American Apparel, Inc. Reports Second Quarter 2012 Financial Results and Raises EBITDA Outlook for 2012
LOS ANGELES--(BUSINESS WIRE)--American Apparel, Inc. (NYSE MKT: APP), a vertically integrated manufacturer, distributor, and retailer of branded fashion-basic apparel, announced financial results for its second quarter ended June 30, 2012.
Dov Charney, Chairman and CEO of American Apparel, Inc. stated, “We are pleased with our second quarter results that again show solid growth and continuing momentum in all business segments and major geographies. Though the first two quarters are historically our slowest, significant sales growth allowed us to more than double our EBITDA performance to $7.6 million in the second quarter of 2012 from $3.7 million in the second quarter of 2011. In the second quarter we saw over 30% of our stores with sales growth in excess of 20% and as we continue to scale our operations and further implement store-level improvements, we believe we can raise the overall sales performance even further.”
Some of the more significant tactics the Company is employing to improve sales and profitability include:
Implementation of tighter inventory management systems through the RFID program. Approximately half of the stores are still to have RFID implemented.
Continued store renovations to improve presentation and sales per square foot, with approximately 70 stores remaining to be renovated.
Installation of traffic counters remaining to be completed in over half of stores to improve customer conversions. Full implementation of this technology is expected to be completed in 2013.
The process to build a new distribution center infrastructure is underway and will improve the speed and accuracy of shipments to stores and will also significantly reduce operating expenses. Completion of this project is expected by early 2013.
Although these programs have a short-term cost, their completion will allow for further growth in sales and profit margins that fall in line with the industry. As EBITDA approaches the range indicated in the current outlook, the Company believes it will be in a position to refinance its high cost debt and it plans to do so in late 2012 or early 2013.
The Company has reported double digit comparable store sales growth each month since November of 2011. For the month of August, the Company expects that comparable store sales will increase in the upper teen to low twenty percent range and it estimates the percent increase in net sales will be in the 10% to 15% range versus the prior year. Accordingly, the Company is raising its adjusted EBITDA guidance for 2012 to between $36 to $44 million from the prior estimate of $32 to $40 million.
Comparing the second quarter 2012 to the corresponding period last year, net sales increased 13% to $149.5 million on a 14% increase in comparable store sales in the retail business, a 10% increase in net sales in the wholesale business and a 2% decrease in the average number of stores.
Gross profit of $79.0 million for the second quarter of 2012 increased 9% from the $72.4 million reported for the second quarter of 2011. Holding foreign currency rates constant to those last year, gross profit in the 2012 second quarter would have been $81.2 million or 12% higher than reported in the 2011 second quarter. Gross margin rate for the 2012 second quarter decreased to 53% from 55% for the 2011 second quarter. 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.
Consolidated Adjusted EBITDA was $7.6 million in the second quarter of 2012 versus $3.7 million in last year's second quarter. For a reconciliation of consolidated net loss to consolidated adjusted EBITDA, a non-GAAP financial measure, please refer to Table A attached to this press release.
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.
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 July 31, 2012, American Apparel had approximately 10,000 employees and operated 251 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.