EX-99.1 2 exhibit99-1.htm PRESS RELEASE exhibit99-1.htm
Exhibit 99.1
 
 
AMERICAN APPAREL REPORTS FIRST QUARTER 2008 FINANCIAL RESULTS

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First quarter 2008 net sales of $111.6 million, up 52% over the first quarter of 2007
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EPS of $0.02 versus $0.03 in the prior year quarter
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Company maintains EPS guidance of $0.32 to $0.36 for 2008

LOS ANGELES, May 13, 2008 -- American Apparel, Inc. (Amex: APP), a vertically integrated manufacturer, distributor, and retailer of branded fashion basic apparel, today announced its financial results for the first quarter of 2008.

Net sales for the first quarter, and for the comparable period of the previous year, were as follows:
 
 
   
Three months ended March 31,
   
(Dollars in Thousands)
 
2008
   
2007
   
   
(unaudited)
   
(unaudited)
   
U.S. Wholesale sales
  $ 37,435     $ 29,392    
U.S. Retail sales
    33,124       21,217    
Canada sales
    12,163       7,140    
International sales
     28,912        15,754    
Total net sales
  $ 111,634     $ 73,503    
 
 
Total retail sales across all segments increased 65% to $63.1 million for the first quarter of 2008 as compared to $38.3 million for the same period in 2007, with same-store sales for stores open at least 12 months rising 36%. Total wholesale sales across all segments $48.5 million for the first quarter of 2008, as compared to $35.2 million for the first quarter of 2007, an increase of 38%. American Apparel ended the quarter with 186 stores, having added 4 net new stores in the period.

Gross margin in the quarter declined 280 basis points to 55.3%. The main driver in this decrease was a decline in the U.S. Wholesale gross margin to 20.6% from 38.4% in the first quarter of 2007.  Gross margin for the U.S. Wholesale segment for the full year of 2007 was 27.8%, and the company expects its gross margin for this segment to be more in line with that level for the remainder of 2008. Gross profit in the first quarter of 2008 was impacted by approximately $0.9 million in startup costs at the company’s garment dyeing and finishing facility purchased in December 2007, and $0.5 million in extra costs related to a three day production shutdown to accommodate the cutover to a new ERP system. The company also incurred additional training and startup costs relating to increased hiring to support an expansion in production capacity starting in the first quarter.

Operating expenses increased 170 basis points to 51.4% of sales, partly as a result of a shift in mix due to the growth of the company’s retail operations. Operating expenses in

 
 

 

the first quarter of 2008 were impacted by $0.4 million related to stock-based compensation payable to directors recognized in the period, $0.7 million in legal expenses incurred to defend against a wrongful termination suit, and $0.4 million in additional costs related to the relocation of the company’s Canadian headquarters and warehouse. Retail store pre-opening expenses were $1.7 million in the first quarter of 2008 versus $1.1 million in the first quarter of 2007.

Net income for the first quarter was $1.1 million versus $1.7 million in the same period a year ago, or $0.02 per diluted share versus $0.03 per diluted share a year ago.

The company reaffirmed its financial guidance for the year. The company continues to expect diluted earnings per share in the range of $0.32 to $0.36, before giving effect to a one-time non-cash stock compensation expense resulting from the company’s previously announced employee stock grant. The company currently has over 35 signed leases for retail stores in its pipeline and believes it is still in a position to open 40-45 stores in calendar 2008 as originally planned.

Dov Charney, Chairman and Chief Executive Officer, stated: "The first quarter of 2008 was a period of significant investment at American Apparel. During a quarter which is traditionally the slowest one for our business, we began a new phase of retail expansion. While significant capital outlays were made in the first quarter, we will begin to see this investment pay off in future quarters. During this period, we moved our Canadian operations to a new facility. We ramped up the new garment dye facility purchased last December. Earlier today we announced another significant acquisition of production capacity from U.S. Dyeing & Finishing. In the first quarter, we successfully went live on the first phase of our new ERP system, which should provide for production efficiencies and a more streamlined supply chain. We have also hired a number of experienced accounting professionals to bolster our internal staff, and have begun working with Moss Adams LLP to bring our internal controls in compliance with Sarbanes-Oxley. With the groundwork having been laid in the first quarter, we look forward to making 2008 another record year for American Apparel.”


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 May 10, 2008, American Apparel employed over 7,000 people and operated 187 retail stores in 15 countries, including the United States, Canada, Mexico, United Kingdom, Belgium, France, Germany, Italy, the Netherlands, Sweden, Switzerland, Israel, Australia, Japan and South Korea. American Apparel also operates a leading wholesale business that supplies 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://store.americanapparel.net.

 
 

 

Safe Harbor Statement

This press release, and other statements that American Apparel, Inc. may make, may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that are not historical facts and include statements regarding, among other things, the company's future financial condition and results of operations and the company's prospects and strategies for future growth. In some cases, you can identify forward-looking statements by words or phrases such as "trend," "potential," "opportunity," "believe," "comfortable," "expect," "anticipate," "current," "intention," "estimate," "position," "assume," "outlook," "continue," "remain," "maintain," "sustain," "seek," "achieve," and similar expressions, or future or conditional verbs such as "will," "would," "should," "could," "may" and similar expressions.

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. American Apparel cautions that forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time. Actual results could differ materially from those anticipated in forward-looking statements and future results could differ materially from historical performance. The following factors, among others, could cause actual results to differ from those set forth in forward-looking statements: business conditions, including risks associated with foreign markets, international business and online retail operations, increases in materials or labor costs and employee matters; the company's relationships with its lenders and its ability to comply with the terms of its existing credit facilities; changing interpretations of generally accepted accounting principles; changes in the overall level of consumer spending; changes in preferences in apparel or the acceptance of the company's products and the company's ability to anticipate such changes; the performance of the company's products within the prevailing retail environment; availability of store locations at appropriate terms and our ability to open new stores and expand internationally; the possibility that the company's suppliers and manufacturers may not timely produce or deliver the company's products; financial non-performance by the company's customers, primarily in the wholesale business; inquiries and investigations and related litigation; continued compliance with U.S. and foreign government regulations; legislation or regulatory environments; requirements or changes adversely affecting the business in which the company is engaged; fluctuations in customer demand; management of rapid growth; intensity of competition, both domestic and foreign, from other apparel providers; changes in key personnel; costs as a result of operating as a public company; general economic conditions; increases in interest rates; geopolitical events and regulatory changes; as well as other relevant risks detailed in the other filings that the company makes with the Securities and Exchange Commission and 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
(in Thousands, except per share amounts)
(unaudited)
 
   
Three Months Ended March 31,
 
   
2008
   
2007
 
NET SALES
  $ 111,634     $ 73,503  
COST OF SALES
    49,885       30,812  
                 
GROSS PROFIT
    61,749       42,691  
  OPERATING EXPENSES (including related party charges of $153
          and $221 for the three months ended March 31, 2008 and 2007,
          respectively)
    57,384       36,498  
                 
INCOME FROM OPERATIONS
    4,365       6,193  
                 
INTEREST AND OTHER (INCOME) EXPENSE
               
  Interest expense (including related party interest expense of $81 and
          $362 for the three months ended March 31, 2008 and 2007,
          respectively)
    3,338       3,960  
Foreign currency transaction (gain) loss
    (478 )     46  
Other income
    (212 )     (157 )
                 
TOTAL INTEREST AND OTHER INCOME
    2,648       3,849  
                 
INCOME BEFORE INCOME TAXES
    1,717       2,344  
INCOME TAX PROVISION
    613       661  
                 
NET INCOME
  $ 1,104     $ 1,683  
                 
Weighted average basic shares outstanding
    66,184       48,390  
Weighted average diluted shares outstanding
    69,492       48,390  
Basic Earnings per share
  $ 0.02     $ 0.03  
Diluted Earnings per share
  $ 0.02     $ 0.03  
 
 
 
 

 

AMERICAN APPAREL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in Thousands)
 
   
March 31,
 2008
   
December 31,
2007
 
   
(unaudited)
       
ASSETS
           
CURRENT ASSETS
           
Cash
  $ 72,927     $ 19,292  
  Trade accounts receivable, net of allowances of $1,909 and  $1,876 at March 31,
         2008 and December 31, 2007, respectively
     20,820       16,602  
Other receivables
    1,186       1,120  
Prepaid expenses and other current assets
    6,895       4,498  
Inventories, net
    113,146       106,434  
Deferred taxes, current portion
    4,978       4,894  
                 
Total Current Assets
    219,952       152,840  
PROPERTY AND EQUIPMENT, net
    76,159       64,868  
INTANGIBLE ASSETS, net
    2,659       2,286  
GOODWILL
    950       950  
DEFERRED TAXES
    3,141       3,146  
OTHER ASSETS
    11,202       9,260  
                 
TOTAL ASSETS
  $ 314,063     $ 233,350  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
CURRENT LIABILITIES
               
Cash overdraft
  $ 3,303     $ 2,778  
Current portion of long-term debt
    113,856       99,930  
Accounts payable
    17,696       15,451  
Accrued expenses
    20,513       21,877  
Income taxes payable
    4,510       7,300  
Current portion of capital lease obligations
    2,984       3,384  
                 
Total Current Liabilities
    162,862       150,720  
                 
LONG-TERM DEBT, Net of current portion
    589       642  
SUBORDINATED NOTES PAYABLE TO RELATED PARTIES
    5,922       6,036  
CAPITAL LEASE OBLIGATIONS, net of current portion
    3,489       4,066  
DEFERRED RENT
    11,969       10,065  
                 
TOTAL LIABILITIES
    184,831       171,529  
                 
COMMITMENTS AND CONTINGENCIES
               
                 
STOCK HOLDERS’ EQUITY
               
Preferred stock, $.0001 par value, authorized 1,000 shares; none issued
           
  Common stock, $.0001 par value, authorized 120,000 shares; total issued and
         outstanding 71,116 and 57,595, respectively
    7       6  
Additional paid-in capital
    122,780       57,162  
Accumulated other comprehensive income
    1,553       865  
Retained earnings
    4,982       3,788  
                 
TOTAL STOCKHOLDERS’ EQUITY
    129,232       61,821  
                 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
  $ 314,063     $ 233,350  
 
 
 
 

 


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Joseph Teklits/Jean Fontana
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