American Apparel Inc., the Los Angeles-based manufacturer, distributor and retailer of branded fashion-basic apparel, announced financial results for its fourth quarter and year ended Dec. 31, 2012. The company also provided guidance with respect to expected 2013 performance.
Financial Performance Highlights for 2012 and the Fourth Quarter of 2012
Sales:
- Net sales: Up 13 percent for year; 10 percent for the fourth quarter.
- Comparable retail store sales: Up 13 percent for the year; 7 percent for the fourth quarter.
- Online sales: Up 30 percent for the year; 42 percent for the fourth quarter.
- Wholesale sales: Up 12 percent for the year; 19 percent for the fourth quarter.
Gross Profit:
- For the year: Up 11 percent to $327.4 million in 2012 from $294.9 million in 2011.
- For the fourth quarter: Up 11 percent to $93.1 million in 2012 from $83.8 million in 2011.
Operating Expenses as a Percentage of Sales:
- For the year: Down 5.2 percentage points to 52.9 percent in 2012 from 58.1 percent in 2011.
- For the fourth quarter: Down 4.9 percentage points to 49.8 percent in 2012 from 54.7 percent in 2011.
Cash Generated from Operating Activities:
- For the year: Up $21.3 million to $23.6 million in 2012 from $2.3 million in 2011.
- For the fourth quarter: Up $9.7 million to $22.0 million in 2012 from $12.3 million in 2011.
Operating Income:
- For the year: Up $24.3 million to $1 million in 2012 from a loss of $23.3 million in 2011.
- For the fourth quarter: Up $9.2 million to $6.8 million in 2012 from a loss of $2.4 million in 2011.
Adjusted EBITDA:
- For the year: Up 150 percent to $36.6 million in 2012 from $14.5 million in 2011.
- For the fourth quarter: Up 95 percent to $17.8 million in 2012 from $9.1 for in 2011.
Earnings (Loss) per Share, Diluted:
- For the year: Up $0.07 per share to a loss of $0.35 in 2012 from a loss of $0.42 in 2011.
- For the fourth quarter: Up $0.15 per share to $0.04 in 2012 from a loss of $0.11 in 2011.
Dov Charney, chairman and CEO of American Apparel Inc., stated, “We are pleased with our fourth quarter results that again show solid growth and continuing momentum in all business segments and almost all major geographies. Significant sales growth, operating expense control and the acceleration of leverage of our fixed costs allowed us to increase EBITDA performance to $17.8 million for the fourth quarter of 2012 from $9.1 million for the fourth quarter of 2011. For the full year, EBITDA increased to $36.6 million from $14.5 million in the prior year. Although we are pleased with this growth, we are focused on continuing to improve our financial performance. During this past year, we have carefully invested in systems and infrastructure to facilitate future growth.
Operating Results – Fourth Quarter 2012
Comparing the fourth quarter 2012 to the corresponding period last year, net sales increased 10 percent to $173.0 million on an 11 percent increase in comparable store sales in the retail and online business and a 19 percent increase in net sales in the wholesale business.
Gross profit of $93.1 million for the fourth quarter of 2012 represented an increase of 11 percent from $83.8 million reported for the fourth quarter of 2011. Foreign currency effects were minimal for the quarter. Gross margin for the fourth quarter of 2012 was 53.8 percent as compared with 53.2 percent for the same quarter in 2011. The gross margin improvement was due to a shift in sales mix to higher margin online sales, reductions in manufacturing costs, and an improvement in retail gross margin.
As a percent of revenue, operating expenses for the quarter decreased 490 basis points to 49.8 percent from 54.7 percent in the fourth quarter 2011. The decrease was primarily due to control over and leverage of fixed overhead expenses.
Other expense for the fourth quarter of 2012 was $0 versus $8.1 million in the prior year quarter. In 2012, interest expense of $11.3 million was offset by an $11.2 million mark-to-market unrealized gain on our warrant liability. In 2011, interest expense was $9.5 million and was partially offset by a $2.3 million mark-to-market unrealized gain on our warrant liability. As our warrant liability is deemed to be a derivative financial instrument it is marked-to-market based primarily upon the change in our stock price between accounting periods. The warrant liability will not result in a future cash outflow and will be classified as equity when the warrants are exercised or if the related debt is paid off. We incurred higher interest expense in 2012 due to a higher average balance of debt outstanding and higher interest rates related to the Crystal Credit Agreement.
Income tax provision in the fourth quarter 2012 was $1.9 million versus $0.7 million in the 2011 fourth quarter. In accordance with U.S. GAAP, we have discontinued recognizing potential tax benefits associated with current operating losses. As of Dec. 31, 2012, we had available federal net operating loss carry forwards of approximately $95.6 million and unused federal and state tax credits of $12.7 million.
Net income for the fourth quarter of 2012 was $4.9 million, or $0.04 per common share on a fully-diluted basis, compared to net loss for the fourth quarter of 2011 of $11.2 million or $0.11 per common share. The 2012 fourth quarter includes an income statement credit of $11.2 million ($0.10 per common share on a fully-diluted basis) associated with a non-cash reduction in the fair value of outstanding warrants. The 2011 fourth quarter includes a similar credit of $2.3 million ($0.02 per common share) for a non-cash reduction in the fair value of such warrants. Fully-diluted weighted average shares outstanding were 115.4 million in the fourth quarter of 2012 versus 104.3 million for the fourth quarter of 2011.
Operating Results – Full Year 2012
Net sales increased 13 percent to $617.3 million on a 15 percent increase in comparable retail store and online sales and a 12 percent increase in net sales in the wholesale business.
Gross profit of $327.4 million in 2012 represented an increase of 11 percent from $294.9 million in 2011. Foreign currency effects were minimal for the year. Gross margin for 2012 was 53 percent as compared with 53.9 percent in 2011. The decrease in gross margin was due to the net sales impact of planned promotional activities and the effect of warehouse type clearance sales as part of our overall inventory reduction strategy, as well as moderated production in connection with our inventory turn improvement efforts.
Operating expenses of $326.4 million in 2012 represented a decrease of 520 basis points to 52.9 percent from 58.1 percent in 2011. Corporate overhead expenses decreased by $4.0 million from $45.8 million in 2011 to $41.7 million in 2012. The remainder of the decrease in operating expense is primarily due to fixed cost leverage as a result of increased sales.
The full release is available on American Apparel’s website.
