American Apparel able to deliver profit in spite of crisis
American Apparel, Inc., a vertically integrated manufacturer, distributor, and retailer of branded fashion basic apparel, announced its financial results for the third quarter of 2009 and for the nine months ended September 30, 2009.
American Apparel reported net sales for the third quarter of 2009 of $150.3 million, a 2.9% decrease from net sales of $154.8 million for the quarter ended September 30, 2008. Total retail sales increased 3.7% to $101.0 million for the third quarter of 2009 from $97.4 million for the prior year third quarter, with comparable store sales for stores open at least 12 months decreasing 16% on a constant currency basis. American Apparel ended the third quarter of 2009 with 276 stores, having opened 4 net new stores in the quarter, and 50 net new stores during the last twelve months. Total wholesale sales declined 14.5% to $40.2 million for the third quarter of 2009 from $47.0 million in the third quarter of 2008. Online consumer sales declined to $9.1 million from $10.4 million in the prior year third quarter, a decrease of 12.5%.
Gross margin for the third quarter of 2009 was 58.1% as compared to 49.1% for the prior year third quarter. The gross margin in the third quarter of 2008 was negatively impacted by $13.2 million in share based compensation expense relating to the award of approximately 1.9 million shares of stock to manufacturing employees during the third quarter of 2008, granted pursuant to the 2007 merger between American Apparel, Inc. (formerly Endeavor Acquisition Corp.) and American Apparel, Inc., a California corporation (“Old American Apparel”). The net impact of the share based compensation expense was to negatively impact gross margin by 850 basis points in the period. The balance of the increase in gross margin was driven by the favorable shift in mix towards greater retail sales, as wholesale sales declined to 26.7% from 30.4% of total net sales a year ago. The improvement in gross margin was somewhat offset by unfavorable currency shifts due to the appreciation of the US dollar against foreign currencies compared to the third quarter last year.
Operating expenses, including selling, warehouse and distribution, and general and administrative expenses, increased to 50.6% of net sales for the third quarter of 2009, compared to 44.7% for the third quarter of 2008. Operating expenses increased due to higher payroll, rent, occupancy, and depreciation expenses related to the greater number of retail stores in operation in the period versus the same period last year. Operating expenses as a percentage of net sales increased given the negative comparable store sales performance for the quarter, and the decreases in wholesale and online consumer sales. Pre-opening expenses for retail stores were $0.4 million in the third quarter of 2009, versus $4.3 million in the prior year third quarter.
Operating income for the third quarter of 2009 was $11.2 million. This compares to $6.8 million in the third quarter of 2008, which included the merger related share based compensation expense of $13.2 million. Operating margin for the third quarter of 2009 was 7.5% versus 4.4% for the third quarter of 2008.