DENIM DISH

Joe’s Jeans
It’s a nice trick to get someone’s employer to finance his “hobby.” Of course, when you’re a designer and your employer is a jeans maker, it’s a little easier to pull off.
That’s more or less what Joe Dahan has done. What he calls his hobby is a high-end women’s jeans line bearing his first name that’s bowing for the spring 2001 retail season.
Dahan made a name for himself in the early Nineties with a line of Joe’s baby T-shirts, which eventually broadened to include some dresses and peaked at about $20 million. But he moved on, closing his line and joining contract manufacturer Azteca Production International, working as head merchandiser in its private label area.
After three years with Commerce, Calif.-based Azteca, he’d settled into a groove and was looking for something a little more exciting. He settled on the idea of a high-end jeans line.
“This is a little different from what we do at Azteca,” which produces jeans for the likes of The Limited, American Eagle and Bongo, he explained in a recent interview at New York’s Hotline Showroom, which is representing the line.
The collection includes five styles of jeans, which feature details borrowed from tailored pants: slim legs, no yokes and taped seams.
“It’s the minute details that make a basic more feminine,” Dahan said.
Primarily made of Italian fabrics, with some U.S. denim, the jeans carry an average wholesale price of $65.
“We spared no expense on this,” he continued. “We used the best fabrics and the most expensive processes.”
While Azteca has extensive manufacturing facilities in Mexico, the company set up a line of 60 people in Los Angeles to cut and sew the jeans and perform finishing techniques like handsanding.
The line also includes tops, which wholesale from $35 to $55, and jackets, which wholesale for about $85.
Dahan hopes the line will sell in high-end retailers like Saks Fifth Avenue and Barneys New York, as well as jeans-focused boutiques. Volume isn’t a real concern, he added, because he thinks the line could top out at about 100 stores over the next few years.
“We expect to do this slow and steady. I think that’s the right way to go,” he said. “We do so much volume anyways, we don’t care about volume at all.”
Azteca’s annual sales are around $300 million, he said.
Dahan also noted that having a high-end line can benefit Azteca, both from an image perspective and by giving the company a clear sense of where mainstream denim fashion trends might head in future seasons.
“It helps build image and allows them to develop greater quality,” he said. Further, with the mass jeans business making up the bulk of Azteca’s sales, Joe’s doesn’t need to worry about being knocked off by others — Azteca can do it itself when the time is right.
“I control it from Azteca’s perspective,” Dahan said, “So I know when to hand it down.”

Avondale’s Profit Picture
Avondale Inc., one of the nation’s largest denim mills, reported in a recent filing to the Securities and Exchange Commission that its earnings more than tripled during its recently ended fiscal year, despite a 6.2 percent drop in sales.
For the year ended Aug. 25, the company reported net income of $33 million, up from $10 million the prior year. Sales were $826.6 million, off from $880.9 million.
While the Monroe, Ga.-based company is privately held, it reports its financial results to the SEC because of outstanding bonds.
In a statement, chairman, president and chief executive officer G. Stephen Felker called the just-ended fiscal year “one of the most demanding” that the company has seen.
“Global supply outpaced demand, forcing primary producers, like Avondale, to aggressively seek new ways to compete,” he said. “All businesses in our segment are struggling. Financial restructurings are not uncommon and we see a greater variety of strategies for dealing with competition and price pressure than at any other time that I can recall.”
Felker listed lower raw material prices — cotton prices are at fairly low levels — as one reason for the company’s improved margins. He also cited the company’s modernization efforts as allowing its plants to run more efficiently.
As reported, the company recently kicked off a $120 million mill-modernization program. Of that total, $39 million was invested in the just-concluded fiscal year, with most of the rest coming this fiscal year, Felker said.
Earnings before interest, taxes, depreciation and amortization came to $115.5 million, up 23 percent from 1999, Avondale said.
The company’s debt issue is $125 million in 10.25 percent senior-subordinated notes, due 2006.

New Eyes on the Books at Designs
The board of Designs Inc., which operates a chain of 106 outlet stores selling Levi’s and Dockers merchandise, last week voted to adopt a new auditor.
The Needham, Mass.-based public company selected Ernst & Young to do its auditing.
This follows the Oct. 3rd resignation of Deloitte & Touche, which had audited the firm since Dec. 21.
In a filing with the SEC, the company reported that during Deloitte’s time as auditor, there were no disagreements “on matters of accounting principles or practices, financial statement disclosure or auditing scope” between the two parties.
Late last year, the retailer came under new management following a proxy battle between the company’s then-ceo and a major investor.

Tarrant’s Mexican Connection
Tarrant Apparel Group, a private-label manufacturer of casual apparel based in New York, here, has revised and extended its option to purchase a twill plant in Mexico from Tex Transas Textile S.A. de C.V., from the end of this year to September 2002.
The two companies also signed a production agreement granting Tarrant the first rights to all production capacity of the twill mill. Tex Transas has the option to sell the unused capacity of the mill to any third party.
Tarrant commissioned Tex Transas in 1998 to oversee construction of the 1.7-million-square-foot twill plant in Puebla, Mexico, which is slated for completion at the end of the year.
The mill consists of three divisions — a twill plant; a cutting, finishing and laundry area, and offices for Tarrant’s Mexican headquarters, according to Gerard Guez, chairman and chief executive officer of Tarrant.
The complex will produce 14 million garments a year when it reaches full capacity, which it should hit in one to two years, Guez said.
“We thought that the demand would be for basic twills, but it is bigger for stretch at the moment, and we are fully equipped to meet it,” he added.
TransInternational Textile, a company operated by Kamel Nacif, the owner of Tex Transas Textile, will operate the mill from the completion of construction through September 2002.
Tarrant will operate the center and distribution facilities after the facility opens.
Guez said that the company revised the agreement for a number of reasons, including its desire to create ample time to gear up marketing of the plant and provide greater financial flexibility by eliminating added depreciation, interest expense and debt related to the purchase. Tarrant also wants to focus on the efficiency of its denim mill operation in Jamil, Mexico, which is in its sixth quarter of operation and will begin running at full capacity in the fourth quarter
Although Tarrant’s activities in Mexico won’t be directly affected by provisions of the Caribbean Basin Initiative, Guez said, “we will still need to compete with U.S.-based mills who will take advantage of the CBI.”
While a number of U.S. companies, including Tarrant, have invested in Mexican mills in the past few years, those facilities won’t benefit from CBI parity.
Tarrant initiated an aggressive expansion into Mexico last year.
To spearhead the effort, the company named Eddie Yuen as president of Tarrant Mexico in August.
The company has focused on producing basic jeans and twill bottoms in Mexico while continuing to source fashion goods from Asia. Last year, Tarrant purchased the Mexican apparel manufacturer Grupo Famian, which produces about 10 million garments a year.
In July, Tarrant entered into a production agreement with Manufacturers Cheja, a Toluca-based garment producer that runs three plants and turns out about nine million units a year. Tarrant also has a garment processing plant in Tlaxcala, Mexico.
Tarrant’s net income was $1.7 million, compared with income of $5.7 million during the prior year. Sales for the second quarter ended June 30 were $104.4 million, compared with $109.8 million in last year’s quarter.

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