~ Net Sales Increase 83% ~
LOS ANGELES, Nov. 10 /PRNewswire-FirstCall/ -- 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.
About Tarrant Apparel Group Tarrant Apparel Group serves specialty retailers, mass merchants, national department stores, and branded wholesalers by designing, merchandising, contracting for the manufacture of, and selling casual and well-priced apparel for women, men, and children. Through its subsidiary, Private Brands, Inc., Tarrant designs, markets, and manufactures privately owned brands, including American Rag CIE, and has exclusive license agreements with several celebrity brands such as Jessica Simpson and Beyonce Knowles' House of Dereon.
Forward-Looking Statements Except for historical information contained herein, the statements in this release are forward-looking and made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are inherently unreliable and actual results may differ materially. Examples of forward looking statements in this news release include sales and net income guidance for fiscal 2005 and the anticipated growth of certain brands in 2006. Factors which could cause actual results to differ materially from these forward-looking statements include a softening of retailer or consumer acceptance of the Company's products, pricing pressures and other competitive factors, further intervention of the U.S. government in China imports. the unanticipated loss of a major customer, delays in the launch of new private brands, and the inability to raise additional capital necessary to support anticipated growth. These and other risks are more fully described in the Company's filings with the Securities and Exchange Commission. The Company undertakes no obligation to publicly update or revise any forward- looking statements, whether as a result of new information, future events or otherwise.
TARRANT APPAREL GROUP
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(Unaudited) September 30, December 31,
2005 2004
ASSETS
Current assets:
Cash and cash equivalents $1,637 $1,215
Accounts receivable, net 64,860 37,759
Due from related parties 3,794 10,652
Inventory 26,364 19,144
Current portions of notes
receivable from related parties 5,324 5,324
Prepaid expenses and other
receivables 1,292 1,252
Prepaid royalties 2,163 2,258
Income tax receivable 145 145 Total current assets 105,579 77,749 Property and equipment, net 1,746 1,875
Notes receivable 38,728 40,107
Due from related parties 2,797
Equity method investment 2,140 1,880
Deferred financing costs, net 951 1,203
Other assets 174 414
Goodwill, net 8,583 8,583 Total assets $160,698 $131,811 LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short term bank borrowings $15,415 $17,951
Accounts payable 28,029 24,395
Accrued expenses 11,825 11,243
Income taxes 17,597 16,826
Current portion of long-term debt 44,244 19,629 Total current liabilities 117,110 90,044 Long-term obligations 660 2,545
Convertible debentures, net 5,847 8,330
Long term deferred tax liabilities 152 214 Minority interest 164 - Commitments and contingencies Shareholders' equity:
Preferred stock, 2,000,000
shares authorized; no shares
issued and outstanding - -
Warrants to purchase common
stock 2,847 2,847
Common stock, no par value,
100,000,000 shares authorized:
30,553,763 shares (2005) and
28,814,763 shares (2004) issued and
outstanding 114,977 111,515
Contributed capital 9,966 9,965
Retained earnings (88,715) (91,183)
Notes receivable from
officer/shareholder (2,310) (2,466)
Shareholders' equity 36,765 30,678 Total liabilities and shareholders'
equity $160,698 $131,811 TARRANT APPAREL GROUP
CONSOLIDATED STATEMENTS OF OPERATION
(in thousands, except share data) Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September September September September
30, 2005 30, 2004 30, 2005 30, 2004
(Unaudited) (Unaudited) (Unaudited) (Unaudited) Net sales $69,566 $38,103 $164,934 $118,746
Cost of sales 55,021 33,968 129,989 101,846 Gross profit 14,545 4,135 34,945 16,900
Selling and distribution
expenses 2,846 2,081 7,813 7,110
General and administrative
expenses 7,399 5,495 20,270 25,564
Royalty expenses 1,289 125 2,181 418
Impairment of assets - - - 77,982 Income (loss) from
operations 3,011 (3,566) 4,681 (94,174)
Interest expense (1,301) (700) (3,400) (2,194)
Interest income 506 94 1,576 281
Other income (expense) 168 189 754 6,371
Minority interest income
(expense) (164) 180 (164) 15,197 Income (loss) before
provision for income
taxes 2,220 (3,803) 3,447 (74,519)
Provision (benefit) for
income taxes 518 216 979 1,040 Net income (loss) $1,702 $(4,019) $2,468 $(75,559) Net income (loss) per
share:
Basic $0.06 $(0.14) $0.08 $(2.63) Diluted $0.06 $(0.14) $0.08 $(2.63)
Weighted average common
and common equivalent
shares:
Basic 30,365,502 28,814,763 29,451,054 28,705,274 Diluted 30,785,797 28,814,763 29,517,251 28,705,274
DATASOURCE: Tarrant Apparel Group CONTACT: Corazon Reyes, Chief Financial Officer of Tarrant Apparel Group, +1-323-780-8250, ext. 1207, or Investor Relations: Melissa Myron or Lauren Puffer, +1-212-850-5600, for Tarrant Apparel Group
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