Hi, Michael,
What is your reading of 1Q results of App? The revenue seems slowing down especially sss. From your recent writing, they are active in social network such as instagram. It should stimulate online sales theoretically, but they report an obvious slowdown on online sales. Something interesting is that the wholesale sales rise of 7%.That means they are triying to expand their business by traditional distibution channels. I agree with you on the understanding that they are getting closer to customers which will eventually increase sales in the long run.
Michael responds: To be honest I expected worse for the first quarter given the weather on the east coast. They generated + EBITDA in a very difficult quarter with all the distractions related to the distribution center and the equity offering. All in all we are happy with Q1.
Reader asks: The good thing is that expenditures are under control and guidance for EBITDA remains unchanged. But, if we are expecting a good return, revenue is the key catalyst which is not clear at this time. What is your opinion?
Michael: As you said costs are getting under control. In addition, inventory came down significantly and this trend should continue. We think there is about $25 million of incremental annual EBITDA that will be release because of the efficiencies of all the initiatives that were initiated since 2012 and are now complete. I agree with you that the main catalyst here is revenue growth. We are comfortable with management view that the company will generate $1 billion in revenues in 2018. You can read more about our revenue thesis
here.
Reader: I am also curious that you spend quite a time on APP and Plug in recent months. It seems that you are unable to allocate enough money on these two companies. What is your other interest? I remember that you mentioned tons of money from Amazon, do you follow any other companies? One more thing, how do you define the special situation companies?
Michael: We have very large positions in both companies. We buy 1 or 2 stocks every 3 to 5 years in our long term investment portfolio. We are keeping pace with that. Yes, we made a lot of money on Amazon and we are still long Amazon. We look at about five to 10 companies every single day. In a bull market we yawn most days. It will change in a bear market. We invest in distressed companies. Some people label these as "turds". It is pretty obvious when you spot one. What is less obvious are companies that are labeled as such but have incredible business characteristics behind the facade.
Reader: I am a starter in the US market and hope you will give me a helping hand.
Michael: Good luck.
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.