American Apparel Revenue Dives; Warns Of Possible Bankruptcy

american apparel

American Apparel announced that Q3 revenues declined 10.5% and an $8 million operating loss for the period. Additionally, according to an SEC filing, the company posed doubts that it could stave off bankruptcy for another 12 months.

In a 59 page filing entered Tuesday, the company said that it might not survive for the next 12 months and may violate a term of its loan agreement with private equity fund Lion Capital.

Here’s more on American Apparel’s Q3 performance:

Net sales of $134.5 million, a decrease of 10.5% from the third quarter of 2009

Loss from operations of $8.0 million compared to income from operations of $11.2 million for the third quarter of 2009

Loss per diluted share of $0.13 vs. earnings per diluted share of $0.05 in the third quarter of 2009

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 third quarter of 2010 and for the nine months ended September 30, 2010, and provided an update on its strategic plan.

Strategic Update

Dov Charney, Chairman, CEO and founder of American Apparel stated: “We are excited to be working with Lion Capital to develop a strategic plan consistent with our capital structure. We recently announced the hiring of Tom Casey as Acting President and we are in the process of hiring several additional new executives. The American Apparel brand remains strong and many of our customers appreciate that our high quality, fashionable basics are made in America. I have seen reinvigorated interest in our brand and our customers are recognizing us for our new products. We plan to continue driving sales of our basics as we align product design and development with more efficient manufacturing.”

Tom Casey, Acting President, added: “We expect to improve financial results by supporting the brand with a customer-focused supply chain, leveraging our speed to market capability with lower distribution costs. We are optimizing our retail store base through investments in technology and improved allocation while lowering our lease costs.”

Third Quarter 2010 Financial Results

Net sales for the third quarter of 2010 were $134.5 million, a decline of 10.5% compared to net sales of $150.3 million for the third quarter of 2009. Comparable store sales for stores open at least 12 months declined 16% on a constant currency basis. American Apparel ended the third quarter of 2010 with 278 retail stores, having opened one retail store and closed three during the quarter, as compared to 276 retail stores at the end of the third quarter of 2009.

Gross margin for the third quarter of 2010 was 52.2%, down from 58.1% for the prior year third quarter. Gross margin was negatively impacted by an increase in production costs caused by lower labor efficiency and a continued shift in production mix towards more complex retail styles. The decrease was also due to a shift in sales mix from retail to wholesale sales, which generate a lower gross margin.

Selling, general and administrative expenses increased to $77.7 million in the third quarter of 2010, or 57.7% of net sales, compared to $74.9 million in the third quarter of 2009, or 49.8% of net sales. The increase was primarily related to increases in salaries, wages and benefits expense.

Loss from operations for the third quarter of 2010 was $8.0 million, as compared to income from operations of $11.2 million in the third quarter of 2009.

Net loss for the third quarter was $9.5 million, or ($0.13) per diluted share. The loss included a foreign currency transaction gain of $3.3 million. Net income for the third quarter of 2009 was $4.2 million, or $0.05 per diluted share.

Total debt increased by $13.3 million, to $133.6 million at September 30, 2010, from $120.3 million at June 30, 2010. As of September 30, 2010, the Company had approximately $9.6 million and $3.7 million of availability under its U.S. and Canadian revolving credit facilities, respectively. Inventory was $166.5 million at September 30, 2010, an increase from $153.0 million at June 30, 2010. For the quarter ended September 30, 2010, capital expenditures were $4.1 million.

Additional details regarding the Company’s third quarter 2010 financial results can be found in the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2010, to be filed today with the SEC.

Dov Charney commented: “The third quarter of 2010 was the first summer with a re-trained manufacturing workforce. We believe that moving forward our manufacturing efficiency will improve. This year, because we were late to build production capacity while we were simultaneously broadening our product assortment, many deliveries were late to our retail stores. Management focus has now shifted from building production capacity to driving sales in our stores, as consumers take interest in our renewed product line.”

Annual Meeting of Stockholders

The 2010 Annual Meeting of Stockholders of American Apparel, Inc. will be held at the Company’s headquarters located at 747 Warehouse Street, Los Angeles, California 90021, on Friday, December 10, 2010, at 2:00 p.m., Pacific Time. Proxy materials are available for review at http://www.cstproxy.com/americanapparel/2010.