Amid disappointing second-quarter earnings, garment trim manufacturer Tag-It Pacific Inc. announced a sweeping restructuring initiative Monday to cut operating costs, including shutting down a U.S. factory.
The Woodland Hills-based company, which announced the move in its second-quarter earnings report, reported a net loss of $11.3 million (62 cents per diluted share) for the quarter ended June 30, compared with net income of $170,319 (1 cent) for the like period a year ago. Revenue was up 24.2 percent to $18.5 million from $14.9 million in the year-ago period.
Tag-It’s restructuring focuses on reducing inventory-heavy activities, and will shut down a manufacturing facility in Kings Mountain, N.C., convert a plant in Guatemala from manufacturing to distribution only, and significantly reduce activities at its facilities in Mexico. The company expects operating costs to be cut 25 percent to 30 percent, or up to $6 million a year, when the restructuring is complete by year end.
The company, which sells zippers and trim to garment manufacturers, said the restructuring was necessitated by increasing manufacturing costs in Central America and Mexico, and the apparel industry’s shift to outsourcing manufacturing in Asia.
At the same time, Tag-It is expanding the sales force at its Talon division in North Carolina and Asia, which supplies Talon brand zippers to apparel brands and retailers including Levi Strauss & Co., Wal-Mart Stores Inc. and J.C. Penney Co. Inc.
Tag-It’s total operating expenses for the quarter ended June 30 were $11.7 million, up 233.9 percent from $3.5 million for the same period one year ago. Tag-It attributed the higher costs to a $6.4 million increase in the reserve for “doubtful accounts,” needed because the geographic restructuring may hurt its ability to collect on accounts; hiring to expand its sales force; and higher legal costs associated with a lawsuit it lost against Pro-Fit Holdings Ltd. over elastic waist band technology.
On Aug. 15, Tag-It delayed the filing of its second-quarter results, saying it expected to report a “significant” operating loss in the quarter.
