LOS ANGELES — Coming soon to a department store near you: American Rag CIE clothing.
That’s the premise behind Tarrant Apparel Group’s agreement with the retailer announced Tuesday. Private label casualwear producer Tarrant is the new co-owner of American Rag CIE II, which owns the rights to the company trademark and the retail operations. Tarrant will retain 50 percent of the firm’s voting rights and slightly less of its equity. Financial terms weren’t disclosed.
Federated Department Stores is expected to announce a deal involving American Rag, but the nature of the agreement, whether it involves licensing or retailing, could not be determined at press time. Neither Tarrant nor Federated would comment on the possible connection.
The 10-year arrangement between Tarrant and American Rag, with an extension option for another 30 years, gives Tarrant’s newly formed subsidiary, Private Brands Inc., the exclusive license to design, manufacture, distribute and sell apparel under the American Rag label to department stores and specialty chains by the end of the year. The license also gives Private Brands a right of first refusal to license the trademark for other products.
“It’s a one-of-a-kind partnership to build the brand around retail rather than the other way around,” Tarrant chairman and chief executive Gerard Guez said. “There’s only so many things stores can do well, especially in the jeans world, and we believe that outside help and support is crucial for the longevity and growth of the brand.”
For American Rag, the venture means an avenue to new customers.
“We partnered to take advantage of a name that is probably bigger than the company…and to benefit from the inroads to various channels that we do not have,” said American Rag co-owner Mark Werts.
The casual sportswear line for juniors and young men will include jeans, jackets, sweaters and T-shirts with retail price points ranging from $49 to $69.
American Rag, with locations in Los Angeles and San Francisco and nine franchised stores in Japan, has a cult following among fashion enthusiasts with labels including Diesel, Ruth, Paper Denim & Cloth, Marc Jacobs and vintage apparel. The store also offers a lifestyle division, Maison Midi, selling home furnishings and decorator accents.
Guez said five more stores are planned to open in Japan by the end of the year under Tokyo-based Sazaby Group, bringing the Japanese business up to $15 million.
Three more flagships will open in the next two to three years, according to Guez, with targeted locations including New York and South Beach, Fla.
In business for 18 years, Tarrant in the past has sought to grow its business through licensing deals with such companies as BUM International and Jane Doe.
The announcement of the American Rag alliance came just one day after Tarrant reported a wider loss for its fourth quarter ended Dec. 31 and said that Guez had reassumed the role of ceo. Eddy Tak Yu Yuen has relinquished the ceo title, returned to his native Hong Kong and become president of Tarrant’s Fashion Resources Inc. subsidiary.
During the fourth quarter, soaring costs offset large sales gains as the net loss climbed to $1.9 million, or 12 cents a diluted share, from $812,000, or 5 cents, in the year-ago period. Sales for the period shot up 29.3 percent to $92.6 million from $71.6 million, but a 42.5 percent rise in cost of sales caused gross profit to plunge 840 basis points to $8.2 million, or 8.9 percent of sales, from $12.4 million, or 17.3 percent, a year ago. Tarrant said lower-than-anticipated capacity utilization in Mexico due to the weak economy was to blame for the gross profit decline.
To eradicate the loss, Guez in a statement said Tarrant would focus “on expense control and operating efficiency, as well as differentiating ourselves through our design expertise, high-quality products, ability to execute today’s in-demand, complex washes and finishes and our efficient and timely delivery of product, which has improved our ability to both service our existing customers and attract new ones.”
In a more positive operating indicator, selling, general and administrative expenses receded 200 basis points to 12.2 percent of sales, or $11.3 million, from 14.2 percent, or $10.2 million, a year ago. For this year’s fourth quarter, SG&A included a pre-tax $1.3 million charge related to a litigation reserve for an employment issue.
Overall, for the full fiscal year, Tarrant posted a net loss of $6.1 million, or 38 cents a diluted share. That compares with last year’s smaller loss of $2.9 million, or 18 cents. Excluding charges related to an accounting change regarding the amortization of goodwill and other intangible assets, Tarrant would have recorded a more modest loss of $1.2 million, or 8 cents.
Sales for the year increased 5.2 percent to $347.4 million from $330.3 million a year ago.