American Apparel, Inc. reported unaudited consolidated net sales for the fourth quarter ended December 31, 2007 of $111.2 million, a 48% increase over sales of $75.1 million for the quarter ended December 31, 2006. Retail sales increased 85% to $68.3 million for the fourth quarter of 2007 as compared to $37.0 million for the same period in 2006, with same-store sales for stores open at least 12 months rising 40%. Wholesale sales were $42.9 million for the 2007 fourth quarter as compared to $38.1 million for the 2006 fourth quarter, an increase of 13%. American Apparel ended the quarter with 182 stores, having added 19 net new stores in the period.
Net income for the fourth quarter of 2007 was $3.0 million, or 6 cents per diluted share versus a net loss of $1.5 million, or a loss of 3 cents per diluted share, for the year-ago period. The results for the fourth quarter of 2007 include the recognition of a deferred tax benefit of $6.2 million relating to the companys termination of its status as an S Corporation, which decreased the companys income tax provision for the period. Pro forma income, assuming American Apparel had not recognized the deferred tax benefit from the conversion from an S Corporation, would have resulted in net loss for the period of $1.6 million, or a loss of 3 cents per diluted share.
Adjusted Earnings Before Interest, Taxes, Depreciation, Amortization and certain adjustments and exclusions (“Adjusted EBITDA”) equaled $13.3 million for the fourth quarter ended December 31, 2007. This represents a 56% increase over Adjusted EBITDA of $8.5 million for the three months ended December 31, 2006. The non-cash and other adjustment items in the quarterly comparisons include deferred rent, litigation expenses, business combination expenses not qualifying for capitalization, one-time employee bonuses, workers compensation adjustments, and inventory obsolescence reserves. These adjustments totaled approximately $4.9 million for the three months ended December 31, 2007 as compared to approximately $3.4 million for the three months ended December 31, 2006.
Dov Charney, chairman and CEO, stated: “I am very pleased by the growth in sales and profitability that American Apparel posted in 2007, our most successful year ever. So far, 2008 is shaping up to be a very strong year for American Apparel as well. In the past few weeks, we opened our first store in Australia, in Melbourne, and our first store in Belgium, in Antwerp. With fresh capital invested in the business, and a growing pipeline of signed leases, we intend to develop American Apparel into a preeminent, global retail brand.”
For the full year ended December 31, 2007, American Apparel reported consolidated net sales of $387.0 million. This was a 36% increase over sales of $285.0 million for the year ended December 31, 2006. American Apparels retail sales for the year were $215.0 million, an increase of 60% over the $134.7 million for 2006. At December 31, 2007, American Apparel operated 182 stores as compared to 147 stores at December 31, 2006. Same-store sales for stores open longer than 12 months increased 29% for the year. Wholesale sales for the year ended December 31, 2007 were $172.0 million, a 15% increase over the $150.3 million for the year ended December 31, 2006.
Net income for the full year ended December 31, 2007 was $15.5 million, versus a loss of $1.5 million in 2006. Diluted earnings per share for 2007 was 31 cents, versus a loss per share of 3 cents in 2006. For the year, without the deferred tax benefit from the conversion from an S Corporation, pro forma income would have been $9.5 million, or 19 cents per diluted share.
Adjusted EBITDA equaled $58.6 million for the year ended December 31, 2007. This represents an 83% increase over Adjusted EBITDA of $31.9 million for the year ended December 31, 2006. The non-cash and other adjustment totaled approximately $7.2 million for the year ended December 31, 2007 as compared to approximately $7.2 million for the year ended December 31, 2006.
American Apparel also announced the results of its warrant redemption which concluded on March 7, 2008. Approximately 16.4 million warrants were outstanding as of the closing of the merger with Endeavor on December 12, 2007. Of the 16.4 million warrants that were exercised since the closing of the acquisition, including during the period of the warrant redemption which began on February 6, 2008, approximately 5.2 million were exercised using the cashless exercise option. The balance of approximately 10.9 million warrants were exercised by paying the cash exercise price of $6 per warrant. The total cash proceeds to the company of all warrants exercised since the close of the merger was approximately $66.8 million, and the total number of new common shares issued, including those issued through the cashless exercise option, was approximately 13.5 million.
For 2008, the company plans to open between 40-45 net new stores. The company stated that it expects consolidated net sales for the year between $470 to $485 million. The company expects net income for the year of between $24 to $27 million, and diluted EPS of between 32 cents to 36 cents per share. The company expects EBITDA (unadjusted) for the year to be between $70 million to $75 million. The company expects interest expense of approximately $15 million for the year, and depreciation and amortization of $15 million. Based on this, the company expects a provision of income taxes between $16 million to $18 million. These estimates are before a one-time non-cash stock compensation expense of approximately $30 million for the year, resulting from a previously announced employee stock grant.
American Apparel, Inc. | |||||||||||||||
Selected Historical Consolidated Financial Information | |||||||||||||||
(in thousands of dollars) | |||||||||||||||
Quarter Ended December 31, | Year Ended December 31, | ||||||||||||||
| 2007 | 2006 | 2007 | 2006 | ||||||||||||
| (unaudited) | (unaudited) | ||||||||||||||
| Consolidated Statements of Income: | |||||||||||||||
| Net sales | $ | 111,190 | $ | 75,087 | $ | 387,044 | $ 284,966 | ||||||||
| Cost of sales | 50,663 | 34,399 | 171,571 | 139,330 | |||||||||||
| Gross profit | 60,527 | 40,688 | 215,473 | 145,636 | |||||||||||
| Operating expenses | 59,491 | 39,439 | 184,351 | 135,064 | |||||||||||
| Income from operations | 1,036 | 1,249 | 31,122 | 10,572 | |||||||||||
| Interest expense | 4,388 | 3,235 | 17,541 | 11,812 | |||||||||||
| Foreign currency (gain) loss | (499 | ) | (187 | ) | (722 | ) | (601 | ) | |||||||
| Other expense (income) | (291 | ) | (693 | ) | (980 | ) | (607 | ) | |||||||
| Income (loss) before income taxes | (2,562 | ) | (1,106 | ) | 15,283 | (32 | ) | ||||||||
| Income tax (benefit) provision | (5,557 | ) | 387 | (195 | ) | 1,574 | |||||||||
| Net income (loss) | $ | 2,995 | $ | (1,493 | ) | $ | 15,478 | $ (1,606 | ) | ||||||
| Earnings per share-basic | $ | 0.07 | $ | (0.03 | ) | $ | 0.32 | $ (0.03 | ) | ||||||
| Earnings per share-diluted | $ | 0.06 | $ | (0.03 | ) | $ | 0.31 | $ (0.03 | ) | ||||||
| Pro forma information related to conversion To C Corporation for income tax purposes (unaudited): | |||||||||||||||
| Pro forma income | $ | (1,585 | ) | $ | |||||||||||
