American Apparel Inc (NYSEMKT:APP), a vertically-integrated manufacturer, distributor, and retailer of branded fashion basic apparel, announced financial results for its first quarter ended March 31, 2015.
- Initial phase of strategic turnaround under way, and includes key initiatives in the areas of product development, e-commerce, retail store productivity, wholesale optimization, speed to market, cost cutting, brand building and infrastructure
- Program to clear excess and slow-moving inventory implemented as part of management’s strategic shift to change the profile of inventory and actively reduce inventory levels to improve store merchandising, working capital and liquidity initiated in the first quarter
- Strengthened the leadership team with hiring of the Chief Digital Officer, SVP Marketing, VP Demand Planning and Forecasting and SVP Chief Information Officer.
- Reorganization and restructuring of critical business processes and platforms to drive performance improvements initiated in the first quarter
- Loss per share in the first quarter 2015 was $0.15 and included $0.09 of significant charges
- Adjusted EBITDA in the first quarter 2015 was $(7.9) million
- Cash provided by operating activities in the first quarter 2015 was $3.1 million
- Operating expenses in the first quarter 2015 decreased $8.6 million, or 11%, compared to the same period in 2014
- Inventories in the first quarter 2015 decreased $25 million, or 17%, compared to the same period in 2014
Paula Schneider, Chief Executive Officer, commented, “American Apparel is an iconic brand with a loyal customer following and tremendous global brand awareness. The new executive management team and board of directors is committed to driving shareholder value and has implemented the initial phase of a multi-year strategic turnaround plan designed to improve operating and financial results over the long-term. Key areas of focus under the plan include infrastructure, operational and financial planning, expense control, design/product development, retail store productivity, e-commerce and wholesale optimization, e-commerce analytics, speed-to-market, and brand building. In the first quarter, we launched a program to improve the profile of our inventory by significantly reducing slow-moving merchandise. While we knew this would have a temporary negative impact on sales and margins, it should improve store merchandising, working capital and liquidity going forward. We also launched a merchandising turnaround plan to start replenishing stores with new styles and product. Also in the quarter, we began the arduous but vital task of reorganizing and restructuring a number of critical business processes, including product development, merchandise planning, operational and financial planning, inventory management, procurement, and demand planning. We are dedicated to this process and in the early stages of the strategic turnaround that will require time.”
Operating Results – First Quarter 2015
Net sales for the first quarter of 2015 decreased 9% to 124.3 million from 137.1 million for the same period in 2014. Excluding the year over year impact from foreign exchange and stores closed in 2014 net sales decreased 4% for the same period in 2014. First quarter comparable store sales were negative 5% for both the first quarter of 2015 and 2014. Negatively impacting comparable store sales in the first quarter of 2015 was a strategic initiative to reduce inventory levels by accelerating the sale of slow-moving merchandise in the retail stores. This initiative shifted the merchandise mix in the retail and online stores towards clearance-related product.
Gross profit for the first quarter of 2015 decreased 34% to $47.5 million from $72 million for the same period in 2014. The decrease was related to discounts related to management’s strategic initiative to reduce inventory levels by accelerating the sale of slow-moving inventory, the foreign exchange impact of the strengthening US dollar and lower retail sales. Gross profit, excluding significant charges, decreased to 42.0% of net sales in the first quarter of 2015 from 52.5% in the first quarter of 2014.
Operating expense for the first quarter of 2015 decreased 11% from $79.0 million, compared to $70.3 million for the same period in 2014 due primarily to lower payroll from our cost reduction efforts and reduced rent, supplies and miscellaneous activities.
Net loss for the first quarter of 2015 was $26.4 million or $0.15 per share, compared to net loss of $5.5 million, or $0.05 per share for the first quarter of 2014. Results for the first quarter of 2015 include $9.5 million, or $0.05 per share, related to significant charges.
EBITDA add backs
Sale of slow-moving inventory program discounts – In the first quarter management implemented an initiative to accelerate the sale of slow moving inventory with a graduated sales discount program through our retail and online sales channels, as well as through certain off-price channels. The program resulted in a significant reduction of slow moving inventory. This program is a part of management’s strategic shift to change the profile of our inventory and actively reduce inventory levels to improve store merchandising, working capital and liquidity.
Internal investigation, litigation and professional fees – We incurred additional legal, litigation and consulting costs related to various claims and lawsuits and the sale of the slow moving inventory.
Unrealized Gain/Loss on Change in Fair Value of Warrants
As of March 31, 2015, Lion Capital LLP held warrants to purchase 24.5 million shares of our common stock, with an exercise price of $0.66 per share. As the share price of our stock increases, the fair value of warrant liability recorded on the balance sheet increases, and we record an expense to recognize the increase in fair value of the warrant liability. Conversely, when the share price of our stock decreases, we record a gain to recognize the related reduction in the fair value of the warrant liability on the balance sheets. Although the income statement impacts associated with warrants are appropriate and required under GAAP, they do not impact our operating performance nor do the credits and charges have an impact on the cash balances since the liability recorded is not an obligation that will be settled with cash. Instead, these warrants will be reclassified to equity when they are exercised.
Liquidity and Capital Resources
As of March 31, 2015, we had $20.9 million in cash, $35.1 million outstanding on our asset-backed revolving credit facility and $11.2 million of availability for additional borrowing under the facility. As of May 6, 2015, we had $5.2 million of availability for additional borrowings under the facility.
On March 25, 2015, we entered into the Sixth Amendment to the Capital One Credit Facility (“the Sixth Amendment”) which (i) waived any defaults under the Capital One Credit Facility due to failure to meet the obligation to maintain the obligation to maintain the maximum leverage ratio and minimum adjusted EBITDA for the measurement periods ended December 31, 2014, as defined by the credit agreement, (ii) waived the obligation to maintain the minimum fixed charge coverage ratio, the maximum leverage ratio and minimum adjusted EBITDA required for the twelve months ended March 31, 2015, (iii) included provisions to permit us to enter into the Standard General Credit Agreement (as defined below), (iv) reset financial covenants relating to maintaining minimum fixed charge coverage ratios, maximum leverage ratios, maximum capital expenditures and minimum adjusted EBITDA, and (v) permitted us to borrow $15 million under the Standard General Credit Agreement.
On March 25, 2015, one of our subsidiaries borrowed $15 million under an unsecured credit agreement with Standard General, dated as of March 25, 2015 (the “Standard General Credit Agreement”). The Standard General Credit Agreement is guaranteed by us, bears interest at 14% per annum, and will mature onOctober 15, 2020. The proceeds of such loan are intended to provide additional liquidity to the Company as contemplated by the Nomination, Standstill and Support Agreement, dated July 9, 2014.
We fulfilled our commitment to make the April 15, 2015 interest payment of $13.8 million on our senior notes. (Original Source)
Shares of American Apparel closed today at $0.6451, down $0.0049 or 0.75%. APP has a 1-year high of $1.30 and a 1-year low of $0.50. The stock’s 50-day moving average is $0.67 and its 200-day moving average is $0.76.
American Apparel Inc is amanufacturer, distributor, and retailer of branded fashion basic apparel and accessories for women, men, children and babies.The Companyoperates ane-commerce site that serves over50countries.