News Flash

First quarter a least profitable quarter for American Apparel

11 May '11

5 min read

American Apparel Inc, a vertically integrated manufacturer, distributor, and retailer of branded fashion basic apparel, announced financial results for its first quarter ending March 31, 2011.

Business and Financial Highlights

Dov Charney, Chairman and CEO of American Apparel stated: "Our first quarter financial results demonstrate early signs of recovery and our first quarter has historically been our least profitable quarter. Our key selling season is May through October and I believe our inventory assortment is well positioned. We achieved several key objectives in the first quarter despite financial challenges:

• Top line sales potential for the remainder of the year as comparable store sales declined 7.9% and online sales grew 28.3%. Comparable store sales are essentially flat so far in the second quarter and we continue to expect to achieve positive comparable store sales for 2011.
• Increased gross margin by 470 basis points due to improved production efficiency and price increases. First quarter 2011 gross margin was negatively affected by significant year over year yarn price increases; recently yarn prices are declining.
• Operating expenses were lower by $2.2 million after normalizing for the effects of store closings and impairment charges and an increase in professional fees. We intend to further reduce operating expenses as we increase distribution efficiency, increase the productivity of our sales associates and manage other variable expenses.
• Improved financial flexibility through completion of a $14.2 million equity financing at $0.90 per share. As outlined below, investors in the financing have an option to invest another $26.8 million at $0.90 per share over the next six months. Additional capital will further enhance financial flexibility and enable the Company to accelerate key investments in stores technology and distribution.

As worker efficiency improves, store productivity increases and cotton prices decline, I believe we are on a journey to restore historic levels of profitability."

Financial Review

American Apparel reported net sales for the quarter ending March 31, 2011 of $116.1 million, a 4.7% decline over sales of $121.8 million for the quarter ended March 31, 2010. Total retail net sales declined 8.2% to $72.7 million for the first quarter of 2011 as compared to $79.2 million for the same period in 2010, with comparable store sales declining 8% on a constant currency basis.

The Company ended the quarter with 258 stores, a reduction of 15 stores in the first quarter. Total wholesale net sales declined 4.3% to $33.4 million for the first quarter of 2011 compared to $34.9 million for the first quarter of 2010. The Company's results in its U.S. wholesale channel reflect its efforts to expand the reach of its sales force, after losing a key distributor in late 2010 and it is performing ahead of its sales plan in the wholesale channel.

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