INCOME STATEMENT AND BALANCE SHEET ANALYSIS
MR. MICHEL ANTOINE
LA SORBONNE – PARIS IV
American Apparel is a manufacturer, distributor and retailer of branded fashion basic clothing based in California. The company currently employs around 10,000 peopleglobally and has presence in more than 20 countries.
The purpose of this report is to analyze the financial situation of the company American Apparel throughout the years 2007-2010. By making a deep analysis of basic financial statements such as the balance sheet and the income statement we want to give an explanation to the results obtained by the company during each year.
From year 2007to 2010, we can notice how the company experiences a drop in sales, higher cost of sales and interest expenses that becomes harder to struggle with. We have to first understand that this is a business that depends on so many factors that the company can’t control, for example, changes in the tastes of the customer, trends, price increases of cotton, this is why the company have had to adapt andimplement strategies in order to survive that haven’t necessarily worked how it was expecting.
One of the company’s principal strategies has been to expand through the opening of new stores all over the United States, Canada and internationally. The main goal of this strategy is to increase sales. Despite the company´s efforts to improve its financial situation, the position of the company isstill very unhealthy and unpromising.
Finally, we provide some recommendations that we consider would be helpful to improve the company´s performance in the days to come.
AMERICAN APPAREL (1 PAGE)
Core business, segments, worldwide operations, competitors, seasonality…
BALANCE SHEET ANALYSIS (4 PAGES)
INCOME STATEMENT ANALYSIS (4 PAGES)
In 2008, American Apparel had an importantincrease in sales, 158,006 which represented a 41% increase over the previous year. For 2009, the increase in sales was less interesting, 5,930 (1%) compared to 2008. By 2010, things became more complicated for the company. Sales decreased 27,487, which was the equivalent to -5% in contrast to 2009. In general terms, American Apparel increased its sales from 2007 to 2009 and during 2010 salessuddenly dropped. An explanation for the increase in sales between 2007 and 2009 was the opening of 32 new stores all over the United States, Canada and Internationally but at the same time the explanation for the decrease in sales during 2010 was mainly because of a decline in sales at stores opened for less than a year, known as comparable-store sales. Besides, during March 2010, the company had beeninvolved in two sexual harassment lawsuits from employees, which may have caused a weakening of the brand image and therefore contribute in the drop of sales.
At the same time, cost of sales increased 74,364 (43%) between 2007 and 2008. This happened basically because of a stock based compensation expenditure booked to cost of sales in 2008 related to the grant of 1.9 million shares of stock tomanufacturing employees pursuant to the merger agreement between Endeavor Acquisition Corp. and American Apparel, Inc. Then, in 2009, the cost of sales decreased by 15,135 (-6%) to increase again in 2010 by 10% (22,698). This negative impact on the cost of sales was due to a lower manufacturing efficiency and the rise of cotton prices.
The gross profit had been between 55% and 58% of the netsales between 2007 and 2009. During 2010 it drops to 52% mainly because while sales decreased (-5%), the cost of sales increased (10%). A simple explanation for this phenomenon was a change from retail to wholesale net sales, which cause lower margins and by a change towards more complex retail styles which have a higher cost of production.
All over the 4 years, American Apparel has seen its...