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American Apparel says manufacturing and bank woes arriving in Q2

By Tiffany Montgomery
May 19, 2010 6:23 AM

Update, 2:29 p.m.: American Apparel's stock price fell 40% today.

American Apparel’s problems appear to be mounting as the loss of experienced by illegal factory workers continues to impact production capabilities.

The company said this morning those problems could plague American Apparel production through 2010 and will impact financial results through 2011.

While factory efficiency improved in the first quarter of this year from the fourth quarter of 2009, the company said it would worsen as it heads into its busy season.

In addition, the company said it will not be in compliance with some of its bank covenants beginning June 30. This could trigger a default and potentially, both of its revolving credit lines could become payable. The company is working with its lenders to adjust the covenants.

Preliminary Q1 results

Net sales: up 6.6% to $121.8 million

Retail sales: up 1.5% to $79.1 million

Same store sales: down 10 % in constant currency

Wholesale sales: up 21.6% to $34.2 million

Online sales: up 3.6% to $8.4 million

Gross margin: 50.4% vs. 57.2% due to shift from retail to wholesale sales and factory efficiency problems.

Loss from operations: $17.6 million vs. a $3.9 million loss the same period last year.

The company said it would release net income results when it files its 10-Q, which will be delayed.



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