Tarrant Cuts Loss
Tarrant Apparel Group’s withdrawal from Mexican production cut its first-quarter sales nearly in half, but it also allowed the company to reduce its loss.
For the three months ended March 31, the Los Angeles-based apparel and fabrics marketer had a net loss of $3 million versus a loss of $3.9 million in the prior-year period. On a per-share basis, the losses were 10 cents against 24 cents, due to an increase in the number of shares outstanding. Sales plummeted 46.5 percent to $42.2 million from $78.7 million in the 2003 quarter, as the company absorbed what is expected to be an annual top-line decline of $60 million to $75 million due to its exit from Mexican manufacturing.
“By withdrawing from Mexico, we no longer have a need to accept low- or negative-margin orders for the purpose of filling production capacity during slow periods,” president Barry Aved said on a conference call with Wall Street analysts.
Patrick Chow, chief financial officer, said quarterly sales were in line with expectations and “relatively flat” when excluding year-ago results attributable to Mexican production.
Company officials said they expected their new focus on private brands to drive top-line growth. Gerard Guez, chairman and chief executive officer, said private brands accounted for about 15 percent of sales during the first quarter and could grow to between 35 and 50 percent of volume by the end of next year.
The American Rag program is in junior departments in 153 Federated Department Stores doors, and Guez expects that number to surpass 200 this year. Additionally, a men’s program for that label is being explored, and “another three to five projects” could be launched before the beginning of 2005.
Tarrant has an exclusive distribution agreement with Wet Seal for No Jeans and manufactures Seven 7 jeanswear exclusively for Limited Brands’ Express division. It recently inked a licensing deal with Cynthia Rowley for women’s jeanswear. — Arnold J. Karr
James Jeans’ New Cause
After handily exceeding its first-year growth targets, James Jeans is moving out on its own. The company has parted ways with the New York-based Brothers and Sisters Showroom that launched the line, and moved into its own 4,000-square-foot showroom at 250 West 39th Street in Manhattan.
Owner James Lim, who owns the brand with his designer wife, Seun, said the company has booked $33 million in orders since launching this spring. That’s well ahead of an initial target, set last fall, of $2 million in its first season and also surpasses the $20 million goal the company cited in March.
“It’s really been great, but just so fast — too fast,” Lim said. “I am just glad that the customers are getting it and that our fit has been working out so well.”
James Jeans’ signature darted back pockets wrap around the contour of the behind to enhance definition. The jeans are washed in a way that makes the inner thighs appear thinner and legs look longer. The hip area is highlighted to create a lift effect.
Lim acknowledged that one casualty of the line’s success is that it’s running about two weeks late on deliveries, though he maintained this is a new and temporary problem. Lim said he will be 100 percent on track to deliver on time with the James fall 2004 orders. As of now, Lim said the company ships between 1,500 and 2,000 units every day.
To help meet demand for deliveries, James Jeans beefed up its production staff. It has also moved into a new Los Angeles headquarters for manufacturing and now has three dedicated sewing facilities there. Lim said there are now more than 500 people involved in putting together the line, with about 50 directly employed by the company. That compares with four people on the payroll in January.
Lim said he is looking to partner with a larger company to help with marketing, distribution and production duties.
“I’ve met with a lot of companies, and I would say I am in the final stages,” Lim said. “We just need the help, since we grew so quickly.” — Julee Greenberg
Inspired by vintage styles and Old West charm, Star Jeans is making its debut for fall retailing.
The line is backed by New York-based junior sportswear company Star City. It’s run by James Miller, executive vice president, and Scott Aimetti, vice president of sales, who both came to launch the label from young men’s and junior jeans company Plugg. Currently, the jeans line shares space with its parent firm; however, Miller and Aimetti said they plan to move into dedicated space.
“We both learned so much over the years in the denim business, and we are confident that we are launching a great product,” Miller said. “We have re-created a lot of vintage styles and paid a lot of attention to the details.”
The first collection includes an array of denim styles, including a basic five-pocket, a pencil skirt and miniskirt. Also included are denim and corduroy jackets accented in fake fur and knit hoods. The signature logo on the denim is a subtle star sewn into one back pocket, as well as one star rivet on a front pocket. Many styles feature ribbon belts or rhinestone chain belts, while denim jackets and blazers come with decorative pins.
“The customers have been reacting really well to the extras that we have added,” Aimetti said.
Miller said they are targeting specialty chains and department stores. The line wholesales for $11.50 to $20. Miller expects to reach about $15 million in first-year sales. Next up, the company is planning a young men’s line to be ready for spring 2005. — J.G.
Warnaco Charts a Course
Warnaco Group Inc. president and chief executive officer Joseph R. Gromek said at the firm’s annual meeting Wednesday that the company’s business units can be broken down into two main groups: Those ripe for revenue growth and those where management needs to improve profitability.
In the first camp are the Chaps men’s wear brand, Calvin Klein underwear and Speedo. In the second are Calvin Klein Jeans and the rest of Warnaco’s U.S. innerwear business.
Looking at the $1.37 billion firm from a broad perspective, Gromek said adding brands through licensing and acquisition will be a key priority.
“Definitely, we believe that we need to enhance our portfolio of leading brands and we will continue to add,” he said in an interview after the meeting, held in Manhattan.
Gromek declined to comment on whether Warnaco was eyeing any particular brands, but added the firm would be ready to move “if the opportunity comes up.”
Illustrating Warnaco’s financial readiness to acquire, senior vice president and chief financial officer Lawrence Rutkowski noted the company began the year with $53.5 million in cash on hand and $211.1 million in long-term debt. That’s more cash than the $26.9 million on hand when Warnaco exited Chapter 11 bankruptcy protection in February 2003 and less debt than the $246.5 million on the books at the time.
Gromek called the Chaps business “our leading revenue-growth opportunity” and noted the men’s jeans line launched under that brand could bring in $25 million in second-half sales.
He said the CK innerwear business — a label for which Warnaco owns the rights — last year posted 16.5 percent revenue growth — to $279.1 million, according to a filing with the Securities and Exchange Commission — and a 57 percent increase in operating income. With the brand’s upcoming launches of Choice Calvin Klein junior intimates and Calvin Klein Sensual Support full-figure bras, Gromek said growth at that unit should continue.
The Calvin Klein Jeans business, which Warnaco licenses, is a different story. There, Gromek said, the firm is “focused on improving profits, versus top line.” He said the business recorded an operating profit of only 4 percent last year on its $282.7 million in sales.
Warnaco has cut back sharply on sales of Calvin Klein Jeans to off-price and wholesale-club retailers, which played a significant role in Warnaco’s $30.2 million, 7 percent slide in first-quarter sales to $393.3 million. In a sign the strategy was paying off, Gromek said the unit recorded a double-digit percentage operating profit in that quarter.
The sale of Calvin Klein Jeans to wholesale clubs was a contributor to the souring of relations between former Warnaco chairman and ceo Linda J. Wachner and designer Calvin Klein, which ended in a legal dispute in late 2000 and early 2001. That brouhaha was settled out of court, though Warnaco wound up filing for Chapter 11 protection in June 2001.
Current Warnaco management has sought to put the stormy years of the company’s recent history behind it, and chairman Charles R. Perrin told the approximately 30 shareholders and executives in attendance at the annual meeting that last week’s settlement by Wachner and other former and current Warnaco executives of an SEC probe should mark the final piece of unsettled business from that era. Wachner agreed to pay $1 million in the settlement, which concerned a probe into previous earnings restatements at the company.
“It’s important to note that the inquiry had nothing to do with any of our current financial recording matters,” Perrin said. “This last chapter in the old Warnaco is now closed.” — Scott Malone