Nation’s Weight Problem Feeds Bottom Line of Apparel Maker

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Nation’s Weight Problem Feeds Bottom Line of Apparel Maker

By ANDY FIXMER

Staff Reporter

America’s swelling waistlines have meant expanding revenues for apparel manufacturer Tag-It Pacific Inc.

Thanks to a deal to make stretchable waistbands used by Levi Strauss & Co. in its jeans and Dockers brand slacks, Woodland Hills-based Tag-It posted a 56 percent increase in revenues for the first quarter, to $14.4 million, compared with $9.3 million for the like period a year ago.

The new business has translated into higher earnings, thought it remains at low levels. Net income rose to $314,000 for the first quarter from a mere $9,000 a year earlier. It also has led to an increase in Tag-It’s stock price, to a 52-week high of $5 a share on June 2, and allowed it to raise money to invest in the growth.

The two-year deal with Levi’s, struck last June, includes popular products such as Dockers’ Individual Fit Waistbands, which are able to expand several inches to keep up with customers’ burgeoning torsos.

The $10 million deal includes Tag-It’s Talon brand zippers as well as waistbands. But it’s likely worth more. Already, Levi’s has ordered a new shipment of the same products, according to Tag-It Chief Executive Colin Dyne.

Tag-It’s stock surged after Levi’s signed a $1.7 billion deal in April with Wal-Mart Stores Inc. to provide a new “Signature” brand of jeans to the discount retailer’s 2,800 stores nationwide.

At the close on June 11, the company’s stock was trading at $4.91 per share.

“That’s a very nice situation to be in,” said Bruce Berton, director of international business consulting for apparel accounting and consulting firm Stonefield Josephson Inc. “It’s a huge order, and Tag-It is going to see a fair share of that.”

Order flow

With Tag-It plants in Mexico and the Pacific Rim already making products for Levi’s, the company is “set up wherever Levi’s are going to be made,” said Berton, who said he has no business with Tag-It.

As increased orders from Levi’s began flowing in, Dyne said the company needed quick cash to beef up its operations. Two weeks ago, Tag-It completed a private stock offering that raised $5.5 million to help pay for its expansion plans.

Despite its recent success, Tag-It is still vulnerable to a flat-to-shrinking apparel industry and a reliance on two customers for most of its sales.

L.A.-based Tarrant Apparel Group and privately held Azteca Production International LLC, of Commerce, together made up 69.7 percent of Tag-It’s total revenues last year, Tag-It said in a filing with the Securities and Exchange Commission.

Azteca, the largest manufacturer of Arizona brand jeans, is owned by Hubert and Paul Guez; and Tarrant, which manufactures clothing for Limited Brands Inc., is controlled by their brother, Gerard Guez. He, along with Tarrant executive Todd Kay, own 12 percent of Tag-It’s outstanding shares.

Tag-It’s dependence on the Guez-run operations has limited the company’s access to capital and apparel resources, according to Tag-It’s SEC filings.

Its exposure to Tarrant, in particular, could come home to roost.

Tarrant posted a loss of $3.9 million in the first quarter ended March 31, compared with a loss of $6.6 million for the like period a year ago. It had less than $500,000 in cash as of March 31 and more than $35 million in short-term debt. The stock set a 52-week low of $3.09 on June 2.

According to Tag-It’s first quarter filing, Tarrant and Azteca combined owed it nearly $14 million in trade accounts receivable and another $11 million in inventory at March 31. The inventory costs come due if the materials aren’t used within the next six to nine months.

Dyne said Tag-It hasn’t been affected by Tarrant’s recent financial floundering. During the past few years, Dyne said Tag-It has been making a concerted effort to diversify its customer base.

With the Levi’s deal, the company’s dependence on the two firms has decreased to 51.4 percent of sales at the end of the first quarter, Dyne said.

That number should be lower in the coming years, he said, projecting that by the end of the year, 40 percent of Tag-It’s business will be with Tarrant and Azteca,

“It’s definitely been a conscious decision,” said Dyne. “Our reliance on them will be a lot less significant and we should be a lot more even in the future.”




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