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Improved product quality helps boost sales - Dov Charney
15
Mar '12
American Apparel Inc, a vertically integrated manufacturer, distributor, and retailer of branded fashion basic apparel, announced its financial results for the fourth quarter and year ended December 31, 2011. The Company also provided guidance with respect to its expected 2012 performance.

Summary of Fourth Quarter 2011 Financial Performance (4Q 2011 vs. 4Q 2010)
Comparing the 2011 fourth quarter to the corresponding period last year, the Company reported that:

• Net sales increased 9% to $157.6 million on a 7% increase in comparable store sales, a 19% increase in online sales, a 6% increase in wholesale net sales and a 9% decrease in the average number of stores. In addition, total net sales increased as a result of extensive warehouse-type clearance sales conducted in the 2011 fourth quarter.
• Gross margin decreased to 53.2% from 55.6% due primarily to higher raw material and manufacturing overhead costs, the effect of lower margins on warehouse clearance sales and promotional activities. Partially offsetting these reductions were the impacts of reduced shrink and lower manufacturing direct labor expense.
• Operating expenses decreased $5.8 million driven by lower occupancy expenses as the result of fewer stores and lower professional fees.
• Cash generated from operating activities improved by $17.1 million to $12.2 million.
• Adjusted EBITDA improved by $9.6 million to $9.1 million from a previous year loss of $0.5 million.
• Net loss per share was $0.11 in 2011 vs. $0.27 in 2010.
• During the quarter the Company opened five retail stores and closed three to end the year with 249 stores worldwide.
• The existing senior credit facility due to mature in July 2012 was replaced with a new three year senior credit facility. In addition, the second lien loan due on December 31, 2013 was extended to December 31, 2015. Accordingly, after considering the refinancing and recent operating performance improvements, the Company has concluded that there no longer is substantial doubt about its ability to operate as a going concern.

Summary of 2011 Financial Performance (2011 vs. 2010)
• Net sales increased 3% to $547.3 million on flat comparable store sales, a 17% increase in online sales, a 2% increase in wholesale net sales and a 9% decrease in the average number of stores.
• Gross margin increased to 53.9% from 52.5% in 2010 due to significantly improved manufacturing efficiency. The manufacturing cost improvement was partially offset by an increase in yarn and fabric costs and unit cost increases associated with factory overhead due to lower production levels.
• Operating expenses decreased $11.8 million driven by lower occupancy expenses as the result of fewer stores and lower professional fees.
• Cash generated from operating activities was $2.3 million, an improvement of $34.7 million.
• Capital expenditures decreased $4.6 million to $11.1 million.

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