loss of $75.6 million, or $2.63 per diluted share, for the first nine months of fiscal 2004. Net loss in the first nine months of fiscal 2004 includes a $64.3 million charge related to the impairment of certain of the Company's Mexico assets, net of minority interest.

Company Outlook

As was recently updated, the Company now expects fiscal 2005 sales to be in the range of approximately $210 million to $215 million. This outlook contemplates Private Brands will contribute in the range of $50 million to $53 million in revenue and Private Label to contribute in the range of $160 million to $162 million in revenue. We previously provided guidance that our net income would be approximately $1.0 million to $2.0 million for 2005. After gaining further clarification regarding tax reserve accruals, the Company now expects net income to be between approximately $2.0 million and $2.5 million for 2005.

Based upon current business and economic conditions, the Company expects continued growth in both its Private Label and Private Brands businesses that will be tempered somewhat by continued slow bookings in denim as retailers re- balance their inventory levels as well as the previously announced discontinuation of the Gear 7 line at Kmart. In addition, the Company's expectations reflect a change in the distribution of the JS by Jessica Simpson brand, which was originally launched as a denim line with Charming Shoppes. Charming Shoppes is not going forward with the line, and the Company is currently in discussion with other large volume, middle market retailers who would support the brand as a multi-category collection. As such, the Company is taking corrective measures to better balance product development costs with a more moderate ramp up in sales.

"We are making solid progress in our key initiatives, and doing the things necessary to ensure our long-term profitability and growth. The direction and traction of both our Private Brands and our Private Label businesses give us confidence that this positive momentum will result in continued year over year improvement in our overall business results. We currently plan to provide guidance for 2006 after the first quarter, or when we feel there is adequate visibility," Mr. Aved concluded.

Conference Call

Tarrant Apparel Group will host a conference call Thursday, November 10, 2005 at 5:00 p.m. Eastern Time that may be accessed via the Internet at: http://www.tags.com or by dialing 800-683-1525 or 973-409-9261. Additionally, a replay of the call will be available through November 17, 2005 and can be accessed by dialing 877-519-4471 or 973-341-3080, passcode 6349396.