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American Apparel Turns Unexpected Profit

The retailer's fourth-quarter results and 2013 guidance both surpass analysts’ consensus estimates.

Dov Charney

American Apparel Inc. surprised Wall Street with a fourth-quarter profit late Monday, and investors returned the favor with a double-digit spike in the company’s shares in after-hours trading.

The embattled Los Angeles-based vertical retailer also provided strong guidance for the new year and laid out longer-term goals, including the addition in the next three to five years of between 60 and 70 stores to its current fleet of 251 and a boost in e-commerce to 17 percent of its non-wholesale revenues from last year’s level of 12.4 percent, or $55 million.

In the quarter ended Dec. 31, net income came to $4.9 million, or 4 cents a diluted share, versus expectations of a loss of 2 cents. The year-ago loss was $11.2 million, or 11 cents. The company also reversed an operating loss of $2.4 million in last year’s fourth quarter with operating income of $6.9 million in the more recent period.

Sales grew 9.8 percent, to $173 million from $157.6 million, as comparable-store sales were up 7 percent in the quarter, while comparable online sales were up 42 percent. Gross margin expanded to 53.8 percent of sales from 53.2 percent in the year-ago period.

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Dov Charney, chairman and chief executive officer, cited “solid growth and continuing momentum in all business segments and almost all major geographies.”

“As we look towards the longer term, we have set a goal to achieve, over the next three to five years, an EBITDA margin of 15 percent, or 200 basis points higher than our previous peak reached in 2008,” he continued.

For 2013 the company is looking for sales of between $652 million and $660 million, above the $647.5 million previously anticipated, on average, by analysts. Adjusted EBITDA is expected to grow to between $47 million and $54 million from the 2012 level of $36.6 million and the $14.5 million registered in 2011.

The strength of the quarterly numbers wasn’t sufficient to produce a profit for the full year, when the company’s net loss dropped to $37.3 million, or 35 cents a diluted share, from a loss of $39.3 million, or 42 cents, in 2011. Although boosted by an $11.6 million gain on extinguishment of debt, the results were dragged down by interest expense of $41.6 million, higher than the $33.2 million toll exacted in 2011. Adjusted EBITDA, stripping out interest and other financial items, more than doubled to $36.6 million, just above the $36 million that constituted the low point of the guidance provided in November.

Sales rose 12.8 percent to $617.3 million from $547.3 million, and that percentage gain was greater than the aggregate increase in cost of sales and operating expenses, which collectively rose 8 percent to $616.3 million.

Shares, up 1 cent in Monday’s New York Stock Exchange session, shot up after results were released just following the close of the markets, rising 19 cents, or 14.7 percent, to $1.48 in the first 60 minutes of after-hours trading.

Charney, who has faced questions about his personal behavior as ceo even as he’s battled to secure financing, often at high interest rates, commented, “We believe we have demonstrated performance that supports refinancing our debt at a lower cost and we are actively involved in evaluating possible financing alternatives.”