Saturday
Jun082013
American Apparel 325
Saturday, June 8, 2013 at 10:09AMI just got this email from a friend who lives in Montreal: I am watching Tele-Quebec and they are interviewing Dov Charney and they are discussing American Apparel. Interesting brand!
Recently, Charney has been very active in the media, discussing reforming the garment industry following the disaster in Bangladesh. Check out the Vice interview here.
I expect Charney to press hard on the public relations pedal this year. Charney owns a significant amount of options struck at $3.25 expiring in April of 2014. Management is clearly interested in having the stock reach this level before the options expire.
I do believe that two more catalysts will push the stock to that level before the options expire. The new distribution center will allow the company to reduce its inventory by about $30 million by the end of 2013. With a better looking balance sheet, The turnaround thesis will become obvious to the Street.
In addition, comps are accelerating and the company will most likely surprise to the upside for the rest of the year.
The company has performed above our expectation and we have added to our long position last week. The story is evolving from a distressed situation to a growth story. The growth story will become evident in 2014, as we expect the company to start expanding its global franchise.
Reader Comments (4)
Is there anything else they can do before the street takes notice? I realize the stock has doubled.
They had a decent refi, excellent sales growth, a made in America singular philosophy, and the business model is efficient and responds to changes in fashion (a smaller Zara). From a finance perspective, can Luttrell do anything else to improve the overall metrics of the company?
I am not sure why a major conglomerate company wouldn't just buy the brand outright solely on the brand itself regardless of balance sheet. The younger generation in my opinion is taking notice of stories like the Bangladesh garment fire, general outsourcing over the last 20 years, and the impact the US has had on the world and I think these topics all bode well for a made in America vertically integrated company that sells retail in China.
Back to my first question though, what can the APP management team do to get the street to notice? What can they do to get the PPS up to the 3.25 level by April '14?
I appreciate your work and effort.
Hi John,
I think they are doing all they can do right now. They just closed the refi. They are busy making the distribution Center work properly. It came online a couple of month ago. Inventory will come down.
The street will notice when they notice. Have you seen Jeff Bezos focus on the street? No, he focus on the things he can improve for customers and he is totally focus on the platform.
Michael
John,
You should attend the meeting in two weeks and ask management. The shareholder meeting is on 6/25/2013 in New York.
That was a very good point about Bezos and what he focuses on. I think I am hyper focused on APP at this time and need to learn a bit of patience. Dov definitely has some self interest goals and has till April, 2014 so I know that he'll be aggressive in whatever tactics the company decides to take.
I'll take a look at my schedule and see about going to the meeting. I've never been to a shareholders meeting before.