Back in 2011 American Apparel, Inc. (AMEX: APP) Chairman and CEO Dov Charney stated “We have solid plans to drive increased sales through existing and new channels. We are also diligently working on improving our return on invested capital through effective asset management. Therefore, I believe we will restore the Company’s historical levels of profitability by 2013.” At the time APP had just survived a bankruptcy scare and was coming off yet another rough year in sales but shares eventually climbed back above the 1.00 level and actually climbed as high as 1.69 before the bottom fell out and the company sank to a low of 0.52 in December.
Since that time APP has experienced some high and lows, hitting 1.21 in March only to sink to 0.80 in June; as late as July 31, 2012 shares of APP were at 0.82 but once again they managed to move forward and surpass that 1.00 level and on Thursday the vertically integrated manufacturer, distributor, and retailer of branded fashion basic apparel hit a three-month high of 1.17.
Pushing those share prices higher was yet another impressive month of growth for APP as they announced a 24% increase in comparable store sales for August and a 19% increase in net sales for its online channel.
Commenting on this growth Charney stated, “August will represent our 15th consecutive month of positive comparable sales, and will be the largest sales increase reported in nearly four years.” Charney went on to say, “This performance was companywide: double digit sales growth across almost all major markets and product categories. However, there is still significant low-hanging fruit for us to exploit in order to further improve store productivity. Near term, we’re focused on the implementation of tighter inventory management systems through our RFID program, store renovations, installation of traffic counters, and the completion of our new distribution center to improve the speed and accuracy of shipments to stores. Each of these programs will bring measurable improvements in overall store productivity.”
The question is, will shareholders see a repeat performance from the last time Charney sounded so optimistic?
If APP’s quarterly results are any indication of what the future holds for the company then shareholders may breathe easier as their second quarter figures released earlier this month showed a net sales increase of 13% to $149.5 million compared to the same period in 2011. During those three months ended June 30, 2012 APP reported a 14% increase in comparable store sales in the retail business, a 10% increase in net sales in the wholesale business while they saw a 2% decrease in the average number of sales.
APP also reported strong numbers for gross profit, increasing 9% to $79.0 million during the second quarter 2012 compared to $72.4 million in 2011. Given these figures APP actually adjusted its EBITDA outlook to $36 to $44 million from the prior estimate of $32 million to $40 million; the revised outlook is assuming they hit net sales of $604 million to $611 million and a gross profit margin of 53% to 54%. Their gross margin for the second quarter 2012 was 53%.
Based on what they have been able to accomplish over the first six months of the year it appears as if APP is on track to hit that revised outlook but as always investors are cautious. That being said, APP has outlined a plan to improve sales and profitability, a plan they outlined in their second quarter release:
- 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.
Perhaps the most important goal expressed by APP is refinancing their high cost debt, something they believe they can do by late 2012 or early 2013 if they are able to hit their outlook.
It has been a long road for APP and their shareholders and for those who remember the days of 16.00 shares the current level is a constant reminder that things can go horribly wrong in the retail industry. While nobody should be expecting APP to hit those highs any time soon the reshuffling of management and the proactive approach to growth is apparently paying off. The next two quarters will be critical for obvious reasons as APP heads into the holiday season and when end of year results are delivered investors should have a better idea about whether or not the company is really back.
