American Apparel ($APP) reduced inventory by $6 million from $169.3 million to $163.3 million during the first quarter of 2014. The company's objective is to reduce inventory by $25 million in 2014. The company should end 2014 with about $144 million in inventory for a 14.7% decrease. After visiting a few stores we believe that the company might be able to reduce inventory further. How much further? We believe after talking to a few analysts that $APP could match Delta Apparel ($DLA) inventory turn of 2.39. At a turn of 2.39 Americal Apparel could reduce inventory further by $32 million to $130 million. $32 million represents two coupon payments on the bond.
VFC Corp. ($VFC) is a best of breed retailer that turns inventory at 4.2 times. It is possible that $APP could push the envelope further but don't count on it...For now unless management proves us wrong.
Here is a picture of what the inventory situation would look like under different inventory turn scenarios.
Written by Michael Bigger.
Disclaimer: Bigger Capital, LLC, Bigger Capital Fund, LP, Bachelier, LLC and the Bigger family own more than 3.27 million shares of American Apparel. American Apparel is a highly distressed situation and it is not suitable for the majority of investors. The likely outcome of an investment is a loss of principal. In other words, the probability of losing all your investment in this situation is very high. We have been purchasing American Apparel since May of 2011 and we have nothing to show for it. Take our opinions with a grain of salt and do your homework. None of the Bigger entities individually or in aggregate have an obligation to file its position with the SEC at the time this article was published.