Things were going badly enough for kids' apparel company OshKosh B'Gosh (NASDAQ:GOSHA) -- and then this happened. When Toys "R" Us (NYSE:TOY) said in mid-November that it would close down the Kids "R" Us retail chain, it took a good bit of OshKosh's business with it. After a closer look, however, the picture for OshKosh isn't quite so bad.

It's somewhat surprising that the company took nearly a month to discuss the closing's effects in a public statement, but the statement itself is something investors could have seen coming. (Even so, the company's shares were off by several percentage points in morning trading.)

That's because the company's 10-K for 2001 says Kids "R" Us accounted for 11% of its sales during that year, more than any other customer. (OshKosh also sells to such retailers as Kohl's (NYSE:KSS), J.C. Penney (NYSE:JCP), Federated Department Stores (NYSE:FD), and many others.) It didn't break out specific customers for 2002, but said "no single customer accounted for more than 10%" of sales for the period. The projected impact for 2003 is $12 million -- minimal, though the precise impacts going forward have yet to be seen.

We do know the company is taking a charge for inventory, cutting jobs, and paying severance, all of which will hurt earnings in Q4. In the long term, however, things may not be so bad. For one, OshKosh will still sell into the Babies "R" Us chain, which is doing well lately.

Furthermore, reducing its reliance on wholesale customers -- particularly underperforming ones -- shouldn't trouble OshKosh investors too much. Companywide performance through Q3 of this year hasn't been great, with revenues falling and same-store sales at retail going negative, but the company continues to grow its store base in pursuit of revenue growth, better profit margins, and increased brand control. A deal with Target (NYSE:TGT), meanwhile, may help the wholesale business.

As a result, the company continues to maintain a rich valuation despite being off somewhat today and in recent weeks. No doubt a strong balance sheet and a history of solid free cash flow only help.

Is OshKosh up to the challenge of moving from a wholesale-focused company to a retailer? Mull it over on the Osk Kosh B'Gosh discussion board.

Dave Marino-Nachison can be reached at