American Apparel comparable store Q1 sales rise 8%

Financial Performance Highlights for the First Quarter of 20 13

-  Net sales increased 4% to $138.1 million on an 8% increase in comparable store sales and a 1% increase in wholesale net sales

-  Adjusted EBITDA improved by $1.4 million to a loss of $0.7 million from a loss of $2.1 million in the first quarter 2012

Operating Results - First Quarter 2013

Comparing the first quarter 2013 to the corresponding period last year, net sales increased 4% to $138.1 million on an 8% increase in comparable store sales in the retail and online business and a 1% increase in net sales in the wholesale business.

Gross profit of $72.9 million for the first quarter 2013 represented an increase of 4% from $70.1 million reported for the first quarter 2012. Gross margin remained unchanged at 52.8% for the quarters ended March 31, 2013 and 2012. Higher margins from an improved sales mix were offset by higher freight costs.

Operating expenses of $83.3 million for the first quarter 2013 represented an increase of 4% from $79.9 million for the first quarter 2012. As a percent of revenue, operating expenses remained unchanged at 60% for both quarters. The increase in operating expenses was primarily due to higher share-based compensation costs of $1.7 million.

Additionally, we incurred higher rent expenses of $1.6 million related to higher CAM (common area maintenance) charges and lease termination costs, as well as rent for our new distribution center and $0.8 million in higher expenses associated with RFID-related supplies and travel for other store refurbishment activities. This increase was offset by lower store payroll of $1.1 million and lower advertising expenses of $1.1 million.

Operating loss for the first quarter 2013 was $10.5 million compared to $9.8 million in the first quarter 2012.

Other expense for the first quarter 2013 was $35.6 million as compared with other income of $2.2 million in the prior year quarter.

The $37.8 million change in non-operating expenses was primarily the result of an increase in the market value of our outstanding warrants: the unrealized losses on the change in fair value of our warrants were $23.6 million and $0.7 million for the 2013 and 2012 quarters, respectively. Additionally, during the first quarter 2012, we recognized a gain on extinguishment of debt of $11.6 million.

Income tax provision in the first quarter 2013 was $0.5 million versus $0.3 million in the 2012 first quarter. In accordance with U.S. GAAP, we have discontinued recognizing potential tax benefits associated with current operating losses.

As of March 31, 2013, we had available federal net operating loss carry forwards of approximately $95.6 million and unused federal and state tax credits of $24.5 million.