Wednesday, July 1, 2009

More Trouble at American Apparel (AMEX: APP)

My friends over at American Apparel got a "small" inspection by the INS, finding out that 1,600 employees are illegal and 200 are questionable.

My read:

10-K, filed March 16
-- cutting: 100 employees
-- dyeing: 900 employees
-- sewing: 3,900 employees
Total:4,900 mfg employees

8-K filed last night:
"5,600 employees that the company employs in its mfg operations"

They added 14% of their workforce in 6 mo? What a great American success story! Get Obama on the line!

Can't check the Q because: "The Company was unable, without unreasonable effort and expense, to timely file its Quarterly Report on Form 10-Q for the quarter ended March 31, 2009 (“Form 10-Q”) because the Company needs additional time to complete certain reviews and analyses with respect to the financial statements and related disclosures to be included in its Form 10-Q."

No biggie, everyone does it once in a while.

In the raid 8-k, they state: "
the Company does not presently believe that the loss of employees would have a materially adverse impact on its financial results. The Company believes that its current surplus levels of inventory and manufacturing capacity would mitigate the adverse impact of any disruption to its manufacturing activities that may potentially result from the loss of these employees. As the ultimate impact is difficult to predict at this time, no assurances can be given as to how, if at all, the loss of a significant number of manufacturing employees will affect its business and operations. "

This might mean:
(1) Piss-pour working capital management so they have excessive inventory to cover the loss of a substantial number of employees
(2) They knowingly hired illegals and are all stocked up as a precaution for a raid-induced disruption
(3) They are simply disingenuous about their inventory levels
(4) Inventory levels are OK given how much their sales have been dropping (on a SSS basis): May 09 -10%; Apr 09 -7%; March -11%; Feb 09 -9%; Jan +2%; Dec + 3%; Nov +6%; Oct +22%; Sept +35%. You think there is a trend?

Also new CFO and Gen Counsel in the last few months. I hope the new CFO is less of a "complete loser", per the CEO's description of the fired CFO.

Good luck to the new hires and best wishes to Lion Capital, who made a large investment in APP back in March, here from the world headquarters of Barbarian Capital.

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