Sales up 13% at American Apparel in Q2

The gross margin reduction was due to planned promotional activities, the effect of "warehouse-type" clearance sales as a part of our overall inventory reduction strategy and the negative impact of the strengthening US dollar on margins from our international segment. Partially offsetting these impacts was a shift in mix to higher margin retail sales in the 2012 second quarter.

As a percent of revenue, operating expenses for the quarter decreased 500 basis points to 53% from 58% for the second quarter 2011. Included in operating expense in the 2012 second quarter was a combined $5.8 million in depreciation and retail store impairment charges versus $7.4 million in the second quarter of 2011.

After excluding the effects of store impairment and depreciation charges between the quarterly periods, there was a 300 basis point decrease in operating expenses as a percent of net revenues. The decrease was primarily due to a reduction in corporate overhead expenses and the fixed cost leverage as a result of increased sales.

Other expense for the second quarter of 2012 was $13.4 million versus other income of $5.5 million in the comparable quarter last year. The change of $18.9 million was primarily due to the unrealized gain on change in the fair value of warrants and purchase rights in the second quarter of 2011 and increased interest expense associated with our asset-based loan.

The second quarter 2012 net loss included an income tax provision of $1.1 million versus $0.5 million in the 2011 second quarter. In accordance with U.S. GAAP, the Company does not recognize potential tax benefits associated with current operating losses. As of June 30, 2012, the Company has available Federal net operating carry forwards of approximately $75.7 million and unused Federal and State tax credits of $16.2 million.

Net loss for the second quarter of 2012 was $15.3 million, or $0.14 per common share, compared to net loss for the second quarter of 2011 of $0.2 million or $0.00 per common share. Weighted average shares outstanding were 105.9 million in the second quarter of 2012 versus 89.1 million for the second quarter of 2011.

As of August 1, 2012 there were approximately 106.2 million shares outstanding.

2012 Outlook

For 2012, the Company is raising its adjusted EBITDA outlook to $36 to $44 million from the prior estimate of $32 million to $40 million. This outlook assumes net sales of $604 million to $611 million and a gross profit margin of 53% to 54%. Capital expenditures are estimated at $13.7 million for 2012.

American Apparel is a vertically integrated manufacturer, distributor, and retailer of branded fashion basic apparel based in downtown Los Angeles, California. 

American Apparel Inc