Tarrant Apparel Group Announces First Quarter Results

LOS ANGELES--(BUSINESS WIRE)--Tarrant Apparel Group (NASDAQ:TAGS), a design and sourcing company for private label and private brand casual apparel, today announced financial results for the three months ended March 31, 2008.

The Company reported net sales of $50.5 million in the first quarter of 2008, a 10% decrease compared to $56.1 million in the same period in 2007. Private Brands sales were $8.3 million in the 2008 first quarter, compared to $7.9 million in the first quarter of 2007. Private Label sales in the quarter were $42.2 million, as compared to $48.2 million reported in the same period last year.

Gross profit decreased by $2.3 million or 18.7% to $10.0 million in the first quarter of 2008 from $12.3 million in the first quarter of 2007. The decrease in gross profit was partially due to a decrease in sales. As a percentage of total net sales, gross profit decreased from 22.0% in the first quarter of 2007 to 19.9% in the first quarter of 2008. The decrease in gross margin in the first quarter of 2008 was caused by comparatively more discounts and allowances given to retailers as a result of a slowdown in the economy.

Selling, general and administrative expenses for the first quarter of 2008 were $9.7 million compared to $9.9 million in the 2007 first quarter. As a percentage of total net sales, selling, general and administrative expenses increased to 19.3% versus 17.7% for the same period of the prior year due to a lower level of sales. Included in selling, general and administrative expenses in the first quarter of 2008 was a charge of $848,000 resulting from liquidated damages imposed by the U.S. Customs on two of the Company’s overseas vendors in April 2008. The goods were imported in 2005 and these vendors who are typically responsible for these liquidated damages are no longer operating.

Royalty expenses decreased by $24,000, or 6.6%, to $334,000 in the first quarter of 2008 from $358,000 in the first quarter of 2007. Terminated acquisition expenses in the first quarter of 2007 were $2.0 million, or 3.6% of total net sales, compared to no such expense in the first quarter of 2008.

Loss from operations was $43,000 in the first quarter of 2008 compared to income from operations of $64,000 in the first quarter of 2007. The net loss for the 2008 first quarter was $253,000 or a loss of $(0.01) per share compared to a net loss of $1.0 million or $(0.03) per share in the year earlier period.

"It is just unfortunate that our positive result in the first quarter was reversed by the need to record a charge for liquidated damages imposed by US Customs in April on some overseas vendors who are no longer operating. We continue to operate in a difficult environment, as retailers continue to face many of the challenges created by a slowing economy and high energy prices,” said Gerard Guez, Chairman and Interim CEO of Tarrant Apparel Group. "In this environment, we remain highly focused on tight expense controls, while seeking ways to improve sourcing and inventory management. We also continue to work closely with our customers, to ensure that they receive highly attractive products on a timely basis. We believe Tarrant Apparel has taken the necessary measures to operate efficiently during this downturn, and are well positioned to return to growth when consumer spending begins to increase."

Conference Call

The Company will host a conference call and audio webcast at 4:30 p.m. Eastern Time today to discuss the results and outlook for 2008. Interested parties may dial 877-723-9520 (domestically) or 719-325-4835 (internationally). Please use passcode 4818084. A replay of the call will be available until June 11, 2008. To access the replay, interested parties should dial 800-448-0609 (domestically) or 402-220-0224 (internationally). Please use passcode 4818084. A live broadcast of the conference call can also be accessed via the Internet at http://www.tags.com. The archive of the webcast will be available for 30 days following the conclusion of the teleconference.

Forward Looking Statement

Except for historical information contained herein, the statements in this release are forward-looking and made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are inherently unreliable and actual results may differ materially. Examples of forward-looking statements in this press release include the Company’s positioning to return to growth when consumer spending begins to increase. Factors which could cause actual results to differ materially from these forward-looking statements include continued intervention of the U.S. government in China imports, the unanticipated loss of a major customer, an adverse outcome in our litigation over rights to the American Rag Cie trademark, and other competitive factors. These and other risks are more fully described in the Company's filings with the Securities and Exchange Commission. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

TARRANT APPAREL GROUP
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
	March 31, 2008			December 31, 2007
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	2,165		$	491
Marketable securities		568			-
Accounts receivable, net of $927,000 and $2.0 million allowance for returns, discounts and bad debts at March 31, 2008 and December 31, 2007, respectively		36,890			34,622
Due from related parties		7,702			6,813
Inventory		7,500			13,141
Temporary quota rights		57			5
Prepaid expenses		1,193			1,277
Deferred tax assets		197			162
Total current assets		56,272			56,511
Property and equipment, net of $8.3 million accumulated depreciation at March 31, 2008 and December 31, 2007		1,358			1,531
Due from related parties, net of $1.0 million reserve and $0.8 million adjustment to fair value at March 31, 2008 and December 31, 2007		1,711			1,741
Equity method investment		922			945
Deferred financing cost, net of $263,000 and $226,000 accumulated amortization at March 31, 2008 and December 31, 2007, respectively		177			214
Other assets		102			102
Goodwill		9,945			9,945
Total assets	$	70,487		$	70,989
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Short-term bank borrowings	$	8,792		$	9,745
Accounts payable		8,572			11,785
Accrued expenses		8,241			8,627
Income taxes		5,533			16,525
Current portion of long-term obligations and factoring arrangement		11,072			3,003
Total current liabilities		42,210			49,685
Other long-term obligations		-			-
Income taxes		7,019			-
Total liabilities		49,229			49,685
Minority interest in PBG7		60			61
Commitments and contingencies		-			-
Shareholders’ equity:
Preferred stock, 2,000,000 shares authorized; no shares at March 31, 2008 and December 31, 2007 issued and outstanding		-			-
Common stock, no par value, 100,000,000 shares authorized: 32,043,763 shares at March 31, 2008 and December 31, 2007 issued and outstanding		116,673			116,673
Warrants to purchase common stock		7,314			7,314
Contributed capital		10,993			10,863
Accumulated deficit		(111,916	)		(111,663	)
Notes receivable from officer/shareholder		(1,866	)		(1,944	)
Total shareholders’ equity		21,198			21,243
Total liabilities and shareholders’ equity	$	70,487		$	70,989

TARRANT APPAREL GROUP
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data)
	Three Months Ended			Three Months Ended
	March 31, 2008			March 31, 2007
	(Unaudited)			(Unaudited)
Net sales	$	46,322		$	52,782
Net sales to related party		4,177			3,325
Total net sales		50,499			56,107
Cost of sales		36,654			40,744
Cost of sales to related party		3,806			3,016
Total cost of sales		40,460			43,760
Gross profit		10,039			12,347
Selling and distribution expenses		3,429			3,439
General and administrative expenses		6,319			6,487
Royalty expenses		334			358
Terminated acquisition expenses		-			2,000
Income (loss) from operations		(43	)		63
Interest expense		(230	)		(1,343	)
Interest income		40			45
Interest in income (loss) of equity method investee		(23	)		84
Other income		181			88
Adjustment to fair value of derivative		-			195
Other expense		(64	)		(2	)
Loss before provision for income taxes and minority interest		(139	)		(870	)
Provision for income taxes		114			132
Minority interest		(0	)		(1	)
Net loss	$	(253	)	$	(1,001	)
Net loss per share:
Basic	$	(0.01	)	$	(0.03	)
Diluted	$	(0.01	)	$	(0.03	)
Weighted average common and common equivalent shares outstanding:
Basic		32,043,763			30,543,763
Diluted		32,043,763			30,543,763