Tarrant in Deal to Lease Its Mexico Operations
Los Angeles-based private label manufacturer Tarrant Apparel Group, which produces blue jeans for The Limited, The Express and J.C. Penney Co, wants someone else to run its three textile and apparel factories in Mexico.
The factories, located in Puebla, Tlaxcala and Teotihuacan, have only been running at 50 percent capacity, creating a financial drain on the casualwear company that has owned or operated the facilities since 1999 after a $140 million investment.
“This makes more financial sense,” said Gerard Guez, the company’s founder, chairman and chief executive. “We’ve had lots of peaks and valleys [in production].”
Guez said the company is currently negotiating with a group to take over the plants, which employ 5,000 people. Negotiations should be wrapped up by the end of August with the third party taking control of the factories this fall. Terms of the lease include an $11 million payment over 12 years.
“We will still produce in Mexico, buying our product from them,” he said. “I want to have some kind of involvement over the product and its quality.”
The factories can produce 30 million yards of fabric and 20 million garments a year.
Guez said his ailing apparel company, which had $347.4 million in revenues in 2002, is shifting its strategy. It will spend more time to develop its private-brand business, hoping to sign 10 retail brand deals over the next three years to bring in $130 million in revenues by next year.
Tarrant has taken a $22.3 million charge for facilities and equipment associated with the restructuring plan and another $11 million write-down on the anticipated liquidation of inventory in Mexico.
Guez recently purchased a 50 percent interest in the Los Angeles retailer American Rag, and has a licensing agreement to use that name to develop branded clothing. Tarrant recently delivered its first shipment of “American Rag” merchandise to Federated Department Stores, parent company of Macy’s, and has made first deliveries of its new high-end label “Seven7” blue jeans to Express stores.
On Aug. 14, the company released its second quarter earnings for the period ending June 30 showing that Tarrant had a net loss of $32.6 million or $1.94 per diluted share compared with a net income of $1.3 million for the like period in 2002. Net sales for the second quarter of 2003 were $78.2 million versus $95.3 million for the like period in 2002. —Deborah Belgum
