American Apparel Inc. sharply reduced its first-quarter loss as reductions in operating expenses more than compensated for a small decline in revenues.

This story first appeared in the May 13, 2014 issue of WWD. Subscribe Today.

The Los Angeles-based vertical retailer recorded a net loss of $5.5 million, or 5 cents a diluted share, versus losses of $46.5 million, or 42 cents, in the year-ago quarter.

In the three months ended March 31, revenues slipped 0.7 percent to $137.1 million from $138.1 million, with declines in U.S. retail, Canadian and other international operations nearly offsetting a 9.7 percent gain in U.S. wholesale revenues, which rose to $48.7 million. Same-store sales were down 7 percent in the quarter while online sales were up 3 percent.


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The increase in wholesale contributed to a drop in gross margin, to 52.5 percent of sales from 52.8 percent, as it favored lower-margin wholesale volume.

“We are encouraged by our first-quarter performance with our achieved results ahead of our 2014 business plan,” said Dov Charney, chief executive officer. “The results of our cost-control efforts are being seen in all areas of the business and we are now fully focused on measures to improve top-line performance.”

Cost of goods sold was virtually flat at $65.1 million while operating expenses fell 4.6 percent to $79.5 million.


Also helping the bottom line was a $12.7 million gain on a change in fair value of 24.5 million warrants held by Lion Capital at a price of 66 cents a share. A rise in the company’s share price results in an increase in its warrant liability while a decrease would cause it to decline.

Shares of the company rose 10 cents, or 16.9 percent, to 70 cents in NYSE MKT trading prior to the disclosure of results late Monday. They closed at $1.23 on Dec. 31 and at 50 cents on March 31.

Since a secondary stock offering in March, in which 61 million shares of the company were sold for 50 cents each, FiveT Capital Holding AG, a Swiss investment firm, has taken a 12.7 percent stake in the firm. Last month, the NYSE MKT exchange said the company is in compliance with listing requirements which had been put in jeopardy by previously precarious financing, including a weak cash position.

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