Here’s a scary one. Tarrant Apparel Group, maker of private label apparel brands for department stores, was probably not happy with Mervyn’s Ch 11 filing. Mervyn’s is an 8% customer, and accounts for about $20mm in revenue. Not good when you consider that allowance for doubtful accounts was only $453k last year. Let’s say this business is lost at a 25-30% incremental margin, then that equates to about 2-3 points in margin. TAGS, unfortunately, has margins of only 0.9%, 94% debt to equity, and the majority of its debt due over the next 2 years. On one hand, I think that it is no wonder the market cap has nearly evaporated. On the flip side, there has been little meaningful change since Mervyn’s troubles became apparent. I’m no expert on this name, but I thought it worth pointing out.
Yes, Mervyn's exposure has been coming down. But it's still significant, and allowance for doubtful accounts has not budged.