American Apparel (AMEX:APP)

This stock was picked by TMFClarity for the 2008 Stockpicking Contest.

poor leadership, but product sells. clear out dov as acting CEO and this would be 5 bagger in 2 years.

Extremely popular retailer, with same store sales up 37% in March 2008. Expecting to go from 150 stores to 800.

Strong same-store sales in spite of the slowing economy!

Notebook sales were up big time for last quarter and I expect this trend to continue.

retailer

paul noglows had best forbes pick last year

Background:
American Apparel is arguably the hottest retailer in the industry, with 150+ stores worldwide... with same store sales growing at tremendous 27%, and plans to expand by 700-900 stores.

Under the current share price, they are extremely undervalued.

Not only, are they the hottest retailer in the industry, but they are also the largest manufacturer of t-shirts and apparel in the US. Their customers are not only consumers who enter the retail stores, but also b2b custom screen printing companies who print unique designs onto AA made goods.

Here’s a comparison of American Apparel (APP) to Lululemon Athletica inc. (LULU)

This details how undervalued and cheap the stock price is right now.

LULU is the best current retail comparison, because LULU has received such a rich valuation. However, there really is no other vertically integrated retailer out there with AA's brand strength and same store sales growth above 20%, with the exception of maybe Apple, another very strong brand.

Abercrombie, American Eagle, J Crew, etc., are all way past their peak growth levels so it's impossible to compare at this time. Under Armour, Crox, Deckers (makers of popular Teva sandals and Uggs boots), are all good comparisons in terms of product, but none of those companies have the store expansion model of American Apparel. The only other retail company out there with same store sales growth over 20%, EPS growth 50-100% and looking to expand their store base by more than 4 times is Lululemon.

1. LULU has higher sales and EPS growth, but APP has more than double the total revenue. (LULU expects 150 million in '07, APP expects over 350 million) In '08, AA is expected to have double LULU's revenue again.

2. LULU hopes to expand to 600 stores in the next several years. AA plans to reach 800-900.

3. Both companies have approximately 68 million shares outstanding. LULU has a market cap of $2.6 billion while APP has a cap of $1 billion. At a cap of $2.6 billion (and keep in mind that is not assuming the same valuation of LULU only the same market cap) APP would trade at the same price as LULU, in other words $38.00 per share. APP currently trades at about $15.00.

The current analyst consensus is for $345 million in revenue and 440 million for '08.

At a current price of $15, EDA is trading at less than 3x trailing sales and only 2x forward sales!

GIL = 5.25x sales
UA = 4.2x sales
CROX = 4.1x sales (even after recent 40%+ decline)
DECK = 4.5x sales

LULU = 8x sales

APP '08 sales will grow at least 35%, but likely more as retail sales become a greater percentage of sales compared to wholesale, margins expand, same store sales grow over 20%, and we open 20-25 new stores. (Retail sales are growing at a rate of more than 50%)

APP is expanding faster, has better same store sales, and has a hotter brand than almost anyone in the industry. With store expansion happening all over the world, APP can also benefit from the weak dollar. A fair valuation could very likely give us a double ($30/share) from here in a short period of time.
$26/share gives a mkt cap of $1.77B, still just 4x forward sales.

Media:

Forbes| Video: Fit to a Tee
http://www.forbes.com/video/?video=fvn/business/ab_americanapparel&partner=email

The Street | Video: American Apparel Has Sex Appeal
http://www.thestreet.com/video/index.html?clipId=1373_10380314&channel=Market+Strategy&cm_ven=&cm_cat=&cm_ite=#10380314

CBS | Video: Interview with founder Dov Charney
http://www.youtube.com/watch?v=hYqR8UIl8A4
Google PBS | Video: Interview with founder Dov Charney
http://www.americanapparel.net/gallery/charlierose/qt.html

Seeking Alpha | Three Long Picks
http://seekingalpha.com/article/55843-vic-scott-bommer-of-sab-capital-three-long-picks?source=yahoo

Seeking Alpha | American Apparel Set to Double
http://www.seekingalpha.com/article/57483-american-apparel-set-to-double

Tim Sykes | The Best Kept Secret in Retail
http://timothysykes.com/index.php/myblog/the-best-kept-secret-in-retail.html

Forbes | Top Stocks for 2008
http://www.forbes.com/free_forbes/2007/1210/134.html?partner=yahoomag

The Street | Try EDA On for Size
http://secure2.thestreet.com/cap/login/rm_mbp_summarylong.jsp?flowid=15e4e64a5d&url=http%3A%2F%2Fwww.thestreet.com%2Fp%2F_mktw%2Frmoney%2Fretail%2F10390375.html&denied

The Minnesota Daily | Unkempt, Urban, Ubiquitous.
http://www.mndaily.com/articles/2007/10/05/72163645

American Apparel recently held a factory flea market in LA.
Link: http://www.americanapparel.net/fleamarket/

Here's a YouTube video of all the people waiting in line to get into the flea market:
http://www.youtube.com/watch?v=cdijxKeOTpI

Lindsay Lohan | American Apparel shopping spree
http://lindsaylohansite.blogspot.com/2007/12/lindsay-lohan-went-for-late-night.html

next American Eagle

Now That it Has Purchased American Apparel and changed it's symbol to APP the sky is the limit!!!

qwere

Forbes article "True Believer Stocks"

This is assuming the American Apparel merger goes through. American Apparel is an innovative manufacture and business. This will be a quality stock to own. I have great hopes for it in the near term as well. The vote on the merger is December 12th I believe.

this is a copy of a letter i wrote to the street.com -

I have one concern about this stock and that is the share count. I spoke to investor relations and they indicated there would be a press release in the very near future that would clarify that issue but that we could expect the count not to differ significantly from the 58 million number given in their 12/06 presentation.
That one concern aside, I think your numbers are far too conservative. If you're at all interested, I'd like to tell you why. (If not, quick, turn away!)
In light of their recent announcement of 24% comps, AA is going to get a hefty premium to the market. 24% (as I'm sure you're well aware) is practically unheard of in retail outside of lululemon, and lululemon's low 30's comps are partially attributable to the recent strength of the CAD. So while I wouldn't expect 9x sales and 30x Ebitda like lululemon, I would point out that I think many people who missed lululemon will see AA as a "second chance." AA however appeals to a much larger crowd with more opportunity for expansion (a 7-10yr goal of 900 stores worldwide, compared to lululemon's goal of 600). Lululemon has a market cap of 3.38B (yes I know it's nuts but humor me for a minute) with Q2 revenues up 80% to 52 million. AA's Q2 revenues were 95.6 million, w/ retail sales up 51% but AA garners only a modest market cap of ~661 million. AA's expansion is really only beginning as they receive the influx of cash from the merger. Both companies are growing EPS nearly100%. Again, I am not saying I expect AA to get a 300 p/e and trade at 9x sales (though I'd like that). But possibly a fairer value for AA might be near the price of lululemon's close on its first day of trading, 28 (market cap - 1.8B) before investor euphoria took hold.
But let's say that lululemon is the exception and AA doesn't get that kind of premium.
Even at 3-4x sales - (ZUMZ gets 3.7x sales, 24x Ebitda w/ similar revenues but a fraction of the sales growth and eps growth. VLCM trades at over 4.5x sales, 20x Ebitda also with significantly lower growth) - we're looking at a cap of 1.2B/58m shares (though that no. may change slightly) = $20 share price. I also think the $40m ebitda number is crazy (as you pointed out in your article) seeing as they did $18m in Q2 alone (28m so far this year) and they're not going to suddenly start doing only $6m per quarter. So I wouldn't value the co. on that estimate. We should see Q3 earnings in the next couple weeks and we'll have a better idea.

American Apparel aside, i think there are two major additional upside catalysts.
1. a 30% short position in EDA. This is largely due to an arbitrage opportunity with the outstanding warrants but nonetheless it will provide buying power and support.
2. My research indicates that there is such a powerful stigma against SPAC's that half of Wall Street wouldn't touch one even if they were handing out free shares. While SAC (as you mentioned) owns a stake, Morgan Stanley owns a large stake, and a few others . . . I believe this is a stock that would get a thrilling response as an IPO but is being largely ignored as a SPAC. It often trades under 100,000 shares and that is certainly not due to a lack of excitement about AA. It might take a few months for people to warm up to it after the unorthodox method of going public, though AA's Q3 report will probably assuage any fears people had.
Come December, there is going to be a tremendous demand for one of the hottest retailers in the world, growing eps next year likely at (100%), with a social conscience that should appeal to many investors and certainly appeals to AA's customers. And anecdotally, any investor with kids or who has been in one of these stores knows that these clothes appeal to a massive demographic of almost all ages, ethnicities, and both sexes.

shell co, briefing idea 12.69

The likely hood this deal goes through in the near term is slim. American Apparel is growing faster than last nights erection, but I warn you not to be fooled. Dov needs cash in the worst way. Let me explain. Currently they are maxed out on borrowing agreements that are securitized against inventories. The cash allows them to meet supplier payments in advance of the shipment. They receive the shipment, assemble the goods in downtown LA, then ship them out across the US. The goods go on the rack then finally they get paid. The cash conversion cycle is long and God forbid the chinese shipment of zippers gets delayed at port. Then the whole manufacturing process is halted. Compounding this problem is their massive growth. Opening 10 stores in NY this year alone and dozens more across the country. This company is cash starved. The reverse merger might have sounded appealing initially but when AA falls short of the stringent EBITDA and margin requirements the deal is likely to fall through.

Definitive merger agreement announced between Endeavor and American Apparel. American Apparel can have new designs taken from concept into the store in days instead of months because of their vertical integration.

American Apparel growing > 30%.

This is the next Gap with a cult following it is a steal and will be worth billions of market cap.