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American Apparel posts solid growth in Q3

19 Nov '12
5 min read

American Apparel Inc., a vertically integrated manufacturer, distributor, and retailer of branded fashion-basic apparel, announced financial results for its third quarter ended September 30, 2012.

Dov Charney, Chairman and CEO of American Apparel, Inc., stated, "We are pleased with our third quarter results that again show solid growth and continuing momentum in all business segments and major geographies. Significant sales growth allowed us to more than double our EBITDA performance to $13 million for the third quarter of 2012 from $6 million for the third quarter of 2011.

Year-to-date our EBITDA performance has improved to $19 million from $5 million for the corresponding period last year. EBITDA performance for the twelve months ended September 30, 2012 was $28 million or double that reported for the full year in 2011.

As we improve store productivity and aggressively grow our online and wholesale businesses we expect operating expense leverage will allow us to continue to significantly grow EBITDA performance.

"We continue to make meaningful progress in improving inventory efficiency with a 5% reduction in unit inventory in this quarter. This brings our total unit reduction to over 18% since we began this undertaking in 2011.

“Although our aggressive approach to reducing inventories has caused a modest amount of margin erosion, improving inventory turns by driving unit sales will improve inventory efficiency, lower carrying costs and reduce working capital requirements over the long-term. These efforts, together with other operating performance improvements will assist in our near-term refinancing efforts."

So far, through November 12, 2012, comparable sales for the Company's retail stores have increased 13%.

Operating Results

Comparing the third quarter 2012 to the corresponding period last year, net sales increased 15% to $162.2 million on a 20% increase in comparable store sales in the retail business, a 6% increase in net sales in the wholesale business and a 1% increase in the average number of stores.

Gross profit of $85.2 million for the third quarter of 2012 increased 14% from $75.0 million reported for the third quarter of 2011. Holding foreign currency rates constant to those last year, gross profit in the 2012 third quarter would have been $87.1 million or 16% higher than reported in the 2011 third quarter. Gross margin rate for the 2012 third quarter decreased to 52.5% from 53.2% for the 2011 third quarter.

The gross margin reduction was due to planned promotional activities, the effect of "warehouse-type" clearance sales as a part of our overall inventory reduction strategy and the negative impact of the strengthening US dollar on margins from our international segment.

Partially offsetting these impacts was a shift in mix to higher margin retail sales in the 2012 third quarter, lower inventory shrink reserves reflecting the benefits of our RFID implementation and lower costs of production in our manufacturing operations.

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