The 2011 fourth quarter includes a similar credit of $2.3 million ($0.02 per common share) for a non-cash reduction in the fair value of such warrants. Fully-diluted weighted average shares outstanding were 115.4 million in the fourth quarter of 2012 versus 104.3 million for the fourth quarter of 2011.

Operating Results - Full Year 2012

Net sales increased 13% to $617.3 million on a 15% increase in comparable retail store and online sales and a 12% increase in net sales in the wholesale business.

Gross profit of $327.4 million in 2012 represented an increase of 11% from $294.9 million in 2011. Foreign currency effects were minimal for the year. Gross margin for 2012 was 53.0% as compared with 53.9% in 2011.

The decrease in gross margin was due to the net sales impact of planned promotional activities and the effect of warehouse type clearance sales as part of our overall inventory reduction strategy, as well as moderated production in connection with our inventory turn improvement efforts.

Operating expenses of $326.4 million in 2012 represented a decrease of 520 basis points to 52.9% from 58.1% in 2011. Corporate overhead expenses decreased by $4.0 million from $45.8 million in 2011 to $41.7 million in 2012. The remainder of the decrease in operating expense is primarily due to fixed cost leverage as a result of increased sales.

American Apparel