American Apparel Inc. posted a 78 percent pickup in third-quarter profits as a shift toward the higher margin retail component of its business helped offset a decline in wholesale revenues.
Year-over-year comparisons benefited from stock-based compensation expense in the 2008 quarter related to an earlier merger.
In the three months ended Sept. 30, the Los Angeles-based marketer of trendy basics reported net income of $4.2 million, or 5 cents a diluted share, up from $2.3 million, or 3 cents, in the year-ago period. Analysts anticipated earnings per share of 3 cents a share. Without the compensation expense, year-ago EPS would have been 16 cents a diluted share.
Net sales shrank 2.9 percent to $150.3 million, from $154.8 million in 2008. Same-store sales declined 16 percent on a constant currency basis.
The company’s wholesale business fell 14.5 percent to $40.2 million and its direct business contracted 12.5 percent to $9.1 million, but its retail sales increased 3.7 percent to $101 million, anchored by gains in the U.S. Wholesale slipped to 26.7 percent of sales from 30.4 percent.
However, Dov Charney, chairman and chief executive officer, said on a conference call that wholesale business has “turned a corner.”
“Wholesale is connected to the economy,” he added. “I think at some point, maybe mid-next year, we will be in a very good position.”
Gross margin as a percentage of sales improved to 58.1 percent versus 49.1 percent, but all but a small portion of the increase was due to year-ago compensation expense, with the rest attributable to a “favorable shift in mix towards greater retail sales,” the company said. Total inventories during the quarter were reduced by $6.6 million to $152.6 million.
Adrian Kowalewski, chief financial officer, said the third-quarter comp decline was evidence that “we are nearing the end of a period of severe cannibalization that was brought about by the opening of nearly 80 new stores in 2008 — a more than 40 percent increase in our store base.”
The October comp drop of 6 percent has given the company “additional optimism” about the “possibility of renewed sales momentum,” Kowalewski said.
For the nine months, the vendor swung to a loss of $1.9 million, or 3 cents a diluted share, versus a profit of $10.2 million, or 15 cents a share, a year earlier. Revenue edged up 0.3 percent to $400.7 million, from $399.4 million.
The company reiterated its full-year guidance in the range of a $1 million net loss to a $4 million profit, on sales of between $540 million and $555 million. Wall Street was looking for earnings of 3 cents, on revenue of $543.8 million.
The company’s shares Tuesday closed at $2.49, down 12 cents, or 4.6 percent. The S&P Retail Index gained 2.09 points, or 0.5 percent, to end the day at 405.17 as the Dow Jones Industrial Average gained 20.03 points, or 0.2 percent, to close at 10,246.97.
Alberta Ferretti's "Rainbow Week" sweaters are back. The designer closed her #MFW show with a few day-of-the-week sweaters, which first debuted on the catwalk last January as part of the pre-fall 2017 collection. #wwdfashion (📷: @delphineachard)