Why American Apparel Shares Got Dumped

Before you go, we thought you'd like these...
Before you go close icon

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of American Apparel were getting taken to the cleaner's today, down as much as 13% after a subpar second-quarter earnings report.

So what: The teen fashion retailer actually reported solid revenue growth as sales increased 9% to $162.2 million, in line with expectations, and same-store sales improved 7%, an impressive clip for a retailer. Earnings took a hit, however, due to the transition to a new distribution center, but the company's adjusted net loss improved from $13.9 million a year ago to $10.9 million, or $0.10 a share. Analysts were expecting just a $0.05 loss, though. CEO Dov Charney was positive about the performance, noting strong sales growth across all three business channels, and steps taken to improve efficiency and lower costs with the change in distribution centers.

Now what: American Apparel has struggled over the last few years, and despite sales moving in the right direction, profits continue to be elusive. Its operating loss actually grew from a year ago as gross margin fell 120 basis points, though management explained that as a consequence of increased wholesale division sales. While the top-line improvements are promising, this stock will remain highly risky until management can get its cost equation in order and turn a profit, or at the very least, beat earnings estimates.

You're not stupid. You know that the best investing approach is to choose great companies and stick with them for the long term. That's why the Motley Fool's free report "3 Stocks That Will Help You Retire Rich" details a group of stocks that could help you build long-term wealth and retire well, along with some winning wealth-building strategies that every investor should be aware of. Click here now to keep reading.

The article Why American Apparel Shares Got Dumped originally appeared on Fool.com.

Fool contributor Jeremy Bowman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Read Full Story

People are Reading