American Apparel is not a company that experiences a lot of good press these days. Typically, the clothing manufacturer and retailer is in the news because of the alleged personal and professional antics of its Montreal-born founder and CEO, Dov Charney. Or because the cash-strapped company has yet again avoided a bankruptcy filing. Or because it has settled one of its many outstanding lawsuits.
But the company’s second quarter sales results issued today contained a rare bit of good news—sort of. The company said same-store sales for the second quarter were essentially flat. (Same-store sales are a measure of revenue at locations open longer than a year, and serve as a decent gauge of a brand’s longevity and popularity.) For any other retailer, such a result would be a disappointment. But comparable sales at American Apparel have been falling off a cliff for more than two years—take a look at the chart below—so any improvement is a welcome one.
The company expects to see positive same-store sales for the year as a whole, but it remains to be seen if this is the start of a turnaround in American Apparel’s core retail business, or a mere blip on the way to oblivion. What it could show is that the company is addressing one of its long-standing problems: over-expansion. Charney has always been megalomaniacal in his ways. The company built too many locations too quickly, and lacked adequate financial controls. An early investor in the company told me last year that, “Dov’s vision for the business has always outrun his balance sheet—from day one. We spent, obviously, a lot of time trying to hold back the execution of his vision.”
Such over-expansion means American Apparel has been cannibalizing sales, but the chain is now reducing its store count. Last year, it had more than 280 locations and has since brought it down to 256. Further reductions may be necessary.
There is good reason to be skeptical that the company’s prospects are improving in a material way, however. The results issued today are really just a preview of the full financials for the quarter. We don’t yet know if it managed to turn a profit, for example, and American Apparel’s recent income statements show it is still a deeply troubled company.
Nevertheless, shares are up 12% so far on the news. Charney also continues to find believers to fund his vision. Earlier this year, he secured a US$14.9 million round of financing from a group of private investors led by the co-founder of Yogen Fruz, Michael Serruya. A regulatory filing on May 31 also revealed that renowned Canadian investor Rohit Sehgal purchased 7.3 million shares of American Apparel (nearly 9% of the company) through Goodman & Co., where he is vice-president. Given the company’s history, both investors should brace themselves for a bumpy ride.