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Innovo Group (INNO) posted a wider first-quarter loss and said it reached an agreement to sell its private-label business to Cygne Designs (CYDS) .

The Los Angeles-based jeans company lost $3.7 million, or 11 cents a share, from continuing operations for the first quarter ended Feb. 25. A year ago the continuing operations loss was $616,000, or 2 cents a share. Sales fell 5% from a year ago to $21.9 million.

The latest quarter includes a $1.1 million inventory writedown and a charge of $613,000 related to severance benefits. Excluding those items, the latest-quarter loss from continuing operations was $1.9 million, or 6 cents a share.

"While we acknowledge that the financial results for the first quarter of 2006 were not positive, we are very pleased with the performance of our Joe's Jeans business during the quarter," said interim CEO Marc Crossman. "While the previously planned shift of certain clearance activity felt in the first quarter lowered our margins on our Joe's business from the prior year period, we were able to generate positive cash flow from continuing operations for the quarter totaling $3.9 million, which enabled us not only to continue funding our growing business but also to reduce our loan balance with CIT."

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Cygne Designs will acquire certain assets of the Innovo Azteca Apparel private label business for $10.4 million.

"We are extremely pleased to have entered into this asset purchase agreement which, when completed, will allow us to further concentrate our efforts on our Joe's Jeans label with no long-term debt," Crossman said. "In addition, we also liquidated our former headquarters in Tennessee, signed an agreement to outsource our distribution, and began the process of relocating our manufacturing to Mexico. While there is still work to be done, we are pleased with our recent accomplishments and we remain dedicated to enhancing our operating platform and improving our profitability."