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American Apparel to finish 2008 with 80 new store openings

20
Nov '08
American Apparel Inc announced its financial results for the third quarter of 2008 and for the nine month period ended September 30, 2008.

American Apparel reported net sales for the quarter ended September 30, 2008 of $154.8 million, a 45.2% increase over net sales of $106.6 million for the quarter ended September 30, 2007. Total retail sales increased 65.3% to $97.4 million from $58.9 million for the prior year third quarter, with comparable store sales for stores open at least 12 months rising 24%.

American Apparel ended the third quarter of 2008 with 228 stores, having opened 33 stores in the period. The Company operated 163 stores at the end of the third quarter of 2007. Total wholesale sales increased to $46.4 million for the third quarter of 2008, as compared to $41.3 million for the third quarter of 2007, an increase of 12.3%. Online consumer sales increased to $11.0 million from $6.4 million for the prior year third quarter, an increase of 72.0%.

In the third quarter of 2008, American Apparel awarded approximately 1.9 million shares of common stock to eligible manufacturing employees, which shares were granted pursuant to the merger agreement between American Apparel Inc. (formerly Endeavor Acquisition Corp.) and American Apparel Inc., a California corporation.

To provide greater clarity about the Company's operating performance for the third quarter of 2008, the impact of the related $13.2 million stock based compensation expense on the results is discussed in the paragraphs below and in Table A. This stock award resulted in the recording of $12.1 million of stock based compensation expense and $1.1 million of employer related payroll taxes in the Company's financial statements for the third quarter of 2008.

Gross margin for the third quarter of 2008 was 50.1% versus 55.2% for the prior year third quarter, including the impact of the merger related stock based compensation expense. The stock based compensation expense of $13.2 million negatively impacted gross margin by 850 basis points. The gross margin was favorably impacted by a reduction in inventory obsolescence reserves of $1.1 million, for an improvement of 70 basis points. Gross margin was also favorably impacted by the growth in retail sales from the expansion of the U.S. Retail, Canada and International business segments, which generate a higher gross margin than the company's U.S. Wholesale business segment.

Operating expenses for the third quarter of 2008 increased to 45.7% of net sales, versus 44.2% for the third quarter of 2007. Operating expenses increased due to higher payroll, rent and occupancy expense related to the growth in the number of retail stores from 163 as of September 30, 2007 to 228 as of September 30, 2008. Pre-opening expenses for retail stores were $4.4 million in the third quarter of 2008, versus $0.9 million in the prior year third quarter. Operating expenses were also higher due to an increasein corporate expense of approximately $2.9 million versus the year ago period, related primarily to an increase in accounting and professional fees as a result of American Apparel operating as a public company in 2008.


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