American Apparel Trims Expenses, Inventory Amid 5 Percent Sales Slide

5/13/2015
American Apparel, Inc. announced financial results for its first quarter ended March 31, 2015.

The initial phase of the company's strategic turnaround is 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. American Apparel has implemented a program to clear excess and slow-moving inventory 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.

What's more, the struggling retailer and manufacturer strengthened its leadership team with hiring of the chief digital officer, SVP of marketing, VP of demand planning and forecasting and SVP CIO. The company is reorganizing and restructuring 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 percent, compared to the same period in 2014, and inventories in the first quarter 2015 decreased $25 million, or 17 percent, year over year.

"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," says CEO Paula Schneider. "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," she continues. "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," Schneider adds.

Operating results - first quarter 2015
Net sales for the first quarter of 2015 decreased 9 percent 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 percent for the same period in 2014. First quarter comparable store sales were negative 5 percent 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 percent 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 percent of net sales in the first quarter of 2015 from 52.5 percent in the first quarter of 2014.

Operating expense for the first quarter of 2015 decreased 11 percent 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.





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