May 10, 2012

American Apparel, Inc. Reports First Quarter 2012 Financial Results and Reaffirms Outlook for Full Year 2012

LOS ANGELES--(BUSINESS WIRE)-- American Apparel, Inc. (NYSE Amex: APP), a vertically integrated manufacturer, distributor, and retailer of branded fashion-basic apparel, announced financial results for its first quarter ended March 31, 2012.

John Luttrell, Chief Financial Officer of American Apparel, Inc. stated, "We are pleased with our first quarter results and solid improvements across all of our businesses. Our wholesale and online channels both reported record sales for the quarter, and we are highly encouraged by the continued momentum in comparable sales from our retail stores, both domestic and international. Though the first quarter is historically our slowest quarter of the year, significant sales growth and the related leveraging of fixed costs helped us meaningfully reduce our EBITDA loss. We expect key initiatives in the areas of merchandise planning, supply chain, IT systems, and inventory control to drive further sales and expense improvements for the balance of the year. Accordingly, we reiterate our adjusted EBITDA guidance of $32 to $40 million for the full year 2012."

Comparing the first quarter 2012 to the corresponding period last year, net sales increased 14% to $132.7 million on a 16% increase in comparable store sales in the retail business, a 17% increase in net sales in the wholesale business and a 5% decrease in the average number of stores.

The following delineates the components of the increases for the quarterly period ended March 31, 2012 and March 31, 2011 as compared to the corresponding quarter of the prior year:

               
          2012 First Quarter         2011 First Quarter
Comparable Store Sales         14%         -8%
Comparable Online Sales         25%         27%
Comparable Store & Online         16%         -5%
Wholesale Net Sales         17%         -4%
 

Gross margin for the first quarter of 2012 was 52.8% versus 54.8% for the corresponding period last year. The decrease in gross margin was primarily driven by lower production volume that resulted in lower absorption of our fixed overhead costs, partially offset by lower yarn costs.

As a percent of revenue, operating expenses for the first quarter of 2012 decreased 590 basis points to 60.2% from 66.1% for the first quarter of 2011. The decrease was primarily due to a reduction in corporate overhead expenses and the fixed cost leverage as a result of increased sales.

Other income for the first quarter of 2012 was $2.2 million versus an expense of $7.3 million in the comparable quarter last year. The change of $9.5 million was primarily due to a gain on extinguishment of debt, offset by increased interest expense due to a higher balance of outstanding debt.

The first quarter of 2012 net loss included an income tax provision of $0.3 million versus $0.4 million in the first quarter of 2011. In accordance with U.S. GAAP, the Company has discontinued recognizing potential tax benefits associated with current operating losses. As of March 31, 2012, the Company had available Federal net operating loss carry forwards of approximately $75.7 million and unused Federal and State tax credits of $16.2 million.

Net loss for the first quarter of 2012 was $7.9 million, or $0.07 per common share, compared to net loss for the first quarter of 2011 of $20.7 million, or $0.28 per common share. Weighted average shares outstanding were 105.7 million in the first quarter of 2012 versus 74.1 million for the first quarter of 2011. As of May 1, 2012 there were approximately 105.9 million shares outstanding.

Consolidated Adjusted EBITDA loss narrowed to $2.1 million from a loss of $4.9 million in 2011's first quarter. For a reconciliation of consolidated adjusted EBITDA, a non-GAAP financial measure, to consolidated net loss, please refer to the Table A attached to this press release.

2012 Outlook

For 2012, the Company is reiterating its adjusted EBITDA outlook of $32 million to $40 million. This outlook assumes net sales of $570 million to $590 million and a gross profit margin of 54% to 55%. Capital expenditures are estimated at $15.9 million for 2012, with a modest number of new store openings.

Today's Conference Call

The company will conduct a conference call for investors at 1:30 p.m. PT today to discuss first quarter 2012 results and its outlook for the full year 2012. The conference call will be in a "listen-only" mode for all participants other than the sell-side and buy-side investment professionals who regularly follow the Company. The toll-free phone number for the call is (800) 706-7745 or (617) 614-3472 and the access code is 21133882. Callers should dial in approximately 15 minutes prior to the scheduled start time. A telephonic replay will be available at (888) 286-8010 or (617) 801-6888, access code: 15809078, from 3:30 p.m. PT Thursday, May 10, 2012 to 11:59 p.m. PT on Thursday, May 24, 2012. Investors may also access the live call or the replay over the internet at: http://media-server.com/m/p/e87nuho6 or http://investors.americanapparel.net.

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 31, 2012, American Apparel had approximately 10,000 employees and operated 249 retail stores in 20 countries, including the United States, Canada, Mexico, Brazil, United Kingdom, Ireland, Austria, Belgium, France, Germany, Italy, 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.net.

Safe Harbor Statement

This press release, and other statements that the Company may make, may contain forward-looking statements. Forward-looking statements are statements that are not historical facts and include statements regarding, among other things, the Company's future financial condition, results of operations and plans and the Company's prospects and strategies for future growth and cost savings. Such forward-looking statements are based upon the current beliefs and expectations of American Apparel's 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: the ability to generate sufficient liquidity for operations and debt service; changes in the level of consumer spending or preferences or demand for the Company's products; increasing competition, both in the U.S. and internationally; the evolving nature of the Company's business; the Company's ability to hire and retain key personnel and the Company's relationship with its employees; suitable store locations and the Company's ability to attract customers to its stores; the availability of store locations at appropriate terms and the Company's ability to identify and negotiate new store locations effectively and to open new stores and expand internationally; effectively carrying out and managing the Company's strategy, including growth and expansion both in the U.S. and internationally; disruptions in the global financial markets; failure to maintain the value and image of the Company's brand and protect its intellectual property rights; declines in comparable store sales and wholesale revenues; financial nonperformance by the Company's wholesale customers; the adoption of new accounting pronouncements or changes in interpretations of accounting principles; seasonality of the business; consequences of the Company's significant indebtedness, including the Company's relationships with its lenders and the Company's ability to comply with its debt agreements, including the risk of acceleration of borrowings thereunder as a result of noncompliance; the Company's ability to generate cash flow to service its debt; the Company's liquidity and losses from operations; the Company's ability to develop and implement plans to improve its operations and financial position; costs of materials and labor, including increases in the price of yarn and the cost of certain related fabrics; the Company's ability to pass on the added cost of raw materials to its wholesale and retail customers; the Company's ability to improve manufacturing efficiency at its production facilities; the Company's ability to effectively manage inventory and inventory reserves; location of the Company's facilities in the same geographic area; manufacturing, supply or distribution difficulties or disruptions; risks of financial nonperformance by customers; investigations, enforcement actions and litigation, including exposure from which could exceed expectations; compliance with or changes in U.S. and foreign government laws and regulations, legislation and regulatory environments, including environmental, immigration, labor and occupational health and safety 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 including disruption of markets and foreign supply sources and changes in import and export laws; technological changes in manufacturing, wholesaling, or retailing; the Company's ability to upgrade its information technology infrastructure and other risks associated with the systems that are used to operate the Company's online retail operations and manage the Company's other operations; adverse changes in its credit ratings and any related impact on financing costs and structure; general economic and industry conditions, including U.S. and worldwide economic conditions; disruptions due to severe weather or climate change; and other risks detailed in the Company's filings with the Securities and Exchange Commission, including the Company's Annual Report on Form 10-K for the year ended December 31, 2011. The Company's 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 STATEMENT OF OPERATIONS
(Amounts in thousands, except per share amounts)
(unaudited)
           
Three Months Ended March 31,
2012     2011
Net sales $ 132,660 $ 116,067
 
Cost of sales   62,604     52,429  
 
Gross profit 70,056 63,638
 
Operating expenses   79,851     76,729  
 
Loss from operations (9,795 ) (13,091 )
 
Interest expense 9,553 7,131
Foreign currency transaction gain (950 ) (811 )

 

Unrealized loss (gain) on change in fair value of warrants

651 (2,100 )
(Gain) loss on extinguishment of debt (11,588 ) 3,114
Other expense (income)   128     (36 )
 
Loss before income taxes (7,589 ) (20,389 )
Income tax provision 302 356
   
Net Loss $ (7,891 ) $ (20,745 )
 
 
 
Basic and diluted loss per share $ (0.07 ) $ (0.28 )
Weighted average basic and diluted
shares outstanding 105,707 74,143
 
 

AMERICAN APPAREL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)

(unaudited)

 
      March 31, 2012     December 31, 2011
ASSETS
CURRENT ASSETS
Cash $ 7,302 $ 10,293
Trade accounts receivable, net of allowances 19,881 20,939
Prepaid expenses and other current assets 9,409 7,631
Inventories, net 186,834 185,764
Restricted cash 6,802 -
Income taxes receivable and prepaid income taxes 5,473 5,955
Deferred income taxes, net of valuation allowance   136     148  
Total current assets 235,837 230,730
 
PROPERTY AND EQUIPMENT, net 65,291 67,438
DEFERRED INCOME TAXES, net of valuation allowance 1,483 1,529
OTHER ASSETS, net   28,776     25,024  
TOTAL ASSETS $ 331,387   $ 324,721  
 

LIABILITIES AND STOCKHOLDERS' EQUITY

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