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First quarter a least profitable quarter for American Apparel

11 May '11

5 min read

Online consumer net sales increased 28.3% to $10.0 million for the first quarter of 2011 compared to $7.8 million for the first quarter of 2010. Retail sales were impacted by the effect of store closures and comparable store sales were negatively impacted by the shift of the Easter holiday to late April. Sales performance in the online consumer sales channel showed substantial growth from significant improvements to the Company's website and improvements made in order fulfillment.

Gross margin for the first quarter of 2011 was 55.1% as compared to 50.4% in last year's first quarter. Gross margin increases reflect the benefit of improving production efficiency beginning in the second half of 2010. Although the Company was impacted by higher yarn and fabric costs it raised average unit retail prices in order to mitigate the effect of raw material cost increases.

Operating expenses for the first quarter of 2011 were $77.0 million, or 66.3% of net sales, as compared to $82.9 million, or 68.0% of net sales for the prior year period. Operating expenses were favorably impacted by $2.4 million as a result of 22 fewer stores in the period end store base and a reduction of $3.6 million in store impairment charges between periods.

Additionally, a $2.3 million increase in professional service fees in the 2011 first quarter, primarily related to a change in the Company's independent public accounting firm, were partially offset by a $0.9 million decrease in marketing expenses, a $0.5 million decrease in payroll and related expenses, and a $0.3 million decreases in depreciation and facilities-related expenses.

The Company reported a loss from operations for the first quarter of 2011 of $13.1 million versus an operating loss of $21.6 million in the prior year first quarter.

Interest expense for the first quarter of 2011 increased to $7.1 million from $5.0 million in the first quarter of 2010 due to higher borrowing levels under the Company's credit facilities and a higher interest rate charged on its credit facility with Lion Capital.

The provision for income taxes of $0.4 million primarily reflects the effect of the Company no longer recording the tax benefit for its pre-tax losses. The Company continues to maintain reserves against a majority of its deferred tax assets.

The net loss for the first quarter of 2011 was $20.7 million, or $0.28 per common share, compared to net loss for the first quarter of 2010 of $42.8 million, or $0.60 per common share.

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American Apparel Inc

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