By JASON BOOTH

Staff Reporter

Tarrant Apparel Group may not generate as much notice as Tommy Hilfiger or Polo, but the name is very much in fashion on Wall Street.

Since the start of the year, the Los Angeles-based clothing designer and manufacturer has seen its share price rise more than 100 percent, to trade at the $23 level last week.

Analysts say investors are excited by the company's efforts to grow through acquisition and create a vertically integrated manufacturing and distribution system.

"Nobody else in the business is doing exactly what they are doing, and doing it so profitably," said Jeanne Kraus, an analyst at Van Kasper & Co. in San Francisco.

Tarrant is a leader in the "private-label" apparel business. While most other publicly traded apparel companies produce and sell clothes under their own brand labels, most of Tarrant's clothes are made to order by large retail chains, which put their own labels on the garments.

While the private-label strategy has not produced the explosive growth rates enjoyed by popular brand names such as Tommy Hilfiger, it protects Tarrant from the sharp downside in profitability suffered when brand names such as Guess? fall out of favor.

In the first quarter ended March 31, Tarrant reported net income of $2.8 million (20 cents per share), compared with $2 million (15 cents) for the like period a year earlier.

For the year ended Dec. 31, net income was $17.1 million (80 cents), up from $16.5 million (77 cents) in 1996. Analysts said earnings growth slowed in 1997 due to the cost of making acquisitions and launching new production operations in Mexico.

The recent purchase of New York-based Rocky Apparel alone was responsible for driving the company's share price up almost 20 percent in one day. The deal came on the heels of the February acquisition of Marshall Gobuty International USA Inc.

Tarrant officials estimated that the acquisitions would increase revenues to around $350 million in 1998.

"When we went public in 1995, we promised our investors that we would be a $500 million company within five years," said Chairman and CEO Gerard Guez. "We are on schedule, if not ahead on that regard."

Both deals will help Tarrant expand its customer base, which until recently had been largely focused on The Limited Inc., the Columbus, Ohio-based chain.

Tarrant is also developing a vertically integrated production system, allowing it to make its own fabric, design and manufacture its own clothes and finish and distribute them itself. To that end, the company is building an 800,000-square-foot finishing and distribution system in Puebla, Mexico. Tarrant is also planning to buy a denim production mill in Mexico.

"The idea is to serve the needs of our clients by delivering the goods they want, when they want, directly from Mexico to their store," said Guez.

The company has been systematically shifting its production base from Asia to Mexico in recent years. Currently, around 80 percent of the firm's clothes are manufactured in Asia. Guez said that within three to five years, more than 50 percent of the firm's goods will be made in Mexico.

"Mexico has an advantage vs. Asia in that you have less turnaround time and less quota issues to deal with," said Kraus.

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