Press Release:
American Apparel Reports Second Quarter 2009 Financial Results
– Second quarter net sales of $136.1 million, an increase of 2.3% from the second quarter of 2008
– Second quarter diluted earnings per share of $0.06 vs. $0.10 prior year second quarter
– 2009 Guidance on income from operations reduced to a range of $25 to $30 million
Source: American Apparel, Inc.
On Thursday August 13, 2009, 4:57 pm EDT
LOS ANGELES–(BUSINESS WIRE)–American Apparel, Inc. (NYSE Amex: APP), a vertically integrated manufacturer, distributor, and retailer of branded fashion basic apparel, today announced its financial results for the second quarter of 2009 and for the six month period ended June 30, 2009.
American Apparel reported net sales for the quarter ended June 30, 2009 of $136.1 million, a 2.3% increase over net sales of $133.0 million for the quarter ended June 30, 2008.
Total retail sales increased 13.4% to $92.2 million from $81.3 million for the prior year second quarter, with comparable store sales for stores open at least 12 months decreasing 10% on a constant currency basis. American Apparel ended the second quarter of 2009 with 272 stores, having opened 8 stores in the quarter. The Company operated 195 stores at the end of the second quarter of 2008.
Total wholesale sales declined to $35.5 million for the second quarter of 2009, as compared to $43.0 million for the second quarter of 2008, a decrease of 17.3%. Online consumer sales declined to $8.4 million from $8.7 million in the prior year second quarter, a decrease of 3.8%.
Gross profit for the second quarter of 2009 was 59.0% versus 58.6% for the prior year second quarter. Gross profit was favorably impacted by the shift in mix from wholesale to retail sales, as wholesale declined from 32.3% to 26.1% of total net sales. This benefit to gross profit from the mix shift was largely offset by the negative impact of the appreciation of the U.S. dollar versus foreign currencies relative to the second quarter of 2008, as well as lower utilization of the Company’s manufacturing facilities in light of lower than forecasted unit volume demand.
Operating expenses for the second quarter of 2009 increased to 53.6% of net sales, versus 46.9% for the second quarter of 2008. Operating expenses increased due to higher payroll, rent, occupancy, and depreciation expenses related to the increase in the number of retail stores in operation from 195 as of June 30, 2008 to 272 as of June 30, 2009. Pre-opening expenses for retail stores were $0.9 million in the second quarter of 2009, versus $2.3 million in the prior year second quarter.
Operating income for the second quarter of 2009 was $7.3 million, versus $15.6 million in the prior year second quarter. Operating margin for the second quarter of 2009 was 5.4%, versus 11.7% in the second quarter of 2008. The significant decline in operating income was largely due to the decline in comparable store sales, which led to a deleveraging effect on the Company’s fixed costs in its retail business, as well as the negative impact of the appreciation of the U.S. dollar versus foreign currencies on the reported results of the Company’s non-U.S. operations.
Interest expense for the second quarter of 2009 increased to $4.8 million from $3.7 million in the second quarter of 2008. The increase in interest expense was largely due to higher average net debt balances during the period, as well as a higher weighted average interest rate on outstanding borrowings by the Company, as compared to in the second quarter of 2008.
During the second quarter of 2009, the Company recognized foreign currency transaction gains of $2.8 million, due to timing differences of the settlement of intercompany balances related to shipments of merchandise from the Company’s U.S. manufacturing operations to its international subsidiaries. During the second quarter of 2008, the Company recognized foreign currency transaction losses of $0.5 million.
The Company’s income tax provision in the second quarter was $1.2 million, as compared to $3.7 million in the second quarter of 2008. The Company’s effective tax rate declined to 21.3%, compared to 35.2% in the second quarter of 2008.
Net income for the second quarter of 2009 was $4.5 million, or $0.06 per diluted common share. This compares to $6.8 million in net income, or $0.10 per diluted common share, for the second quarter of 2008.
Dov Charney, Chairman and Chief Executive Officer, stated: “Despite facing challenging conditions in the retail and wholesale apparel sectors, our business was able to turn a profit in the second quarter. Our team has been active in rationalizing our cost structure and operating more efficiently, as well as reinvigorating and repositioning the brand in our key metropolitan markets: New York, Los Angeles, Paris, and London. With each successive quarter, our brand is being introduced to new people in new cities, and the enthusiasm we see among consumers each time we open a new store we believe demonstrates the continuing strength of our brand. We believe that our business is well positioned for the long-term and that the Company will emerge from this consumer downturn with an enhanced ability to deliver on revenue and profitability targets.”
Outlook
As of August 13, 2009, American Apparel had opened 20 new store locations since the beginning of the year and closed 3 locations. The Company currently has 4 signed leases for new retail stores in its store pipeline. For the year, the Company still expects to open a total of 25 to 30 new stores.
With the Company’s business having tracked below plan in the second quarter, particularly in the back half of the quarter, and based on continuing challenging conditions, the Company now expects the following financial results for 2009: net sales in the range of $540 to $555 million, income from operations in the range of $25 to $30 million, and a net (loss) income in the range of ($1) to $4 million. These estimates are before any non-cash stock-based compensation expense from any equity awards that may be made to employees under the 2007 Performance Equity Plan.
Update on Restatement of Previously Issued Financial Statements and Filing of First Quarter 2009 Form 10-Q
On July 23, 2009, the Company announced that management and the Audit Committee of the Board of Directors determined that it would need to restate its previously issued consolidated financial statements for the year ended December 31, 2008 in order to reclassify its revolving credit facility as a current liability. The restatement resulted in $33.4 million of the revolving credit facility being reclassified from long-term debt to a current liability, but this restatement did not have any impact on the Company’s previously reported net cash flows, cash position, revenues, net income or comparable store sales.
Earlier today, American Apparel filed Amendment No. 1 to its Annual Report on Form 10-K/A for the year ended December 31, 2008, which gives effect to this restatement. The Company also filed today its Quarterly Report on Form 10-Q for the quarter ended March 31, 2009. These filings bring the Company into compliance with Sections 134 and 1101 of the NYSE Amex LLC Company Guide and satisfy the requirements of the Company’s previously disclosed compliance plan. The Company currently expects to file its Quarterly Report on Form 10-Q for the quarter ended June 30, 2009, on or before Monday, August 17, 2009.
As a result of the lowered earnings guidance for 2009, the Company revised its 2009 projected annual effective income tax rate from 32.7% to 21.3%. This revision in estimate resulted in a decrease in the income tax benefit reported by the Company in its preliminary earnings release on May 18, 2009 from $4.4 million to the income tax benefit as presented in the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009, filed today, of $2.9 million. As a result, diluted loss per common share for the first quarter was ($0.15), as opposed to ($0.13) as reported in the preliminary earnings release. The application of the revised effective income tax rate estimate did not have any impact on the six month results ended June 30, 2009.
A conference call will be held today at 5:00 p.m. EDT to discuss the second quarter results. A live webcast of the conference call will be accessible through the company’s website under the investor relations section at https://investors.americanapparel.net.
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, 2009, American Apparel employed approximately 10,000 people and operated over 275 retail stores in 20 countries, including the United States, Canada, Mexico, Brazil, United Kingdom, Austria, Belgium, France, Germany, Ireland, Italy, the 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 https://www.americanapparel.com.
