LOS ANGELES — Facing continued weakness in its production factories and emerging strength in its retail “idea lab” ventures, Tarrant Apparel Group expects to announce today in its second-quarter results a shift to a leasing production model as well as new retail apparel partnerships.

The private label apparel maker has pursued a three-year vertically integrated manufacturing strategy since late 1999, giving it more than 4 million square feet of space. But the facilities — a $140 million investment — aren’t reaching capacity. During the first quarter of 2003, Tarrant achieved only 50 percent utilization at the plants.

Now Tarrant chairman and chief executive Gerard Guez expects to receive annual payments of $11 million for 12 years by leasing the plants to a third party, effective Sept. 1, who could also service clients beyond Tarrant’s jobs and foster fabric sales. The payments compare with the facilities’ annual losses of $5 million to $7 million.

“We’re going to get our investment back,” he said.

Layoffs will ensue at the facilities, which are in Mexico and employ about 5,000 employees, Guez said, although he didn’t have a firm number of job cuts. Tarrant is expected to take up to a $37 million one-time noncash write-down on the deal.

Going forward, Guez wants to co-brand product for retailers. Tarrant plans to sign up to 10 exclusive retail brands in the next three years. Such deals will generate about $130 million in revenues by 2004.

As American Rag’s new co-owner, Tarrant began shipping the line’s juniors and men’s product this month to about 100 doors under the Federated Department Stores Inc. umbrella. Next up are kids’ and licensed accessories, with a licensing deal anticipated by September.

Along with producing Seven7 for Express, a new higher-end line for the retailer, Tarrant has partnered with Wet Seal to produce No Jeans, a higher-end producthitting up to 100 stores by October. Guez expects sales of at least $15 million.

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