Private label and private branded clothing maker Tarrant Apparel Group on Monday revealed that it is selling its Mexican manufacturing assets to one of its major shareholders.

Mr Kamel Nacif, who currently leases some of the facilities, will pay $40.204 million plus 4,724,000 shares of Tarrant common stock or the proceeds from any sale prior to the closing of the transaction.

Once the sale has been completed, Tarrant says it will buy $5 million of fabric from the facility each year for ten years.

This agreement will replace Tarrant's existing commitment to buy 6 million yards of fabric (or $19.2 million of fabric at today's market prices) manufactured at the plant until October 2009.

Gerard Guez, chairman of Tarrant Apparel Group, said in a statement: "Upon consummation of this sale, we will be able to close a disappointing chapter in our corporate history.

"The sale of our manufacturing facilities will allow us to concentrate solely on developing our private label and private brand trading models and return the company to profitability in the near future."

Subject to the necessary approval, the sale should be completed in the second half of 2004.

In a separate announcement on Monday, Tarrant reported a second-quarter net loss of $68.6 million, widening the net loss of $32.6 million in the same period last year.

The company, which is behind the American Rag CIE, Alain Weiz, Cynthia Rowley and Gear7 brands, attributed the loss to a drop in net sales to $38.5 million from $78.2 in last year's second quarter. It also incurred a charge of $78.0 million associated with the sale of its manufacturing facilities in Mexico.

Gross profit increased to $5.3 million from a gross profit of ($0.4) million in the comparable period last year.

Barry Aved, president and CEO of Tarrant Apparel Group, said the company now expects its annual sales to be $185 million to $200 million and "will recognise a substantial net loss for the year."