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American Apparel experiences improvement in production efficiency
20
May '10
American Apparel, Inc., a vertically integrated manufacturer, distributor, and retailer of branded fashion basic apparel, announced preliminary financial results for the first quarter ended March 31, 2010. Final first quarter results, including net income and earnings per share will be included with the Form 10-Q for the quarter ended March 31, 2010, which is currently expected to be filed by no later than the end of June 2010 upon the completion of the review of certain items.

American Apparel reported net sales for the first quarter ended March 31, 2010 of $121.8 million, a 6.6% increase over net sales of $114.3 million for the first quarter ended March 31, 2009. Total retail net sales increased 1.5% to $79.1 million for the first quarter of 2010 as compared to $78.0 million for the same period in 2009, with comparable store sales for stores open at least 12 months declining 10% on a constant currency basis.

American Apparel ended the quarter with 280 retail stores, having closed two retail stores and opened one during the first quarter of 2010, as compared to 264 retail stores at the end of the first quarter of 2009. Total wholesale net sales increased 21.6% to $34.2 million for the first quarter of 2010 compared to $28.1 million for the first quarter of 2009, largely due to an increase in sales to distributor customers. Online consumer sales increased 3.6% to $8.4 million for the first quarter of 2010 compared to $8.2 million for the first quarter of 2009.

Gross margin for the first quarter of 2010 was 50.4% as compared to 57.2% for the prior year first quarter. Gross margin was negatively impacted by a shift in mix from retail to wholesale net sales, which generate lower margins, and by reduced labor efficiency at the company's production facilities in the first quarter of 2010 compared to the prior year period. The reduction in labor efficiency was a result of the dismissal of over 1,500 experienced manufacturing employees in the third and fourth quarters of 2009 following the completion of an I-9 inspection by U.S. Immigration and Customs Enforcement, as well as the impact of an increase in the mix of more complex retail styles produced. The unfavorable decline in gross margin was partially offset by the effect of the depreciation of the U.S. dollar versus foreign currencies in the first quarter of 2010 as compared to the first quarter of 2009.

Operating expenses for the first quarter of 2010 were $79.0 million, or 64.9% of net sales, as compared to $69.3 million, or 60.6% of net sales for the prior year period. The increase in operating expenses was primarily caused by increased occupancy, payroll, and depreciation expenses from having an additional 16 retail stores in operation at the end of the first quarter of 2010, compared to at the end of the first quarter of 2009. There were no pre-opening expenses for retail stores in the first quarter of 2010, versus $0.7 million in the prior year first quarter.

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