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Tarrant Apparel Group Announces Second Quarter Results
Business Wire
Aug 13, 2009
Tarrant Apparel Group (NASDAQ:TAGS), a design and sourcing company for private label and private brand casual apparel, today announced financial results for the quarter and six months ended June 30, 2009.
The Company reported total net sales of $41.0 million in the second quarter of 2009, a 20.0% decrease compared to $51.3 million in the same period in 2008. Private Label sales in the second quarter of 2009 were $26.7 million, as compared to $35.2 million reported in the same period last year. The decrease in Private Label sales was a result of reduced demand by our customers due to the severe economic downturn and bankruptcies of retailers, such as Mervyn’s that were significant customers in 2008. The decrease was partially offset by an increase in sales to Wal-Mart of $7.4 million in the second quarter of 2009. Private Brand sales were $14.3 million in the second quarter of 2009, compared to $16.1 million in the second quarter of 2008 with the decrease resulting primarily from reduced sales to Macy’s Merchandising Group.
Gross profit decreased by $1.4 million, or 12.9%, to $9.6 million in the second quarter of 2009 from $11.0 million in the second quarter of 2008. The decrease in gross profit was primarily due to the decrease in total net sales. As a percentage of total net sales, gross profit increased from 21.4% in the second quarter of 2008 to 23.3% in the second quarter of 2009. The increase in gross margin in the second quarter of 2009 was due primarily to higher gross margins on back- to- school sales.
Selling, general and administrative expenses decreased by $1.8 million or 17.3% to $8.8 million for the second quarter of 2009 from $10.6 million in the 2008 second quarter. As a percentage of total net sales, selling, general and administrative expenses increased to 21.3% versus 20.6% for the same period of the prior year. Staff costs were reduced by $566,000 in the second quarter of 2009 compared to the same period of 2008. Included in selling, general and administrative expenses in the second quarter of 2009 was an allowance for bad debts of $856,000 primarily related to factory receivables from two overseas vendors who ceased production. In the second quarter of 2008, allowance for bad debts amounted to $2.0 million, of which $1.5 million was related to Mervyn’s receivables. Also included in the second quarter of 2009 were expenses related to the going private transaction of $341,000 and litigation expenses of $201,000 compared to going private expenses of $360,000 and litigation expenses of $166,000 in the second quarter of 2008.
Royalty expense decreased by $179,000 or 37.4%, to $300,000 in the second quarter of 2009 from $479,000 in the 2008 second quarter. The decrease was caused by lowered royalty rates resulting from an amendment to our license agreement with American Rag Cie, LLC entered into in December 2008.
The Company also recorded a non-cash charge of $5.3 million in the second quarter of 2008 due to an impairment of the goodwill pertaining to the Chazzz division. The charge was taken as a result of the Mervyn's LLC bankruptcy filing subsequent to the end of the second quarter of 2008 and the rapidly declining business of another retailer served by this division.
Income from operations in the second quarter of 2009 was $505,000 or 1.2% of total net sales, compared to loss from operations of $5.4 million or (10.5)% of total net sales, in the second quarter of 2008.
Net income was $219,000, or $0.01 per basic and diluted share for the 2009 second quarter, compared to net loss of $5.3 million, or $(0.16) per basic and diluted share for the 2008 second quarter.
For the six months ended June 30, 2009, the Company reported net sales of $78.4 million, a decline of 23.0% compared to $101.8 million in the comparable prior period of 2008. Gross profit decreased by $3.5 million or 16.5%, to $17.5 million in the first six months of 2009 from $21.0 million in the first six months of 2008. Income from operations for the first six months of 2009 was $658,000, or 0.9% of total net sales, compared to loss from operations of $5.4 million, or (5.4)% of total net sales, in the comparable prior period of 2008. Net income was $48,000, or $0.00 per share, compared to net loss of $5.5 million, or $(0.17) per share in the 2008 comparable period.
| TARRANT APPAREL GROUP | |||||||||||
| CONSOLIDATED BALANCE SHEETS | |||||||||||
| (in thousands, except share data) | |||||||||||
| June 30, 2009 | December 31, 2008 | ||||||||||
| (Unaudited) | |||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 89 | $ | 5,207 | |||||||
| Restricted cash | 105 | 105 | |||||||||
|
Accounts receivable, net of $1.7 million and $0.6 million
allowance for returns, |
|||||||||||
| 26,446 | 19,199 | ||||||||||
| Due from related parties | 18,951 | 21,581 | |||||||||
| Inventory | 6,555 | 7,066 | |||||||||
| Temporary quota rights | - | 36 | |||||||||
| Prepaid expenses | 1,481 | 1,203 | |||||||||
| Deferred tax assets | 156 | 146 | |||||||||
| Total current assets | 53,783 | 54,543 | |||||||||
|
Property and equipment, net of $6.3 million and $7.4 million
accumulated depreciation |
|||||||||||
| 2,254 | 1,985 | ||||||||||
|
Due from related parties, net of $2.6 million reserve and $0.8
million adjustment to fair |
|||||||||||
| 125 | 139 | ||||||||||
| Deferred financing cost, net of $0.4 million accumulated amortization at December 31, 2008 | - | 67 | |||||||||
| Other assets | 2 | 2 | |||||||||
| Goodwill, net | 3,283 | 3,283 | |||||||||
| Total assets | $ | 59,447 | $ | 60,019 | |||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Short-term bank borrowings | $ | 8,233 | $ | 10,630 | |||||||
| Accounts payable | 12,445 | 11,680 | |||||||||
| Accrued expenses | 5,830 | 5,850 | |||||||||
| Income taxes, current portion | 4,283 | 4,223 | |||||||||
| Debt facility and factoring arrangement | 14,715 | 12,607 | |||||||||
| Total current liabilities | 45,506 | 44,990 | |||||||||
| Income taxes, net of current portion | 3,888 | 5,164 | |||||||||
| Total liabilities | 49,394 | 50,154 | |||||||||
| Minority interest in PBG7 | 60 | 60 | |||||||||
| Commitments and contingencies | |||||||||||
| Shareholders’ equity: | |||||||||||
|
Preferred stock, 2,000,000 shares authorized; no shares issued and
outstanding |
|||||||||||
| - | - | ||||||||||
|
Common stock, no par value, 100,000,000 shares authorized:
30,543,763 shares |
|||||||||||
| 115,757 | 115,757 | ||||||||||
| Warrants to purchase common stock | 5,472 | 5,516 | |||||||||
| Contributed capital | 13,095 | 12,919 | |||||||||
| Accumulated deficit | (122,696 | ) | (122,744 | ) | |||||||
| Notes receivable from officer and shareholder | (1,635 | ) | (1,643 | ) | |||||||
| Total shareholders’ equity | 9,993 | 9,805 | |||||||||
| Total liabilities and shareholders’ equity | $ | 59,447 | $ | 60,019 | |||||||
| TARRANT APPAREL GROUP | ||||||||||||||||||||
| CONSOLIDATED STATEMENTS OF OPERATION | ||||||||||||||||||||
| (in thousands, except share data) | ||||||||||||||||||||
| Three Months Ended | Three Months Ended | Six Months Ended | Six Months Ended | |||||||||||||||||
| June 30, 2009 | June 30, 2008 | June 30, 2009 | June 30, 2008 | |||||||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||||||
| Net sales | $ | 37,493 | $ | 47,424 | $ | 72,067 | $ | 93,745 | ||||||||||||
| Net sales to related party | 3,544 | 3,874 | 6,303 | 8,051 | ||||||||||||||||
| Total net sales | 41,037 | 51,298 | 78,370 | 101,796 | ||||||||||||||||
| Cost of sales | 28,240 | 36,775 | 55,071 | 73,428 | ||||||||||||||||
| Cost of sales to related party | 3,239 | 3,548 | 5,759 | 7,354 | ||||||||||||||||
| Total cost of sales | 31,479 | 40,323 | 60,830 | 80,782 | ||||||||||||||||
| Gross profit | 9,558 | 10,975 | 17,540 | 21,014 | ||||||||||||||||
| Selling and distribution expenses | 2,419 | 2,771 | 4,613 | 6,200 | ||||||||||||||||
| General and administrative expenses | 6,334 | 7,816 | 11,707 | 14,135 | ||||||||||||||||
| Royalty expense | 300 | 479 | 562 | 813 | ||||||||||||||||
| Goodwill impairment charge | - | 5,300 | - | 5,300 | ||||||||||||||||
| Income (loss) from operations | 505 | (5,391 | ) | 658 | (5,434 | ) | ||||||||||||||
| Interest expense | (221 | ) | (245 | ) | (387 | ) | (475 | ) | ||||||||||||
| Interest income | 32 | 153 | 65 | 193 | ||||||||||||||||
| Interest in income of equity method investee | - | 130 | - | 107 | ||||||||||||||||
| Other income | 91 | 326 | 123 | 507 | ||||||||||||||||
| Other expense | - | (2 | ) | (50 | ) | (66 | ) | |||||||||||||
| Income (loss) before provision for income taxes and minority interest | 407 | (5,029 | ) | 409 | (5,168 | ) | ||||||||||||||
| Provision for income taxes | 188 | 245 | 361 | 359 | ||||||||||||||||
| Minority interest | - | 0 | - | 0 | ||||||||||||||||
| Net income (loss) | $ | 219 | $ | (5,274 | ) | $ | 48 | $ | (5,527 | ) | ||||||||||
| Net income (loss) per share: | ||||||||||||||||||||
| Basic | $ | 0.01 | $ | (0.16 | ) | $ | 0.00 | $ | (0.17 | ) | ||||||||||
| Diluted | $ | 0.01 | $ | (0.16 | ) | $ | 0.00 | $ | (0.17 | ) | ||||||||||
| Weighted average common and common equivalent shares: | ||||||||||||||||||||
| Basic | 30,543,763 | 32,043,763 | 30,543,763 | 32,043,763 | ||||||||||||||||
| Diluted | 30,543,763 | 32,043,763 | 30,543,763 | 32,043,763 | ||||||||||||||||
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