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Tarrant Apparel Private Label sales drop in Q2

19
Aug '08
Tarrant Apparel Group, a design and sourcing company for private label and private brand casual apparel, announced financial results for the three months ended June 30, 2008.

The Company reported net sales of $51.3 million in the second quarter of 2008, a 14.6% decrease compared to $60.1 million in the same period in 2007. Private Brands sales were $16.1 million in the 2008 second quarter, compared to $12.2 million in the second quarter of 2007.

Private Label sales in the quarter were $35.2 million, as compared to $47.9 million reported in the same period last year. The decrease in Private Label sales in the second quarter of 2008 resulted primarily from decreased sales to Kohl's and Mervyn's due to the poor retail environment.

Gross profit decreased by $1.6 million or 12.6% to $11.0 million in the second quarter of 2008 from $12.6 million in the second quarter of 2007. The decrease in gross profit was primarily due to a decrease in sales. As a percentage of total net sales, gross profit increased from 20.9% in the second quarter of 2007 to 21.4% in the second quarter of 2008.

Selling, general and administrative expenses (SG&A) for the second quarter of 2008 were $10.6 million compared to $9.6 million in the 2007 second quarter. As a percentage of total net sales, SG&A expenses increased to 20.6% versus 16.0% for the same period of the prior year due to a lower level of sales. SG&A expenses increased by $1.0 million in the second quarter of 2008 primarily due to a bad debt reserve of $1.5 million for a receivable related to Mervyn's LLC.

Mervyn's recently filed for bankruptcy protection. SG&A expenses also included $360,000 paid to members of the Special Committee of our Board of Directors for reviewing the previously announced proposed going-private transaction.

Royalty expense increased by $45,000 to $479,000 in the second quarter of 2008, from $434,000 in the 2007 second quarter. The Company also recorded a one-time, non-cash charge of $5.3 million due to an impairment of the goodwill pertaining to the Chazzz division.

The charge was taken as a result of the Mervyn's LLC bankruptcy filing subsequent to the end of the second quarter and the rapidly declining business of another retailer served by this division. Both retailers have been major customers of the division.

Loss from operations in the second quarter of 2008 was $5.4 million compared to income from operations of $2.5 million in the second quarter of 2007. The net loss was $5.3 million, or $(0.16) per share for the 2008 second quarter, compared to net income of $0.8 million, or $0.03 per basic and diluted share for the 2007 second quarter.

For the six months ended June 30, 2008, the Company reported net sales of $101.8 million, a decline of 12.4% compared to $116.2 million in the year earlier period. Gross profit decreased by $3.9 million or 15.6%, to $21.0 million in the first six months of 2008 from $24.9 million in the first six months of 2007.


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