Investor Presentation January 2

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 Investor Presentation January 2 Powered By Docstoc
					Investor Presentation   January 2009

Safe Harbor Statement

This presentation may contain forward-looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995 about American Apparel, Inc. (“American Apparel” or the “Company”). Forward-looking
statements are statements that are not historical facts and include statements regarding, among other things, the
Company's future financial condition and results of operations and the Company's prospects and strategies for
future growth. Such forward-looking statements are based upon the current beliefs and expectations of American
Apparel's management, but are subject to risks and uncertainties, which could cause actual results and/or timing
of events to differ materially from those set forth in the forward-looking statements. The following factors, among
others, could cause actual results to differ from those set forth in forward-looking statements: changes in the level
of consumer spending or preferences or demand for our products; increasing competition; our ability to hire and
retain key personnel and our relationship with our employees; suitable store locations and our ability to attract
customers to our stores; effectively carrying out and managing our growth strategy; failure to maintain the value
and image of our brand and protect our intellectual property rights; declines in comparable store sales; seasonality;
consequences of our significant indebtedness, including our ability to comply with our debt agreements, generate
cash flow to service our debt; our ability to extend, renew or refinance our existing debt; costs of materials and
labor; location of our facilities in the same geographic area; manufacturing, supply or distribution difficulties or
disruptions; risks of financial nonperformance by customers; investigations, enforcement actions and litigation;
compliance with or changes in laws and regulations; costs as a result of operating as a public company; material
weaknesses in internal controls; interest rate and foreign currency risks; loss of U.S. import protections or changes
in duties, tariffs and quotas and other risks associated with international business; our ability to upgrade our
information technology infrastructure and other risks associated with the systems that operate our online retail
operations; general economic and industry conditions, including worsening U.S. and foreign economic conditions
and turmoil in the financial markets; and other risks detailed in our filings with the Securities and Exchange
Commission, including our 2007 Annual Report on Form 10-K dated March 17, 2008. Our filings with the SEC
are available at You are urged to consider these factors carefully in evaluating the forward-looking
statements herein and are cautioned not to place undue reliance on such forward-looking statements, which are
qualified in their entirety by this cautionary statement. The forward-looking statements speak only as of the date on
which they are made and the company undertakes no obligation to publicly update such forward-looking statements
to reflect subsequent events or circumstances. This presentation includes certain financial information (such as
EBITDA) not derived in accordance with generally accepted accounting principles ("GAAP"). American Apparel
believes that the presentation of these non-GAAP measures provides information that is useful to investors as
important financial measures to assess the Company's operating performance. The Company's EBITDA as set forth
herein, except whereas otherwise noted, was derived by taking earnings before interest, taxes, depreciation
and amortization.

Investment Thesis

“American Apparel is the fashion sensation of 2008” (1)

+ Young, cutting-edge brand with loyal, rapidly expanding customer base

   + Over 80 stores opened in 2008

   + Retail sales of $341 million in 2008, a 62% increase over 2007

+ Hiqh-quality, fashionable, basic apparel with broad
  potential appeal

+ Target market: young metropolitan adults (20-32) in major urban
  markets with disposable income

+ Demonstrated proof of concept internationally with successful retail
  operations in 18 countries outside the U.S.

+ Under-penetrated market – immediate term goal of 800 stores is just
  the start

+ Long-term goal: to become the #1 destination for basic
  apparel – the first name that consumers think of for t-shirts,
  sweatpants, underwear, socks, etc.

(1) The Guardian, “Label of the Year: American Apparel”, November 30, 2008.

Competitive Strengths

Manufacturing, Marketing, and Logistics

+ Vertically integrated manufacturing – all apparel manufactured
  by the company in Southern California

  + Improved response time and speed to market – get what is selling to
    the stores faster

  + Do not have to forecast fashion trends

  + Higher quality control – maintain premium branding

  + Better inventory control – virtually no markdowns and less sales lost
    to stock outs

+ Strong brand identity that resonates with target market

  + Celebrated ad campaign

  + Core of creative team has been in place for 6 years

+ Made in USA merchandise allows for scalability for
  international expansion

Brand Recognition

+ Dov Charney awarded prestigious “Retailer of the Year” award at
  the 2008 15th Annual Michael Awards, joining previous winners
  including Calvin Klein, Hugo Boss, Oscar de la Renta and Tommy

+ Cutting-edge advertising, product branding and “Made in
  Downtown LA” operations have generated significant press,
  brand awareness and cult status worldwide

Top Trendsetters Brands(1)         Top Retail Brands Apparel Stores(2)   Most Trusted Retail Brands(3)
1 Nike                             1 Victoria's Secret                   1 Apple
2 American Apparel                 2 American Apparel / H&M (tie)        2 Trader Joe's
3 Apple                            3 J. Crew / PacSun (tie)              3 Jet Blue
4 Vans                             4 American Eagle Outfitters /         4 In-n-Out Burger
5 Seven                               Abercrombie & Fitch (tie)          5 Ben & Jerry's
6 Levi's                                                                 6 Whole Foods Market
7 Mac                                                                    7 Adidas
8 Marc Jacobs                                                            8 American Apparel
9 Hanes                                                                  9 Target
10 Victoria's Secret                                                     10 H&M

(1) The Intelligence Group, Cassandra Report, January 2008.
(2) Brand Keys, Inc., Retail Merchandiser, February 2008.
(3) Outlaw Consulting, Women's Wear Daily, April 2007.

2008 Accomplishments

Accelerated expansion with significant investments in infrastructure
and systems

+ 78 net new store openings, plus 3 store moves

  + New launches in Australia, Belgium, Brazil,
    China, and Spain

+ Strong comparable store sales results: 22% in 2008
  on top of 29% in 2007

+ Significantly expanded manufacturing operations

  + Garment dye facility put into operation in Q1 2008 (acquired Dec 2007)

  + Acquired fabric dye facility in Garden Grove, CA in May 2008, added
    knitting capacity

  + Added production capacity at existing facilities

+ Expanded outlet operations to liquidate second-quality goods:
  increased from 4 stores to 11

  + Inventory obsolescence reserve reduced in Q3 2008

+ Currently expect to come between original guidance range on
  EBITDA of $70-75 million and EPS of $0.32 to $0.36 (excluding
  one-time merger-related stock-based compensation expense)


+ Grow store base

  + Under-penetrated urban markets in U.S., Canada, and internationally

  + New markets

+ Improve production efficiency with better supply-chain management
  and materials resource planning with ERP

  + Produce the right SKUs in the right quantities

+ Improve merchandise allocation in stores

  + Improve store productivity by capturing more sales and increasing
    inventory turns

+ Add categories to provide customer with more complete product
  assortment of basics (jackets, bottoms, wovens, etc.)

  + Improve store productivity by increasing customer visits, transactions,
    and AUR

+ Improve execution through key management hires and growing
  the organization

+ Expand brand awareness and reach beyond initial base
  of young metropolitan adults

Retail Growth

Significant store growth and strong comparable store sales performance in 2008

+ Over 80 store openings in 2008                            Stores by Geography
+ Comparable stores increased 22% in 2008              Comparable
                                                      250            Store Sales
                                                       U.S. Retail           36%         27%     24%          1%       21%
   + 57% on a two-year stacked comp basis              Canada                43%         34%     39%
                                                                                                             36%       38%
                                                       International         24%         12%     17%
                                                                                                  182        19%       18%
+ Major comp drivers                                   Total                 37%         23%     24%         10%
                                                                                                             37        22%
                                                                                          147     47
   + Increased traffic and transactions                Store Openings            Q1       Q2
                                                                                          28       Q3          Q4      2008
                                                       U.S. Retail                 1
                                                                                 103       3
                                                                                          26       20          19        43
   + Expanded merchandise assortment                  100
                                                       Canada                     -1
                                                                                  17       1        4            3        7
                                                       International               3
                                                                                           5        9          11
                                                                                                             148         28
   + Increase in AUR                                   Total
                                                       50            38            3       9
                                                                                          93       33
                                                                                                  105          33        78
                                                                             3    66
   + NO MARKDOWNS - full price selling                 Store Base
                                                              3         26
                                                       U.S. Retail
                                                             2003       2004     106
                                                                                  2005    109
                                                                                          2006    129
                                                                                                  2007        148
                                                       Canada                     29        30     34             37
                                                       International Retail
                                                                   U.S.           50 Canada 55     64
                                                                                                 International    75
                                                       Total                     185      194     227            260

         Average Unit Retail Price                          Comparable Store Sales

                            $24.88                                         Q1
                                                            Comparable Store Sales Q2      Q3     Q4     Full Year
                                                            2007          17%     24%     27%    40%       29%
$20.00                                                      2008          37%     23%     24%    10%       22%
              2006          2007          2008              Two-year      60%     53%     57%    54%       57%

Top 25 Stores Worldwide

Largest markets: New York, Los Angeles, London and Paris

+ Significant international diversity in retail sales – many successful
  major markets worldwide

+ Many under-penetrated markets still available for expansion
                                                                                                                               London - Oxford Street, Opened 12/1/2007

+ Modest store footprint and favorable unit economics means cities can support
  high concentration of units

        2007                                      2008
$5.9M     London - Carnaby Street         $6.5M     London - Oxford Street*
          New York - 712 Broadway                   New York - 712 Broadway
          New York - Spring Street                  London - Carnaby Street
          Tokyo - Shibuya                           New York - Spring Street                                                   London – Covent Garden, Opened 11/26/2007
          Paris - Beaurepaire                       Tokyo - Shibuya
          Paris - St-Honore                         Paris - Marais
          New York - 5th Avenue*                    Paris - St-Honore
          Berlin - Münzstraße                       Paris - Beaurepaire
          New York - 183 E. Houston                 New York - 5th Avenue
          Santa Monica - Main Street                London - Covent Garden*
          Paris - Marais                            New York - Upper East Side
          San Francisco - Haight Street             Santa Monica - Main Street
          Seoul - Myung-Dong                        Berlin - Münzstraße
          New York - Upper East Side                Toronto - Yonge & Dundas
          London - Portobello Road*                 New York - 183 E. Houston          Stores that would have
          Los Angeles - Robertson Blvd              San Francisco - Haight Street      made the list…                          Paris - Victor Hugo, Opened 12/24/2007
          Calgary - 17th Ave                        Calgary - 17th Ave                 (had they been open
          New York - Chelsea                        Paris - Victor Hugo*               the entire year)
          New York - Columbus Circle                Boston - Back Bay
          Paris - Saint Germain*                    Paris - Saint Germain                 Melbourne - Chapel Street
          Miami - Lincoln Road                      London - Kensington High Street*      Sydney - Oxford Street
          Boston - Back Bay                         Montreal - Cours Mont-Royal           London - Camden High Street
          Hamburg - Jungfernstieg*                  New York - Columbus Circle            Toronto - Sherway Gardens
          Cologne - Ehrenstraße                     Seoul - Myung-Dong                    Garden City - Roosevelt Field Mall
$2.0M     San Francisco - Union Street    $2.7M     Ottawa - Rideau Centre                Calgary - Market Mall

                                                                                                                               London - Kensington High Street,
                                                                                                                               Opened 7/7/2007
                                                                                       *New Stores                                                                      10
           Store Locations (North America)        Whitehorse

                                                                               Great Slave
                                                                                                    NORTHWEST TERRITORIES



                                                                                                                                                 Hudson                                                        NEWFOUNDLAND

                                                                                                                                                                                                                                                  Southern California:    Louisiana:             Ohio:
                                                                               ALBERTA            SASKATCHEWAN          MANITOBA                   ONTARIO                              QUEBEC
                                                                                                                                                                                                                                                  Arcadia                 New Orleans            Cincinnati
                                                                                                                                                                                                                                                  Camarillo                                      Cleveland
                                                                                                                                                                                                                        NOVA SCOTIA
                                                                                                                                                                                                                                                  Commerce                Annapolis              Columbus
                                                                                                                                                                                                                                                  Claremont               Bethesda               Oregon:
                                                              WA                                                                                                                                                                                  Costa Mesa              Baltimore              Eugene
                                                                                              MT                       ND              MN                                                                VT
                                                                                                                                                                                                                                                  Huntington Beach        Silver Spring          Portland (3)
                                                                                                                                                                                                                                                  La Jolla                Massachusetts:         Pennsylvania:
                                                                                                                                                                                                                                                  Los Angeles (14)        Boston (2)             King of Prussia
                                                         OR                                                                                                                                         NY        MA
                                                                                                                                                       WI                                                     CT
                                                                                                                                                                        MI                                                                        —Beverly Hills          Cambridge              Philadelphia (2)
                                                                                                                                                                                                                                                  —Cherokee               Michigan:              Pittsburgh (2)
                                                                                                WY                                                                                                                               New York
                                                                                                                                                                                                    DC    DE                                      —Echo Park              Ann Arbor              Rhode Island:
                                                                                                                                                                                    WV                   MD                                       —Factory Store          East Lansing           Providence
                                                                                                     CO                                          MO
                                                                                                                                                                                                                                                  —Hollywood              Royal Oak              South Carolina:
                                                    CA                                                                       KS                                          KY

                                                                                                                                                                                                                                                  —Little Tokyo           Minnesota:             Charleston
                                                                                                                                                                  TN                                                                              —Los Feliz              Bloomington            Columbia
                   Los Angeles                                                 AZ
                                                                                                                                  OK              AR
                                                                                                                                                                                          SC                                                      —Manhattan Beach        Minneapolis            Tennessee:
                                                                                                                                                                                                                                                  —Melrose                Missouri:              Memphis
                                                                                                                                                                                                                                                  —Pasadena               Kansas City            Nashville
                                                                                                   NM                                                                              GA                                            ATLANTIC OCEAN

                                                                                                                            TX                                                                                                                    —Santa Monica           Nebraska:              Texas:
                                                                                                                                                                                                                                                  —Third St. Promenade    Omaha                  Austin (2)
                                                                                                                                                                                                                                                  —West Hollywood         Missouri:              Dallas (2)
                                                                                                                                                                                                                                                  —Westwood Village       Kansas City            Houston

                                                                                                                                                                                                                                                  Rancho Cucamonga        Nevada:                Round Rock
                                                                                                                                                       Gulf of MEXICO
                                                                                                                                                                                                                                                  San Diego (4)           Las Vegas (3)          San Antonio (2)
                                                                                                              MEXICO                                                                                                                              Santa Ana               New Jersey:            Utah:
                                                                                                                                                                                                                                                  Santa Barbara           Edison                 Salt Lake City
                                                                                                                                                                                                                                                  Studio City             Hoboken                Vermont:
                                                                                                                                                                                                         O Open                                   Ventura                 Paramus                Burlington
represents single retail store location
81 retail locations in the US
                                          represents proposed single
                                          retail store location                                                                                                                                          O Opened in 2008                         Colorado:               New York:              Virginia:
22 retail locations in CANADA
2 retail locations in Mexico              ? projected retail locations
                                                                                                                                                                                                                                                  Boulder                 Brooklyn (4)           Richmond
                                          in North America                                                                                                                                                                                        Denver                  Garden City            Washington:
           Coming Soon (9)                                                     Canada                                                                                                                              United States                  Connecticut:            Manhattan (16)         Lynwood
                                                                                                                                                                                                                                                  South Norwalk           —Chelsea               Seattle (3)
           Chicago (2)                                                  Quebec:                                                        British Columbia:                                                  Arizona:                                District of Columbia:   —Columbia University   Wisconsin:
           Las Vegas                                                    Laval                                                          Burnaby                                                            Scottsdale                              Washington (2)          —Columbus Circle       Madison
           Miami                                                        Montreal (9)                                                   Kelowna                                                            Tempe                                   Florida:                —FIT                   Milwaukee
           New Haven                                                    Sainte-Foy                                                     Vancouver (6)                                                      Tucson                                  Boca Raton              —Flatiron
           New York                                                     Ontario:                                                       Manitoba:                                                          Colorado:                               Fort Lauderdale         —Gramercy                 Mexico
           Quebec                                                       Kingston                                                       Winnipeg                                                           Boulder                                 Gainesville             —Harlem
           San Francisco                                                London                                                         Saskatchewan:                                                      Denver                                  Key West                —Hell's Kitchen        Mexico City (2)
           Tijuana                                                      Ottawa (2)                                                     Saskatoon                                                          Northern California:                    Miami (5)               —Lower Broadway        Monterrey
                                                                        Toronto (7)                                                                                                                       Berkeley (2)                            Orlando                 —Lower East Side       Playa Del Carmen
                                                                        Nova Scotia:                                                                                                                      Burlingame                              St. Augustine           —Noho
                                                                        Halifax                                                                                                                           Gilroy                                  Georgia:                —Soho
                                                                        Alberta:                                                                                                                          Napa                                    Atlanta (2)             —Tribeca
                                                                        Calgary (3)                                                                                                                       Palo Alto                               Savannah                —Upper East Side
                                                                        Edmonton (2)                                                                                                                      San Francisco (3)                       Hawaii:                 —Upper West Side
                                                                                                                                                                                                          Santa Cruz                              Honolulu                —West Village
                                                                                                                                                                                                                                                  Illinois:               White Plains
                                                                                                                                                                                                                                                  Chicago (4)             Woodbury Common
                                                                                                                                                                                                                                                  Evanston                North Carolina:
                                                                                                                                                                                                                                                                          Charlotte (2)
                 Store Locations (International)

                                                                                                                                                                                                                 represents single retail store location            represents proposed single
                                                                                                                                                                                                                 17 retail locations in EUROPE                      retail store location
                                                                                                                                                                                                                 1 retail location in ISRAEL
                                                                                                                                                                                                                                                                    ? projected retail locations
                                                                                                                                                                                                                                                                    in North America

                                                   ICELAND                                    Norwegian

                                                                                                                           SWEDEN                                                                                                                                                    RUSSIA
                                                                                                                                                                                                                                                                                                                            South America           Netherlands

                                                                                                                                                                                                                                                                                                                                Brazil           Amsterdam (2)
                                                                                                                                                                                                                                                                                                                            São Paulo
                                                                                                                                                                                                                                                                              Sea of Japan
                                                                                                DENMARK                                                                                                                                                                                                                                          Stockholm
                                                                                                                                                                                                                                                                                                                                United Kingdom
                                                                                                                                     represents single retail store location
                                                                                                                                     17 retail locations in EUROPE
                                                                                                                                                                                        represents proposed single
                                                                                                                                                                                        retail store location
                                                                                                                                     1 retail location in ISRAEL
                                                                                                                                   POLAND                                            ? projected retail locations
                                                                                                                                                                                                                                                                                                                                Bristol          Zürich
                                                             English Channel
                                                                                                                                                                                     in North America
                                                                                                                                                                                                                                                                                                                        Pacific Ocean

                        Norwegian       Paris
                                                                                                                                                                                                                                                East China Sea
                                                                                                                                                                                                                                                                                                                                London (7)       Middle East
                                    Caribbean Sea                             FRANCE
                                                                                                                     AUSTRIA                                                                                                                                   Tel Aviv                                                         Manchester
                                                                                            SWITZERLAND North Atlantic Ocean
                                                                                                                                                                                                                                                                                                                                Nottingham          Israel
                                                    Bay of Biscay                                                                                                                                                     TAIWAN
                                                                          FINLAND                                                                                                        Black

                                 NORWAY                       VENEZUELA
                                                                                                                                                                                                                                                                                                                                Austria          Jerusalem
                                                                                   GUYANA                      ITALY
                                                                                                                                                                                                                                    TERRITORY              ISRAEL
                                                                                                                                                                                                                                                                                                                                                 Tel Aviv
                                                                                                           FRENCH GUIANA                                                                         HONG KONG                                                                                                                  Vienna
                                                                                                                                                                                                                                                                                       QUEENSLAND Sea

                         DENMARK                                                   Mediterranean Sea
                                                                                                                                                                                                 South China Sea
                                                                                                                                                                                                                                                                                                                                                 Beijing (2)
    U. K.
                                                                                                                                                                                                                                                                                                                                Germany          Shanghai
                  Coming Soon (6)
                      GERMANY                                POLAND
                                                                                                                                                                                                                                                                                                                            Berlin (3)
sh Channel                                                                                                                                                                                                                                   AUSTRALIA
              BELGIUM                                                                                       BRAZIL
                                                                                                                                                                                                                                                                                                                            Cologne                 Japan
                   Dublin                                                                                  UKRAINE

                   Dresden                                                                                                                                                                                                                                                                  NEW
                                                                                                                                                                                                                                                                                                                            Frankfurt            Fukuoka
                   Osaka                                            BOLIVIA                                                                                                                                                                                                                 SOUTH
                                                AUSTRIA                                                                                                                            Tel Aviv
                                                                                                                                                                                                                                                                                                                            Hamburg (2)          Osaka
            South Pacific Ocean

                                                                                                                                                                                                                                                                                                                            Heidelberg           Kanagawa
                   Suzhou                                                                                        Black
                                                                                                                                                                                                                                                                                                                            Mannheim             Tokyo (4)
                   Tokyo                                  CHILE
                                                                                                                     Sao Paulo
                                                                                                                                                                                                                                                                                                                            Munich (3)
                                                                                                                                                                                                                                                                                                                            Stuttgart               South Korea
                  O Open ITALY
                  O Opened in 2008                                                                                                                                                                                                                                                                                              France           Busan
                                                                          GREECE                                                                                                                                                                                                                                                                 Daegu City
             Mediterranean Sea
                                                                                         URUGUAY                                                                                                                                                                                                                            Aix en Provence      Gyeonggi-do
                                                                                                                                                                                                                                                                                                                            Paris (6)            Seoul (5)
                                                                                                                                        South Atlantic Ocean                                                                                                                                                                                     Adelaide
                                                                                                                                                                                                                                                                                                                            Barcelona            Melbourne

                                                                                        Falkland Islands
                                                                                                                       South Georgia Island
Did comps slow down in Q4 due to the economy?

+ Global comparable store sales of 22% in October,        Comparable Store Sales
  6% in November, and 3% in December                      U.S. Retail        36%       27%   24%        1%      21%
                                                          Canada             43%       34%   39%       36%      38%
  + Are comps decelerating because of the weak            International      24%       12%   17%       19%      18%
    consumer environment?                                 Total              37%       23%   24%       10%      22%

+ Answer: comps remain strong except in U.S. markets      Store Openings      Q1       Q2     Q3        Q4      2008
  where cannibalization is at play                        U.S. Retail           1       3     20        19        43
                                                          Canada               -1       1      4         3         7
  + 39 net new stores added in U.S. in second half of     International         3       5      9        11        28
    2008 (35% increase), many in existing markets         Total                 3       9     33        33        78

                                                          Store Base
  + Similar experience to Q2 2006 – when 74 stores        U.S. Retail        106       109    129      148
    opened in LTM period                                  Canada              29        30     34       37
                                                          International       50        55     64       75
  + Markets in the U.S. without significant new store     Total              185       194    227      260
    openings are trending much better

                                                                      Store Sales Q2
                                                           Comparable2005Q1     2006    Q3    Q4    Full Year
                                                          Q1         64%         16%
+ Conclusion:                                               2007         17%     24%   27%   40%      29%
                                                          Q2         56%          1%
                                                            2008         37%     23%   24%   10%      22%
                                                          Q3         41%          4%
  + Have seen this before                                   Two-year     60%     53%   57%   54%      57%
                                                          Q4         40%          6%
                                                          YR         45%          7%
  + Must be willing to accept temporary pressure on
    comps to drive greater revenue and profitability

  + Only opening stores if accretive to EBITDA and meet
    ROI thresholds (factoring into account pro forma
    impact of cannibalization on a market)

Consumer Outlook for 2009

+ ICR 2008: “American Apparel customer not affected by broader
  economic trends because does not have a mortgage, drive a car,

+ ICR 2009: Economy officially now in a recession, retail outlook
  bleak, possibility of permanent changes in consumption patterns

+ Trends towards more thoughtful consumption had already been
  showing signs early in 2008

+ American Apparel very well-positioned for a return to more
  value-oriented consumption

  + Focused on fashionable, versatile basics

  + Good value for money – quality clothing that stays in style across
    many seasons

  + Not about blindly following trends

  + No logo and therefore not ostentatious

  + Produced in socially responsible setting

Goals for 2009

Focused on execution

+ Complete buildout of 14 retail stores left in pipeline (Q2)

+ Go live on Phase 2 of ERP system (Q2)

+ Sarbanes-Oxley compliance – remediation of material weaknesses by mid-year (Q2/Q3)

+ Complete implementation of Hyperion Financial Management modules for:

  + 1) financial consolidation & reporting (Q1)

  + 2) planning & budgeting (Q2)

Immediate Goals

+ Streamline inventory levels

+ Prioritize capital expenditures on highest return projects
  ($18 million budget for 2009 vs. approx. $70 million spent in 2008)

+ Cost control

+ Drive significant free cash flow

Financial Management

Core team in place to manage company’s growth and
operations – focused on cash flow

+ Key positions filled in 2008

  + New international accounting team (4 hires), internal audit manager,
    senior cost accountant, financial project manager, financial reporting sr.
    accountant, manufacturing controller, assistant corporate controller

  + Still need to hire: financial reporting manager, inventory accounting
    manager, budgeting manager, tax analyst, other junior positions

+ Inventory reduction of approximately $12 million
  since end of Q3 ($153 million at 9/30/2008)

  + Concentrating on manufacturing best-selling retail styles and fulfilling
    booked wholesale orders, while curtailing overall production

+ No new retail store leases signed since August

  + 14 store openings scheduled for 2009, and no new retail store lease
    signings expected until mid-2009

+ Cost control

  + Reductions to non-essential SG&A, including reduction in marginal
    online and print advertising, and international corporate overhead
    (about $2.9 million in Q4)

Financial Overview

(Dollars in Millions)                     2004   2005   2006    2007    YTD   3Q07    YTD   3Q08

Retail                                     $13    $73    $135    $211          $147          $243
Wholesale                                  117    122     137     151           113           128
Online                                       2      6      13      25            16            28
Total Revenue                             $132   $201   $285    $387          $276          $399

EBITDA                                    $14    $17     $25     $51           $43           $41
Store Pre-Opening Expenses                                                      $4            $8
Merger Related Stock Based Compensation                                                      $13
Capital Expenditures                       $14    $25    $19     $28           $14           $56

Store Count at End of Period
U.S. Retail                                26     66      93     105            96           129
Canada                                      9     20      26      30            25            34
International                               3     17      28      47            42            64
Total Store Count                          38    103     147     182           163           227

Comps don’t tell the whole story

With 80 new stores in the store base, on top of 182 open at the start of 2008, only one-third of the sales
increase is due to increases at comparable stores

+ Two-thirds of the sales increase in 2008 was due to the full-year contribution of stores open in 2008,
  as well as sales from newly opened stores in 2008

    + Average store opened in 2008 approximately 5.3 months old

2007 to 2008 Retail Sales Bridge

(Dollars in Millions)

                                                                    $42           $1       $341
 $200                     $13




                   2007         Comp Increase Full Year of 2007 2008 Openings    Foreign   2008
                                                    Stores                      Currency

Comps don’t tell the whole story, part 2
                                                                                             Average Sales per Store
                                                                                                 Existing Stores

Productivity of new stores tells more about what is going on
+ Average store productivity of existing stores increased in 2008,                                  $1.6M                                 $1.7M
  in line with comps, from $1.4 million to $1.7 million    $1.5M
                                                                              $1.2M            $1.2M

+ Productivity of new stores at $1.8 million is outpacing existing stores,
  which are 35 months old on average
                                                                                 U.S.             Canada           International        Total

                                                                                           2007                       2008

Average Sales per Store                                              Average Sales per Store Sales per Store
Existing Stores                                                      Existing vs. New Stores
                                                                                          Existing v. New Stores
                        Average Sales per Store
                            Existing Stores

   $2.5M                                                                $2.5M
                                              $2.1M                                                        $2.2M      $2.1M $2.2M
   $2.0M                                                                $2.0M
                                $1.6M                        $1.7M                                 $1.6M                                $1.7M $1.8M
               $1.5M                                                             $1.5M
   $1.5M                                                 $1.4M          $1.5M
           $1.2M          $1.2M

   $1.0M                                                                $1.0M

   $0.5M                                                                  nnualized Average Sales per Store (Stores Open < 1 Year)
                                                                                      U.S.             Canada         International           Total
              U.S.            Canada     International     Total

                       2007                 2008                                         Existing Stores           New Stores

                              Average Sales per Store
                               Existing v. New Stores                                                                                                 19
New Store Economics

New Store Economics

Initial inventory                      $100,000
Store buildout                          500,000
Total                                 $600,000

First year sales                      $1,500,000
First year four-wall contribution       450,000
Contribution margin                         30%

Cash payback period (months)                 16

New Store Economics (Sharper Image)

Initial inventory                       $100,000
Lease acquisition cost                    75,000
Store buildout                            75,000
Total                                 $250,000

First year sales                      $1,800,000
First year four-wall contribution        500,000
Contribution margin                         28%

Cash payback period (months)                   6

Long-Term Performance Goals

+   Comparable store sales:   high single digit
+   Unit growth:              20% per year
+   Wholesale growth:         mid single digit
+   EPS growth:               30+%
+   Operating margin:         15%

Capital Structure

Extension of second lien maturity date to April 20th, extending first lien maturity
through March 21st

+ Second lien lender has committed to extend maturity date of loan through January 2010
  subject to first lien approval – pricing of loan would increase by 2.0% of PIK interest

+ Total net debt to EBITDA ratio of 1.57x as of 9/30/08

 Capital Structure at 9/30/2007                     Financial Ratios as of 9/30/2007
 (Dollars in Millions)
                                                                                                 Financial         Covenant          Covenant
 Cash                                    $13,889                                                   Ratio                            Compliance?

 Cash Overdraft                             4,191   Senior Debt / EBITDA                            1.08x             4.50x                 Yes
 Revolving Credit Facility, US             49,249
 Revolving Credit Facility, Canada          1,069   Total Debt / EBITDA                             1.79x
 Second Lien Loan                          51,000
 Capital Leases                             4,632   Adjusted Debt / EBITDAR                         4.57x             6.75x                 Yes
 Other Debt                                   703
 Subordinated Note to Related Parties       5,923
 Total Debt                              $116,767

 Net Debt                               $102,878
                                                    Note: EBITDA as defined in credit agreements. New covenant level for Total Debt / EBITDA now 2.20x
                                                    Note: new covenant level for Total Debt / EBITDA now 2.20x

Investment Highlights

+ Attractive, underserved market segment with large potential

+ Unique brand concept with growing, global appeal

+ Vertical integration as a sustainable competitive advantage

+ Investments in infrastructure in 2008 provide strong foundation for future growth

+ Well positioned for consumer economic environment in 2009, and beyond