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LOS ANGELES, Mar 17, 2009 (BUSINESS WIRE) -- American Apparel, Inc. (NYSE Alternext US: APP) , a vertically integrated manufacturer, distributor, and retailer of branded fashion basic apparel, today announced its financial results for the fourth quarter of 2008 and for the year ended December 31, 2008.
American Apparel reported net sales for the quarter ended December 31, 2008 of $145.6 million, a 31.0% increase over sales of $111.2 million for the quarter ended December 31, 2007. Total retail sales increased 52.7% to $98.0 million for the fourth quarter of 2008 as compared to $64.2 million for the same period in 2007, with comparable store sales for stores open at least 12 months rising 11%. American Apparel ended the quarter with 260 stores, having added 32 net new stores in the period. Total wholesale sales excluding online consumer sales were $36.3 million for the 2008 fourth quarter as compared to $37.3 million for the 2007 fourth quarter, a decrease of 2.8%. Online consumer sales increased 17.6% to $11.4 million in the fourth quarter of 2008 versus $9.7 million for the fourth quarter of 2007.
Gross margin for the fourth quarter of 2008 was 55.4% versus 54.0% for the prior year fourth quarter. Gross margin was favorably impacted by the growth in retail sales from expansion of the U.S. Retail, Canada and International business segments, which generate a higher gross margin than the company's U.S. Wholesale business segment.
Operating expenses for the fourth quarter of 2008 decreased to 49.1% of net sales, versus 53.4% for the fourth quarter of 2007. Pre-opening expenses for retail stores were $3.6 million in the fourth quarter of 2008, versus $1.6 million in the prior year fourth quarter.
Operating income for the fourth quarter of 2008 was $9.2 million, versus $0.6 million in the prior year fourth quarter. Operating margin for the fourth quarter of 2008 was 6.3%, versus 0.6% in the fourth quarter 2007.
Interest expense for the fourth quarter 2008 decreased to $3.6 million from $4.4 million in the fourth quarter 2007. The decrease in interest expense was due to a decrease in the LIBOR rate on which the company's floating rate debt is based.
The company's effective tax rate in the fourth quarter of 2008 was 35.1%.
Net income for the fourth quarter of 2008 was $3.9 million, or $0.05 per diluted share. Net income for the fourth quarter of 2007 was $3.0 million, or $0.06 per diluted share.
For the full year ended December 31, 2008, American Apparel reported consolidated net sales of $545.1 million, a 40.8% increase over sales of $387.0 million for the year ended December 31, 2007. Total retail sales increased 61.8% to $341.3 million for 2008 as compared to $211.0 million for 2007. At December 31, 2008, American Apparel operated 260 stores as compared to 182 stores at December 31, 2007. Comparable store sales for stores open longer than 12 months increased 22% for the year. Total wholesale sales excluding online consumer sales for the year ended December 31, 2008 were $164.4 million as compared to $150.7 million for the year ended December 31, 2007, an increase of 9.1%. Online consumer sales increased 55% to $39.4 million for the year ended December 31, 2008 versus $25.4 million for the year ended December 31, 2007.
Gross margin for the year ended December 31, 2008 was 54.9% versus 55.7% for the year ended December 31, 2007, including the impact of a $13.2 million stock based compensation expense booked to cost of sales in 2008 related to the grant of 1.9 million shares of stock to manufacturing workers pursuant to the merger agreement between Endeavor Acquisition Corp. and American Apparel, Inc.. The stock based compensation expense negatively impacted 2008 gross margin by approximately 240 basis points. Gross margin was favorably impacted by the growth in retail sales from expansion of the U.S. Retail, Canada and International business segments, which generate a higher gross margin than the company's U.S. Wholesale business segment.
Operating expenses for the year ended December 31, 2008 increased to 48.3% of net sales, versus 47.6% for the year ended December 31, 2007. Operating expenses increased due to higher payroll, rent and occupancy expense related to the growth in the number of retail stores from 182 as of December 31, 2007 to 260 as of December 31, 2008. Pre-opening expenses for retail stores were $10.3 million for the year ended December 31, 2008 versus $5.3 million for the year ended December 31, 2007. Operating expenses were also higher due to an increase in corporate expense of approximately $7.5 million, related primarily to an increase in accounting and professional fees as a result of American Apparel operating as a public company in 2008.
Operating income for the year ended December 31, 2008 was $36.1 million, versus $31.1 million for the year ended December 31, 2007. Operating margin for the year ended December 31, 2008 was 6.6%, versus 8.0% for the year ended December 31, 2007. The operating margin for 2008 includes the 240 basis point reduction in margin from the stock based compensation expense.
Interest expense for the year ended December 31, 2008 decreased to $13.9 million from $17.5 million in for the year ended December 31, 2007. The decrease in interest expense was due to a decrease in the LIBOR rate on which the company's floating rate debt is based, and lower average balances under the company's various credit facilities over the course of the year.
The company's effective tax rate for the year ended December 31, 2008 was 34.0%.
Net income for the full year ended December 31, 2008 was $14.1 million ($22.9 million adjusted for the merger related stock based compensation expense), versus $15.5 million in 2007. Diluted earnings per share for 2008 was $0.20 ($0.33 adjusted for the merger related stock based compensation expense), versus diluted earnings per share of $0.31 in 2007.
Dov Charney, Chairman and Chief Executive Officer, stated: "2008 marked a year of great accomplishments for American Apparel. In addition to opening very promising stores in a large number of new markets, we were very pleased to have achieved the EPS and EBITDA guidance that we outlined as targets a year ago. Now with key parts of our management team starting to take shape, our capital structure resolved, and a sophisticated financial partner at our side in Lion Capital, I strongly believe that our company is better positioned than at any time in its history to succeed and deliver on the great potential of the American Apparel brand."
For 2009, to date the company has opened five new store locations and has 9 more locations under signed leases which are currently in development. For the year, the company currently expects it will open a total of 25 to 30 new stores.
The company expects consolidated net sales for 2009 in the range of $575 to $600 million, and income from operations in the range of $55 to $65 million. The company expects depreciation and amortization for the year of approximately $25 million.
Please refer to the tables attached to this press release:
About American Apparel
American Apparel is a vertically integrated manufacturer, distributor, and retailer of branded fashion basic apparel based in downtown Los Angeles, California. As of March 15, 2009, American Apparel employed approximately 10,000 people and operated more than 260 retail stores in 19 countries, including the United States, Canada, Mexico, Brazil, United Kingdom, Austria, Belgium, France, Germany, Italy, the Netherlands, Spain, Sweden, Switzerland, Israel, Australia, Japan, South Korea, and China. American Apparel also operates a leading wholesale business that supplies high quality T-shirts and other casual wear to distributors and screen printers. In addition to its retail stores and wholesale operations, American Apparel operates an online retail e-commerce website at http://www.americanapparel.com.
Safe Harbor Statement
This press release may contain forward-looking statements which are based upon the current beliefs and expectations of our management, but are subject to risks and uncertainties, which could cause actual results and/or the timing of events to differ materially from those set forth in the forward-looking statements, including, among others: changes in the level of consumer spending or preferences or demand for our products; increasing competition; our ability to hire and retain key personnel and our relationship with our employees; suitable store locations and our ability to attract customers to our stores; effectively carrying out and managing our growth strategy; failure to maintain the value and image of our brand and protect our intellectual property rights; declines in comparable store sales; seasonality; consequences of our significant indebtedness, including our ability to comply with our debt agreements, generate cash flow to service our debt; our ability to extend, renew or refinance our existing debt; costs of materials and labor; location of our facilities in the same geographic area; manufacturing, supply or distribution difficulties or disruptions; risks of financial nonperformance by customers; investigations, enforcement actions and litigation; compliance with or changes in laws and regulations; costs as a result of operating as a public company; material weaknesses in internal controls; interest rate and foreign currency risks; loss of U.S. import protections or changes in duties, tariffs and quotas and other risks associated with international business; our ability to upgrade our information technology infrastructure and other risks associated with the systems that operate our online retail operations; general economic and industry conditions, including worsening U.S. and foreign economic conditions and turmoil in the financial markets; and other risks detailed in our filings with the Securities and Exchange Commission, including our 2008 Annual Report on Form 10-K. Our filings with the SEC are available at www.sec.gov. You are urged to consider these factors carefully in evaluating the forward-looking statements herein and are cautioned not to place undue reliance on such forward-looking statements, which are qualified in their entirety by this cautionary statement. The forward-looking statements speak only as of the date on which they are made and the company undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.
| AMERICAN APPAREL, INC. AND SUBSIDIARIES | |||||||||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF INCOME | |||||||||||||||
(Amounts in thousands, except per share amounts) | |||||||||||||||
| Three Months Ended December 31, | Year Ended December 31, | ||||||||||||||
| 2008 | 2007 | 2008 | 2007 | ||||||||||||
| (unaudited) | (unaudited) | ||||||||||||||
| NET SALES | $ | 145,644 | $ | 111,191 | $ | 545,050 | $ | 387,044 | |||||||
| COST OF SALES (including share-based compensation of $12,102 for the year ended December 31, 2008) | 64,970 | 51,136 | 245,935 | 171,571 | |||||||||||
| GROSS PROFIT | 80,674 | 60,055 | 299,115 | 215,473 | |||||||||||
| OPERATING EXPENSES (including share-based compensation of $530 for the year ended December 31, 2008 and related party charges of $155 and $5,000 for the three months ended December 31, 2008 and 2007, respectively, and $619 and $6,111 for the years ended December 31, 2008 and 2007, respectively) | 71,445 | 59,419 | 263,051 | 184,351 | |||||||||||
| INCOME FROM OPERATIONS | 9,229 | 636 | 36,064 | 31,122 | |||||||||||
| INTEREST AND OTHER (INCOME) EXPENSE | |||||||||||||||
| Interest expense (including related party interest expense of $75 and $342 for the three months ended December 31, 2008 and 2007, respectively, and $346 and $1,633 for the for the years ended December 31, 2008 and 2007, respectively) | 3,647 | 4,392 | 13,921 | 17,541 | |||||||||||
| Foreign currency transaction (gain) loss | (426 | ) | (1,175 | ) | 621 | (722 | ) | ||||||||
| Other expense (income) | 22 | 101 | 155 | (980 | ) | ||||||||||
| TOTAL INTEREST AND OTHER EXPENSE | 3,243 | 3,318 | 14,697 | 15,839 | |||||||||||
| INCOME (LOSS) BEFORE INCOME TAXES | 5,986 | (2,682 | ) | 21,367 | 15,283 | ||||||||||
| INCOME TAX PROVISION (BENEFIT) | 2,102 | (5,677 | ) | 7,255 | (195 | ) | |||||||||
| NET INCOME | $ | 3,884 | $ | 2,995 | $ | 14,112 | $ | 15,478 | |||||||
| Basic earnings per share | $ | .05 | $ | .06 | $ | .20 | $ | .32 | |||||||
| Diluted earnings per share | $ | .05 | $ | .06 | $ | .20 | $ | .31 | |||||||
| Weighted average basic shares outstanding | 70,787 | 50,374 | 69,490 | 48,890 | |||||||||||
| Weighted average diluted shares outstanding | 71,614 | 52,451 | 70,317 | 49,414 | |||||||||||
| PRO FORMA COMPUTATION RELATED TO CONVERSION TO C CORPORATION FOR INCOME TAX PURPOSES | (unaudited) | (unaudited) | |||||||||||||
| Historical income before income taxes | $ | (2,682 | ) | $ | 15,283 | ||||||||||
| Pro forma provision for income taxes | (1,022 | ) | 5,826 | ||||||||||||
| Pro forma net income | $ | (1,660 | ) | $ | 9,457 | ||||||||||
| Pro forma basic earnings per share | $ | (.03 | ) | $ | .19 | ||||||||||
| Pro forma diluted earnings per share | $ | (.03 | ) | $ | .19 | ||||||||||
| AMERICAN APPAREL, INC. AND SUBSIDIARIES | |||||||
| CONSOLIDATED BALANCE SHEETS | |||||||
(Amounts in thousands, except per share amounts) | |||||||
| December 31, 2008 | December 31, 2007 | ||||||
| ASSETS | |||||||
| CURRENT ASSETS | |||||||
| Cash | $ | 11,368 | $ | 19,292 | |||
| Trade accounts receivable, net of allowances of $1,441 and $1,876 at December 31, 2008 and 2007, respectively | 16,439 | 16,602 | |||||
| Other receivables | 1,438 | 1,120 | |||||
| Prepaid expenses and other current assets | 3,931 | 4,498 | |||||
| Inventories, net | 148,154 | 106,434 | |||||
| Deferred taxes, current portion | 5,628 | 4,894 | |||||
| Total Current Assets | 186,958 | 152,840 | |||||
| PROPERTY AND EQUIPMENT, net | 112,408 | 64,868 | |||||
| INTANGIBLE ASSETS, net | 10,086 | 2,286 | |||||
| GOODWILL | 1,906 | 950 | |||||
| DEFERRED TAXES | 8,444 | 3,146 | |||||
| OTHER ASSETS | 13,203 | 9,260 | |||||
| TOTAL ASSETS | $ | 333,005 | $ | 233,350 | |||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||
| CURRENT LIABILITIES | |||||||
| Cash overdraft | $ | 2,413 | $ | 2,778 | |||
| Current portion of long-term debt | 1,380 | 99,930 | |||||
| Accounts payable | 32,731 | 15,451 | |||||
| Accrued expenses | 26,289 | 21,877 | |||||
| Income taxes payable | 8,855 | 7,300 | |||||
| Current portion of capital lease obligations | 2,616 | 3,384 | |||||
| Total Current Liabilities | 74,284 | 150,720 | |||||
| LONG-TERM DEBT, net of current portion | 99,988 | 642 | |||||
| SUBORDINATED NOTES PAYABLE TO RELATED PARTIES | 3,292 | 6,036 | |||||
| CAPITAL LEASE OBLIGATIONS, net of current portion | 1,986 | 4,066 | |||||
| DEFERRED RENT | 17,043 | 10,065 | |||||
| TOTAL LIABILITIES | 196,593 | 171,529 | |||||
| COMMITMENTS AND CONTINGENCIES | |||||||
| STOCKHOLDERS' EQUITY | |||||||
| Preferred stock, $.0001 par value, authorized 1,000 shares; none issued | -- | -- | |||||
| Common stock, $.0001 par value, authorized 120,000 shares; 72,221 issued and 70,787 outstanding at December 31, 2008 and 57,595 issued and outstanding at December 31, 2007 | 7 | 6 | |||||
| Additional paid-in capital | 131,252 | 57,162 | |||||
| Accumulated other comprehensive (loss) income | (2,703 | ) | 865 | ||||
| Retained earnings | 17,900 | 3,788 | |||||
| 146,456 | 61,821 | ||||||
| Less: Treasury stock, 1,434 shares at cost | (10,044 | ) | -- | ||||
| TOTAL STOCKHOLDERS' EQUITY | 136,412 | 61,821 | |||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 333,005 | $ | 233,350 | |||
| AMERICAN APPAREL, INC. AND SUBSIDIARIES | ||||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
(Dollars in thousands) | ||||||||
| 2008 | 2007 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Cash received from customers | $ | 544,062 | $ | 386,931 | ||||
| Cash paid to suppliers, employees and others | (499,184 | ) | (372,595 | ) | ||||
| Income taxes paid | (11,351 | ) | (3,247 | ) | ||||
| Interest paid | (12,194 | ) | (17,533 | ) | ||||
| Other | (162 | ) | 1,006 | |||||
| Net cash provided by (used in) operating activities | 21,171 | (5,438 | ) | |||||
| CASH FLOWS USED IN INVESTING ACTIVITIES | ||||||||
| Capital expenditures | (68,650 | ) | (22,195 | ) | ||||
| Purchase of net assets under business acquisition | (3,500 | ) | (1,600 | ) | ||||
| Net cash used in investing activities | (72,150 | ) | (23,795 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Cash overdraft from financial institution, net | (288 | ) | (1,212 | ) | ||||
| Borrowings (repayments) under revolving credit facility, net | 1,381 | (2,659 | ) | |||||
| Deferred financing costs paid | (4,139 | ) | (1,630 | ) | ||||
| Advances to stockholders, net | -- | (21,594 | ) | |||||
| Proceeds from exercise of Warrants | 65,619 | 1,200 | ||||||
| Purchase of treasury stock | (10,044 | ) | -- | |||||
| Repurchase of common stock for payment of payroll tax withholding on stock-based compensation | (5,174 | ) | -- | |||||
| Cash acquired in reverse Merger | -- | 123,000 | ||||||
| Buy out of Sang Ho Lim | -- | (67,903 | ) | |||||
| Payment of merger-related costs | -- | (1,003 | ) | |||||
| Borrowings of notes payable to related party | 2,500 | 4,732 | ||||||
| Repayment of notes payable to related parties | -- | (6,804 | ) | |||||
| Borrowings under notes payable to unrelated parties | 966 | 2,118 | ||||||
| Repayment under notes payable to unrelated parties | (1,336 | ) | (8,288 | ) | ||||
| (Repayments of) borrowings under subordinated note payable to related party | (4,580 | ) | (360 | ) | ||||
| (Repayment of) borrowing under subordinated note payable to unrelated party | -- | (14,201 | ) | |||||
| Borrowings under term loans and notes payable | -- | 51,386 | ||||||
| Repayment of term loans and notes payable | -- | (8,685 | ) | |||||
| Repayment of capital lease obligations | (3,734 | ) | (3,567 | ) | ||||
| Net cash provided by financing activities | 41,171 | 44,530 | ||||||
| EFFECT OF FOREIGN EXCHANGE RATE ON CASH | 1,884 | 215 | ||||||
| NET (DECREASE) INCREASE IN CASH | (7,924 | ) | 15,512 | |||||
| CASH, beginning of period | 19,292 | 3,780 | ||||||
| CASH, end of period | $ | 11,368 | $ | 19,292 | ||||
| RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES | ||||||||
| Net income (loss) | $ | 14,112 | $ | 15,478 | ||||
| Depreciation and amortization | 20,844 | 13,306 | ||||||
| Imputed interest on stockholder loans | -- | 577 | ||||||
| Stock-based compensation | 12,625 | -- | ||||||
| Impairment charge | 644 | 252 | ||||||
| Foreign currency transaction loss (gain) | 621 | (722 | ) | |||||
| Inventory (recovery) reserve | (1,731 | ) | 537 | |||||
| Bad debt expense (recovery) | 598 | (313 | ) | |||||
| Deferred taxes | (6,212 | ) | (6,913 | ) | ||||
| Deferred rent | 7,746 | 2,594 | ||||||
| Changes in cash due to changes in operating assets and liabilities | ||||||||
| Trade accounts receivables | (816 | ) | (499 | ) | ||||
| Other receivables | (374 | ) | -- | |||||
| Inventories | (44,630 | ) | (22,158 | ) | ||||
| Prepaid expenses and other current assets | (2 | ) | (2,298 | ) | ||||
| Other assets | (8,053 | ) | (1,714 | ) | ||||
| Accounts payable | 17,482 | (15,835 | ) | |||||
| Accrued expenses | 6,196 | 8,503 | ||||||
| Income taxes payable | 2,121 | 3,767 | ||||||
| Net cash provided by (used in) operating activities | $ | 21,171 | $ | (5,438 | ) | |||
| NON-CASH INVESTING AND FINANCING ACTIVITIES | ||||||||
| Property and equipment acquired under capital leases | $ | 1,092 | $ | 4,614 | ||||
| Liabilities assumed under Endeavor Acquisition | -- | 1,411 | ||||||
| Reclassification of advances to stockholders | -- | 553 | ||||||
| Issuance of warrants to lender | 1,021 | -- | ||||||
| AMERICAN APPAREL, INC. AND SUBSIDIARIES | ||||||||||||||||||
| BUSINESS SEGMENT INFORMATION | ||||||||||||||||||
(Amounts in thousands) | ||||||||||||||||||
The following table presents key financial information for the Company's business segments: | ||||||||||||||||||
Three Months Ended December 31, 2008 | ||||||||||||||||||
(unaudited) | ||||||||||||||||||
| U.S. Wholesale | U.S. Retail | Canada | International | Consolidated | ||||||||||||||
| Net sales to external customers | $ | 38,003 | $ | 49,815 | $ | 18,731 | $ | 39,095 | $ | 145,644 | ||||||||
| Gross profit | 30,905 | 37,892 | 6,211 | 5,665 | 80,673 | |||||||||||||
| Income (loss) from operations | 25,973 | 9,153 | (1,546 | ) | (15,669 | ) | 17,911 | |||||||||||
| Depreciation and amortization | 2,051 | 2,286 | 1,000 | 1,193 | 6,530 | |||||||||||||
| Capital expenditures | 5,391 | 9,454 | 1,513 | 3,718 | 20,076 | |||||||||||||
| Deferred rent expense | 200 | 1,350 | 2 | 609 | 2,161 | |||||||||||||
| Three Months Ended December 31, 2007 | ||||||||||||||||||
(unaudited) | ||||||||||||||||||
| U.S. Wholesale | U.S. Retail | Canada | International | Consolidated | ||||||||||||||
| Net sales to external customers | $ | 38,012 | $ | 35,204 | $ | 12,173 | $ | 25,802 | $ | 111,191 | ||||||||
| Gross profit | 7,892 | 26,470 | 7,453 | 18,240 | 60,055 | |||||||||||||
| Income (loss) from operations | 1,694 | 8,359 | (1,504 | ) | 3,387 | 11,936 | ||||||||||||
| Depreciation and amortization | 1,272 | 1,203 | 738 | 791 | 4,004 | |||||||||||||
| Capital expenditures | 2,993 | 4,175 | 1,166 | 3,753 | 12,087 | |||||||||||||
| Deferred rent (benefit) expense | (43 | ) | 514 | 59 | 461 | 991 | ||||||||||||
| For the Year Ended December 31, 2008 | ||||||||||||||||||
| U.S. Wholesale | U.S. Retail | Canada | International | Consolidated | ||||||||||||||
| Net sales to external customers | $ | 162,668 | $ | 168,653 | $ | 67,280 | $ | 146,449 | $ | 545,050 | ||||||||
| Gross profit | 46,894 | 127,936 | 40,072 | 84,213 | 299,115 | |||||||||||||
| Income from operations | 21,020 | 33,483 | 10,754 | 7,985 | 73,242 | |||||||||||||
| Depreciation and amortization | 7,141 | 6,974 | 2,409 | 4,320 | 20,844 | |||||||||||||
| Capital expenditures | 18,326 | 30,860 | 4,701 | 18,263 | 72,150 | |||||||||||||
| Deferred rent expense | 262 | 4,042 | 321 | 3,121 | 7,746 | |||||||||||||
| For the Year Ended December 31, 2007 | ||||||||||||||||||
| U.S. Wholesale | U.S. Retail | Canada | International | Consolidated | ||||||||||||||
| Net sales to external customers | $ | 144,478 | $ | 115,615 | $ | 42,407 | $ | 84,544 | $ | 387,044 | ||||||||
| Gross profit | 40,148 | 88,833 | 27,141 | 59,351 | 215,473 | |||||||||||||
| Income from operations | 19,743 | 24,756 | 1,522 | 14,795 | 60,816 | |||||||||||||
| Depreciation and amortization | 4,927 | 4,395 | 1,983 | 2,001 | 13,306 | |||||||||||||
| Capital expenditures | 5,343 | 9,329 | 1,984 | 7,139 | 23,795 | |||||||||||||
| Deferred rent (benefit) expense | (155 | ) | 1,507 | 156 | 539 | 2,047 | ||||||||||||
| Three Months Ended December 31, | ||||||||||||||||
(unaudited) | For the Year Ended December 31, | |||||||||||||||
| 2008 | 2007 | 2008 | 2007 | |||||||||||||
| Reconciliation to Income before Income Taxes | ||||||||||||||||
| Consolidated income from operations of reportable segments | $ | 17,911 | $ | 11,936 | $ | 73,242 | $ | 60,816 | ||||||||
| Corporate expenses | (8,682 | ) | (11,300 | ) | (37,178 | ) | (29,694 | ) | ||||||||
| Interest expense | (3,647 | ) | (4,392 | ) | (13,921 | ) | (17,541 | ) | ||||||||
| Other income (expense) | (22 | ) | (101 | ) | (155 | ) | 980 | |||||||||
| Foreign currency transaction gain (loss) | 426 | 1,175 | (621 | ) | 722 | |||||||||||
| Consolidated Income (Loss) Before Income Taxes | $ | 5,986 | $ | (2,682 | ) | $ | 21,367 | $ | 15,283 | |||||||
| Three Months Ended December 31, | ||||||||||||
(unaudited) | For the Year Ended December 31, | |||||||||||
| 2008 | 2007 | 2008 | 2007 | |||||||||
| Net Sales by Class of Customer | ||||||||||||
| U.S. Wholesale | ||||||||||||
| Wholesale | $ | 30,379 | $ | 31,279 | $ | 137,185 | $ | 126,701 | ||||
| Online consumer | 7,624 | 6,733 | 25,483 | 17,777 | ||||||||
| Total | $ | 38,003 | $ | 38,012 | $ | 162,668 | $ | 144,478 | ||||
| U.S. Retail | $ | 49,815 | $ | 35,204 | $ | 168,653 | $ | 115,615 | ||||
| Canada | ||||||||||||
| Wholesale | $ | 2,957 | $ | 2,616 | $ | 12,708 | $ | 11,336 | ||||
| Retail | 15,341 | 9,141 | 52,872 | 30,068 | ||||||||
| Online consumer | 433 | 416 | 1,700 | 1,003 | ||||||||
| Total | $ | 18,731 | $ | 12,173 | $ | 67,280 | $ | 42,407 | ||||
| International | ||||||||||||
| Wholesale | $ | 2,944 | $ | 3,438 | $ | 14,510 | $ | 12,631 | ||||
| Retail | 32,829 | 19,837 | 119,749 | 65,297 | ||||||||
| Online consumer | 3,322 | 2,527 | 12,190 | 6,616 | ||||||||
| Total | $ | 39,095 | $ | 25,802 | $ | 146,449 | $ | 84,544 | ||||
| Consolidated | ||||||||||||
| Wholesale | $ | 36,280 | $ | 37,333 | $ | 164,403 | $ | 150,668 | ||||
| Retail | 97,985 | 64,182 | 341,274 | 210,980 | ||||||||
| Online consumer | 11,379 | 9,676 | 39,373 | 25,396 | ||||||||
| Total | $ | 145,644 | $ | 111,191 | $ | 545,050 | $ | 387,044 | ||||
Table A
American Apparel, Inc. and Subsidiaries
Impact
of Merger Related Stock Based Compensation Expense
(Amounts in
thousands, except per share amounts)
(unaudited)
In the third quarter of 2008, American Apparel awarded approximately 1.9 million shares of common stock to eligible manufacturing employees in accordance with the terms of the merger agreement between American Apparel, Inc. (formerly Endeavor Acquisition Corp.) and American Apparel, Inc., resulting in $13.2 million of stock based compensation expense, consisting of $12.1 million of stock based compensation expense and $1.1 million of employer related payroll taxes, in the Consolidated Financial Statements for the year ended December 31, 2008. Set forth below is certain financial information about our operating performance that excludes the impact of the stock award and the related stock based compensation expense. This information is not calculated in accordance with accounting principles generally accepted in the United States (GAAP) and should be considered in addition to, and not as a substitute for, the related GAAP measurements. We use these non-GAAP measures, along with GAAP measures, as a measure of profitability and operating performance because the adjustments allow us to compare our performance on a consistent basis by removing from our operating results the effect of the non-cash stock-based compensation expense, which may vary from period to period due to a number of factors. We believe that the presentation of the non-GAAP financial information provides investors with useful additional information regarding our financial condition and results of operations because it allows a consistent basis of comparison against our historical operating performance and guidance as well as against the operating performance of our competitors. The following reconciles each non-GAAP measure, which excludes the expenses related to the stock award, to the most directly comparable GAAP measure for the full year ended December 31, 2008:
| For the Year Ended December 31, 2008 | ||||||||||
| Stock Based | ||||||||||
| Compensation | Non-GAAP | |||||||||
| As Reported | Expense | Measurement | ||||||||
| NET SALES | $ | 545,050 | $ | 545,050 | ||||||
| COST OF SALES | 245,935 | (13,197 | ) | 232,738 | ||||||
GROSS PROFIT | 299,115 | 13,197 | 312,312 | |||||||
| OPERATING EXPENSES | 263,051 | 263,051 | ||||||||
| INCOME FROM OPERATIONS | 36,064 | 13,197 | 49,261 | |||||||
| INTEREST AND OTHER (INCOME) EXPENSE | ||||||||||
| Interest expense | 13,921 | 13,921 | ||||||||
| Foreign currency transaction loss | 621 | 621 | ||||||||
| Other expense | 155 | 155 | ||||||||
| INCOME BEFORE INCOME TAXES | 21,367 | 13,197 | 34,564 | |||||||
| INCOME TAX PROVISION | 7,255 | 4,421 | 11,676 | |||||||
| NET INCOME | $ | 14,112 | $ | 8,776 | $ | 22,888 | ||||
| Basic earnings per share | $ | .20 | $ | .13 | $ | .33 | ||||
| Diluted earnings per share | $ | .20 | $ | .13 | $ | .33 | ||||
Table B
American Apparel, Inc. and Subsidiaries
Calculation
and Reconciliation of Consolidated Adjusted EBITDA
(Amounts in
thousands)
(unaudited)
In addition to its GAAP results, American Apparel considers non-GAAP measures of its performance. EBITDA, as defined below, is an important supplemental financial measure of American Apparel's performance that is not required by, or presented in accordance with, GAAP. EBITDA represents net income (loss) before income taxes, minority interest in net income of affiliates, interest and other expense, and depreciation and amortization. American Apparel's management uses EBITDA as a financial measure to assess the ability of its assets to generate cash sufficient to pay interest on its indebtedness, meet capital expenditure and working capital requirements, pay taxes, and otherwise meet its obligations as they become due. American Apparel's management believes that the presentation of EBITDA provides useful information regarding American Apparel's results of operations because they assist in analyzing and benchmarking the performance and value of American Apparel's business. American Apparel believes that EBITDA is useful to stockholders as a measure of comparative operating performance, as it is less susceptible to variances in actual performance resulting from depreciation and amortization and more reflective of changes in pricing decisions, cost controls and other factors that affect operating performance.
EBITDA also is used by American Apparel's management for multiple purposes, including:
In addition, EBITDA is an important valuation tool used by potential investors when assessing the relative performance of American Apparel in comparison to other companies in the same industry. Although American Apparel uses EBITDA as a financial measure to assess the performance of its business, there are material limitations to using a measure such as EBITDA, including the difficulty associated with using it as the sole measure to compare the results of one company to another and the inability to analyze significant items that directly affect a company's net income (loss) or operating income because it does not include certain material costs, such as interest and taxes, necessary to operate its business. In addition, American Apparel's calculation of EBITDA may not be consistent with similarly titled measures of other companies and should be viewed in conjunction with measures that are computed in accordance with GAAP. American Apparel's management compensates for these limitations in considering EBITDA in conjunction with its analysis of other GAAP financial measures, such as net income (loss).
| Table B (cont.) | |||||||
| American Apparel, Inc. and Subsidiaries | |||||||
| Calculation and Reconciliation of Consolidated Adjusted EBITDA | |||||||
(Amounts in thousands) | |||||||
(unaudited) | |||||||
| For the Year Ended December 31, | |||||||
| 2008 | 2007 | ||||||
| (unaudited) | (unaudited) | ||||||
| Net income | $ | 14,112 | $ | 15,478 | |||
| Income taxes | 7,255 | (195 | ) | ||||
| Interest and other expense | 14,697 | 15,839 | |||||
| Depreciation and amortization | 20,844 | 13,306 | |||||
| EBITDA | 56,908 | 44,428 | |||||
| Related-party management fee | -- | 5,302 | |||||
| Stock based compensation expense | 13,197 | -- | |||||
| Adjusted EBITDA | $ | 70,105 | $ | 49,730 | |||
Table C
American Apparel, Inc. and Subsidiaries
Business
Segment Information
(Amounts in thousands)
(unaudited)
In the fourth quarter of 2008, American Apparel implemented and recorded a full year impact from changes to its intercompany transfer pricing policy which will significantly reduce the overall effective tax rate on international earnings. While the application of the updated intercompany transfer pricing policy did not change the Company's revenue or operating performance on a consolidated basis, it impacted the allocation of gross profit and operating profit amongst the U.S. Wholesale, Canada and International segments in 2008 when compared to prior years. Intercompany charges related to the transfer pricing implementation included in cost of sales of the Canadian and International segments were $5,306 and $15,750, respectively, for the year ended December 31, 2008. To provide for better comparability against previously disclosed results, set forth below is certain financial information about our operating performance that excludes the impact of changes to the intercompany transfer pricing policy.
| Three Months Ended December 31, 2008 | ||||||||||||||||||
| U.S. Wholesale | U.S. Retail | Canada | International | Consolidated | ||||||||||||||
| Net sales to external customers | $ | 38,003 | $ | 49,815 | $ | 18,731 | $ | 39,095 | $ | 145,644 | ||||||||
| Gross profit as reported | 30,905 | 37,893 | 6,211 | 5,665 | 80,674 | |||||||||||||
| Transfer pricing adjustments | (21,056 | ) | -- | 5,306 | 15,750 | -- | ||||||||||||
| Pro forma gross profit | 9,849 | 37,893 | 11,517 | 21,415 | 80,674 | |||||||||||||
| Income (loss) from operations as reported | 25,973 | 9,153 | (1,546 | ) | (15,669 | ) | 17,911 | |||||||||||
| Pro forma income from operations | 4,917 | 9,153 | 3,760 | 81 | 17,911 | |||||||||||||
| For the Year Ended December 31, 2008 | ||||||||||||||||||
| U.S. Wholesale | U.S. Retail | Canada | International | Consolidated | ||||||||||||||
| Net sales to external customers | $ | 162,668 | $ | 168,653 | $ | 67,280 | $ | 146,449 | $ | 545,050 | ||||||||
| Gross profit as reported | 46,894 | 127,936 | 40,072 | 84,213 | 299,115 | |||||||||||||
| Transfer pricing adjustments | (21,056 | ) | -- | 5,306 | 15,750 | -- | ||||||||||||
| Pro forma gross profit | 25,838 | 127,936 | 45,378 | 99,963 | 299,115 | |||||||||||||
| Income from operations as reported | 21,020 | 33,483 | 10,754 | 7,985 | 73,242 | |||||||||||||
| Pro forma (loss) income from operations | (36 | ) | 33,483 | 16,060 | 23,735 | 73,242 | ||||||||||||
SOURCE: American Apparel, Inc.
ICR
Joseph Teklits / Jean Fontana
203-682-8200
or
American Apparel
Adrian Kowalewski, 213-488-0226
Chief Financial Officer
Copyright Business Wire 2009
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