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Declining retail business and Mervyns’ bankruptcy resulted in a third-quarter drop in profits for Tarrant Apparel Group.

This story first appeared in the November 12, 2008 issue of WWD.  Subscribe Today.

In the quarter ended Sept. 30, the Los Angeles-based design and sourcing firm reported an 87.2 percent slide in net income to $207,000, or 1 cent a diluted share, compared with $1.6 million, or 5 cents a share, in last year’s quarter. Sales in the period fell 20.3 percent to $56 million from $70.2 million a year ago.

Tarrant said both private label and private brand sales fell in the quarter. Private brand revenues dropped to $10.2 million from $12 million in the year-ago quarter, primarily because of lower sales of the American Rag Cie brand to Macy’s.

“The bankruptcy of Mervyns LLC during the third quarter and very challenging conditions for retailers contributed to a difficult operating environment,” said Gerard Guez, chairman and interim chief executive officer. “We continued to focus on those areas of operations that we believe we can control. The company has reduced expenses through staff reductions, and continues to closely monitor its sourcing and inventory management to reduce costs there as well.”

Tarrant reduced selling and distribution expenses by 35 percent to $2.4 million from $3.8 million. General and administrative expenses, however, rose 11.2 percent to $6.8 million from $6.1 million, partly because of an additional allowance for bad debt related to the Mervyns bankruptcy.

For the first nine months of fiscal 2008, the company posted a loss of $5.3 million, or 17 cents a share, versus a profit of $1.4 million, or 5 cents a share, a year ago. Revenues in the three quarters fell 15.4 percent to $157.8 million compared with $186.4 million last year.

The net loss for the nine months included a goodwill impairment charge of $5.3 million related to the company’s Chazzz division, which had considered Mervyns and another unspecified faltering retailer major customers, the company said.

In April, Guez and co-founder Todd Kay proposed acquiring the company’s outstanding publicly held shares. The offer is pending.