On May 8, 2013, Los Angeles-based American Apparel Inc., a vertically integrated manufacturer, distributor and retailer of branded fashion-basic apparel, announced financial results for its first quarter ended March 31, 2013.
Financial Performance Highlights for the First Quarter of 2013
- Net sales increased 4 percent to $138.1 million on an 8 percent increase in comparable store sales and a 1 percent increase in wholesale net sales
- Adjusted EBITDA improved by $1.4 million to a loss of $0.7 million from a loss of $2.1 million in the first quarter 2012
“Today we reported a $1.4 million improvement in Adjusted EBITDA to a loss of $ 0.7 million for the three months ended March 31, 2013 from a loss of $2.1 million for the three months ended March 31, 2012,” stated John Luttrell, chief financial officer of American Apparel Inc. “Though the first quarter is historically the slowest quarter of the year, retail and online sales growth and the related leveraging of fixed costs helped us reduce our EBITDA loss. These results were substantially in line with plan and, accordingly, we reiterate our adjusted EBITDA guidance of $47 to $54 million for the full year 2013. We expect key initiatives in the areas of merchandise planning, supply chain, and inventory control to drive further sales and expense improvements for the balance of the year.”
Dov Charney, chairman and CEO of American Apparel Inc., also made a statement. “Although we are pleased with our first quarter performance, we will not be satisfied until we exceed prior productivity levels in our stores (see Chart 1), significantly increase our online sales penetration levels (see Chart 2), and drive additional volume through our wholesale channel,” he said. “Despite some liquidity challenges over the past two years, we have made the necessary investments that should allow us to exceed our prior EBITDA levels (see Chart 3). We have significantly improved our store presentation, responsibly added stores when it was appropriate to do so, improved technology in all three channels, increased inventory productivity and substantially improved the effectiveness of our supply chain operation.”
Operating Results – First Quarter 2013
Comparing the first quarter 2013 to the corresponding period last year, net sales increased 4 percent to $138.1 million on an 8 percent increase in comparable store sales in the retail and online business and a 1 percent increase in net sales in the wholesale business.
Gross profit of $72.9 million for the first quarter 2013 represented an increase of 4 percent from $70.1 million reported for the first quarter 2012. Gross margin remained unchanged at 52.8 percent for the quarters ended March 31, 2013 and 2012. Higher margins from an improved sales mix were offset by higher freight costs.
Operating expenses of $83.3 million for the first quarter 2013 represented an increase of 4 percent from $79.9 million for the first quarter 2012. As a percent of revenue, operating expenses remained unchanged at 60 percent for both quarters. The increase in operating expenses was primarily due to higher share-based compensation costs of $1.7 million. Additionally, we incurred higher rent expenses of $1.6 million related to higher CAM (common area maintenance) charges and lease termination costs, as well as rent for our new distribution center and $0.8 million in higher expenses associated with RFID-related supplies and travel for other store refurbishment activities. This increase was offset by lower store payroll of $1.1 million and lower advertising expenses of $1.1 million.
Operating loss for the first quarter 2013 was $10.5 million compared to $9.8 million in the first quarter 2012.
Adjusted EBITDA loss in the first quarter of 2013 improved to $0.7 million from a loss of $2.1 million in the first quarter of 2012. For a reconciliation of consolidated adjusted EBITDA, a non-GAAP financial measure, to consolidated net income or loss, as applicable, please refer to the Table A attached to this press release.
Other expense for the first quarter 2013 was $35.6 million as compared with other income of $2.2 million in the prior year quarter. The $37.8 million change in non-operating expenses was primarily the result of an increase in the market value of our outstanding warrants: the unrealized losses on the change in fair value of our warrants were $23.6 million and $0.7 million for the 2013 and 2012 quarters, respectively. Additionally, during the first quarter 2012, we recognized a gain on extinguishment of debt of $11.6 million.
Income tax provision in the first quarter 2013 was $0.5 million versus $0.3 million in the 2012 first quarter. In accordance with U.S. GAAP, we have discontinued recognizing potential tax benefits associated with current operating losses. As of March 31, 2013, we had available federal net operating loss carry forwards of approximately $95.6 million and unused federal and state tax credits of $24.5 million.
Net loss for the first quarter of 2013 was $46.5 million, or $0.42 per common share, compared to net loss for the first quarter of 2012 of $7.9 million, or $0.07per common share. The 2013 first quarter includes a non-cash/non-operating income statement charge of $23.6 million ($0.22 per common share) associated with an increase in the fair value of outstanding warrants. The 2012 first quarter includes a similar non-cash/non-operating charge of $0.7 million ($0.01 per common share) for the increase in the fair value of such warrants and a non-cash/non-operating gain of $11.6 million on the extinguishment of debt. Excluding these non-cash/non-operating charges from both periods, net loss for the first quarter 2013 would have been $22.9 million, or $0.21 per share, compared to$18.8 million, or $0.18 per share, in the first quarter 2012.
For the full financial report, visit American Apparel’s website.
