LOS ANGELES — Tarrant Apparel Group, reeling from the impact of retail consolidation, quota safeguard measures and a denim glut, slashed its full-year forecast for revenue and net profit.
The company’s stock plummeted 38 percent after the announcement.
Tarrant, which produces private label clothing as well as apparel licensed from Jessica Simpson, Beyoncé Knowles and other brands, said the surfeit of denim labels crimped back-to-school sales across all pricing levels. The financial revision also reflected Kmart’s recent decision to stop carrying a young men’s brand called Gear 7, which Tarrant began shipping exclusively to the discount retailer in January. Tarrant also said it shipped garments by air-freight from Chinese factories and incurred charges totaling as much as $2 per item.
Tarrant said that for 2005 it expects net profit of $1 million to $2 million on revenue of $210 million to $215 million. It previously had forecast net profit of $9 million to $12 million on revenue of $240 million to $250 million.
Tarrant shares fell 65 cents to close at $1.04 on the Nasdaq Stock Market.
Financial analysts have warned of a denim glut. Legg Mason Wood Walker Inc. estimated there are more than 1,000 major denim brands in the market, compared with eight major brands 30 years ago. “The denim market is a lesson in Darwinism,” stated a recent report from the Baltimore-based investment bank.
Gerard Guez, Tarrant’s chairman, said Kmart decided to discontinue Gear 7 because of pricing pressure and a desire on the retailer’s part to concentrate on its own brands.
A spokesman for Sears Holdings Corp., Kmart’s parent company in Hoffman Estates, Ill., would not confirm or deny the report.
Guez said Tarrant has started talking with other retailers, including Wal-Mart Stores Inc. He said Tarrant had made test productions for Wal-Mart that didn’t bear the Gear 7 name. If Wal-Mart decides to stock Gear 7 clothing, it would be under one of Wal-Mart’s brands or a different label, Guez said.
Spokeswomen for Wal-Mart in Bentonville, Ark., didn’t return calls for comment.
Guez said the denim glut won’t impact sales of labels such as Princy by Jessica Simpson, Knowles’ House of Deréon and American Rag Cie. “All three lines are complete sportswear lines,” he said. Denim makes up 20 to 25 percent of the lines from Simpson and Knowles, he said.