Restructuring costs related to a decision to shut its Mexican manufacturing operations and shift into a contract-production business model left Tarrant Apparel Group Inc. to report a sharp decline in net income for the third quarter.

The Los Angeles-based company reported net income of $139,000, or 1 cent a diluted share, for the quarter ended Sept. 30, down from $1.1 million, or 7 cents a share, a year earlier.

Sales were $96.5 million, up 2.3 percent from $94.3 million.

Despite the earnings shortfall, management said the shift in strategic direction was showing signs of paying off.

“As we begin to see the results of our decision to exit the manufacturing of goods in Mexico, the positive change in direction is encouraging,” said chairman and chief executive officer Gerard Guez.

The company said revenues during the quarter included $12.6 million in sales from its new Private Brands unit, which focuses on private label management for retailers, so far including the American Rag Cie name at Federated Department Stores, No Jeans at Wet Seal and Seven7 at Express.

However, Tarrant also noted its results were hurt by a $13.2 million decline in sales to Tommy Hilfiger.

For the nine months, the company recorded a $36.3 million net loss, representing $2.12 a diluted share. That figure included a $22.3 million pretax asset write-off and compared with a loss of $4.2 million, or 26 cents, a year earlier. The year-ago loss included a $4.9 million aftertax charge related to an accounting change.

Sales for the period were $253.4 million, down 0.6 percent from $254.8 million.

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