American Apparel (NYSEMKT:APP)

CAPS Rating: 2 out of 5

Fashion retailer of basic apparel for men, women, children, and pets, with locations in North America, Europe, Asia, and Australia.

Recs

4
Player Avatar BuffySoro (78.09) Submitted: 4/30/2010 12:09:01 PM : Underperform Start Price: $3.15 APP Score: +134.02

5+ yrs pick, lol, if it hasn't gone bkrupt:RL pick:Their stores are pretty much already in every oecd country, how can growth come? last week they opened a store within selfridges in london (hello sales cannibalization from other app store down oxford street)..., but with an (accounting-favored) net profit margin of 0.9% (a symbolic NI of 1.1mn$) how are they gonna pay the rent? ...and sales Q1 yoy have gone down... they say they had inventory issue because of lay offs, but just an excuse, their inventory as % of sales actually increased from 3.2% to 3.8%, because they can't sell the stuff....they sell more or less to same guys as ab&fitch (just a little more 'hip' due to image from LA) but their success is based on low prices and simple clothing -not good for shareh returns (and for paying off interest expenses) and consumer's rise out of recession...But the reason for potential financial distress and equity dilution (brktcy if Private Equity owners are smart enough to not throw good money after bad), is they have to update manu plants, to push up margins because of their PE owner that saved APP from bkrtcy in march '09 (I guess they want to compete against eg ab&fitch because of their mouth-watering profit margins, but in doing so they will likely trash the brand) and because of illegal worker layoffs, therefore current depr&am is understated so that NI would be a loss, and if only understated by 20% it would push their FCF to 17£mn (ceteris paribus), below their annual interest expense of $22.6mn...AND they also have to boost CapEX, after dropping it by 40$mn (wow!) last year to pay off debt, those machines cost at least $20mn to upgrade, therefore they will have negative fcf, but can't raise more debt, so equity will go down even more (possibly becoming 'officially' negative given a write off of pp&e assets, since eq could already be -, but not in the numbers reported)So too much debt because of an overly ambitious ceo that opened too many stores... Finally, stock in downtrend within larger downtrend! some big boys are selling massive blocks of shares (look at volume), as they are getting out after outlook of failure and lack of gizz...

Member Avatar BuffySoro (78.09) Submitted: 5/20/2010 8:18:13 AM
Recs: 0

all right!!

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