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Improving sales trends at American Apparel

09 Aug '11

4 min read

American Apparel Inc, a vertically integrated manufacturer, distributor, and retailer of branded fashion basic apparel, announced financial results for its second quarter ended June 30, 2011.

"We are pleased to see improving sales trends with a comparable store sales increase of 3% in June followed by a 4% increase in July. I believe that our stores look better than ever and our sales improvements were achieved at normal margins," said Dov Charney, chairman and CEO, American Apparel. "Consolidated Adjusted EBITDA production at $3.7 million for the quarter resulted primarily from improving manufacturing efficiency that more than offset higher yarn prices.

"During the month of July we received $8.3 million in new capital in connection with share purchase transactions consummated in April 2011. To date, we have received $22.5 million in gross proceeds for the sale of shares and exercise of purchase rights in connection with these transactions. This additional capital will allow us to take advantage of improving business conditions in order to build upon our recent successes. Together with our improved operating performance, this new capital makes us well positioned to strengthen our balance sheet."

Comparable store sales were flat for the second quarter of 2011 versus a decline of 16% reported for the same quarter last year. During the 2011 second quarter, the Company had an average of 254 stores in operation vs. an average of 280 stores during the second quarter last year. Reported sales for the international segment benefited from a weaker U.S. Dollar.

Gross margin for the second quarter of 2011 was 54.5% vs. 51.6% for the corresponding period last year. Gross margin increased primarily due to improvements in manufacturing efficiency and logistics related expenses, foreign currency gains from a weaker U.S. Dollar, and a shift in mix from wholesale to online sales. In addition, margins were favorably impacted as a result of reduced shrink from a June 2011 U.S. warehouse inventory which contributed to the overall margin improvement. These benefits were somewhat offset by higher yarn and fabric costs.

Loss from operations was $5.2 million for the second quarter of 2011, less than the loss of $8.6 million reported last year as a result of improved gross profit margins and higher gross profit of $3.9 million, lower distribution expenses of $0.8 million, lower store operating and other selling expenses of $0.8 million, offset by increase in general and administrative expenses of $2.1 million. General and administrative expenses were impacted by stock based compensation of $1.2 million, salaries and wages of $2.1 million primarily from increases in senior management personnel, $0.3 million in additional professional fees incurred primarily in connection with financial planning and associated legal fees, offset by a reduction in depreciation, impairment and other miscellaneous charges of $1.5 million.

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