Tuesday, March 18, 2008


app reported good 4q results, 2008 guidance and had a good conference call last night. one negative, which may be why the stock was flat today, was the announcement that the company has material weakness in accounting per sarbanes oxley. this may be somewhat routine for a newly public company via a blank check ipo, but some may not like it.

for 4Q07, app reported revenues of $111.2 million, up 48%. this figure was a little higher than expected, driven by the retail business (the company operated 182 stores at year end), where same stores sales rose a stunning 40% in the quarter. adjusted ebitda came in at $13.3 million, up 56%. the company has invested heavily in its transition to public reporting standards; it seems committed to be a major global brand with 100s of new stores over the next five years. the company reported a small net loss for the quarter after backing out a tax benefit. these are good numbers for a growth retailer like app and the analysts on the call all congratulated the company on the results.

app provided detailed guidance for 2008, pointing to revenues of $470-485 million and EBITDA of $70-64 million, both up 24%, and EPS of 32-36 cents, vs. the adjusted 2007 result of 19 cents. the guidance sounds conservative, as it is based on comps of 15% versus the 2007 figure of 29%. tougher comps will lead to a slowing, but january and february are up 40% and 45%, respectively. also conservative is the projection for $15 million net interest expense given a total debt level of $117 million and current cash of over $80 million.

the ceo talked in detail aboout specific stores, mall architecture, international expansion, foreign currency impact, inventory management, store productivity plans, gross margins, operating margins, apparel trends, and competition in the retail and wholesale business segments.

the shares have been hit hard recently, mostly i think due to the 3/7/08 exercise of 16 million warrants. it trades at about 9 now; at 12x ebitda, the shares would be around $11.50 and trading at less than 30 times this year's probable eps. this is probably a bargain for a very hot apparel brand that is executing superbly and comping at an incredible rate.

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