American Apparel: The naked truth
American Apparel Inc. (AMEX:APP) is the epitome of “edgy,” yet there is a schizophrenic tinge when analyzing the last large-scale clothing company whose labels read “Made in the USA.”
The Los Angeles company wears the badge of abolishing the garment industry sweatshop while managing to keep its prices low. The fashion genius of founder Dov Charney is lauded, but there are allegations made by former American Apparel employees and others about his seemingly offbeat behavior — including sexual-harassment lawsuits. Montreal native Charney was presented this year with the fashion industry’s “Retailer of the Year” award.
Fashion is a sexually charged industry, and American Apparel’s image kicks that up a notch. American Apparel’s first eight months publicly traded have been rocky, with negative publicity piling up like a mountain of tattered tees in a thrift store discount bin. Those distractions make it difficult to peek under the covers at the financial soundness.
Of the three analysts who follow American Apparel, two rate the stock a “strong buy,” and the other calls it a “buy.” The median price target calculated by Thomson Reuters is $14.50.
In a Sept. 8 report to investors, analyst Mickey Schleien of Ladenburg Thalmann sounded impressed by solid same-store sales and its retail store expansion. Schleien also noted a $54 men’s oxford shirt was added, substantially higher than its T-shirts costing around $20. “Expanding the product line may help capture more customers and generate cross-selling opportunities,” wrote Schleien, who reiterated a “buy” rating.
Since coming public through a “blank-check” merger on Dec. 12, American Apparel’s stock price has swung from a high of $16.80 on that first day, to a low of $5 on July 29. Most recently, the stock of American Apparel, which was added to the Russell 2000 index this summer, closed Thursday at $8.60.
In December 2006, Endeavor Acquisition Corp., created to buy other companies, announced a $244 million stock deal to take American Apparel public. It was finalized a year later.
Admittedly, American Apparel’s retro-look duds are not duds, with their popularity rising among the trend-setting youth culture. Monthly same-store sales have risen double digits, jumping in August by 31%. Last month, while reporting second-quarter results that bucked retailing’s malaise, American Apparel said it would open 50 to 55 stores in 2008, on top of the existing 182 at year-end.
American Apparel has retail locations throughout the United States and in 20 other countries, including China. Its billboards ooze suggestiveness, with models posing in what some perceive as near-pornographic positions. It’s also found online at MySpace, Facebook and other social-networking vehicles.
Some American Apparel advertising has pushed social and political themes, including immigration. The company, which has an Internet radio station, has been a proponent of the “Legalize LA” campaign.
Even the military is hip: American Apparel has won provisioning contracts from the U.S. Department of Defense to outfit the troops, including the Marines, with combat clothing and other items.
For the quarter ended June 30, American Apparel reported net sales grew 38.9%, to $132.9 million and while net income rose 42% to $6.8 million, and diluted earnings per share were flat at $0.10.
It’s difficult to discern the naked truth about American Apparel’s investment potential. Ignore the raunchy bad boy (and girl) attitude, and it could wear well in a portfolio.
About the Author
Contributing author Paul Rolfes is assistant business editor at The Courier-Journal, the largest daily newspaper in Kentucky.
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