Following a crucial $80 million cash infusion from London-based Lion Capital on Friday, American Apparel Inc. reported solid fourth-quarter results on Tuesday morning.
Net income for the three months ended Dec. 31 was up 29.7 percent to $3.9 million, or 5 cents a diluted share, from $3 million, or 6 cents, in the year-ago period. Earnings per share diverged from net income because the company had 71.6 million diluted shares outstanding in the 2008 quarter versus 52.5 million in the 2007 quarter.
Sales for the quarter rose 31 percent to $145.6 million from $111.2 million, with retail sales up 52.7 percent to $98 million and same-store sales ahead 11 percent.
The results came a day after they were scheduled for release, due to last-minute accounting adjustments, according to the Los Angeles-based retailer of colorful basics.
“With key parts of our management team starting to take shape, our capital structure resolved and a sophisticated financial partner at our side in Lion Capital, I strongly believe that our company is better positioned than at any time in its history to succeed and deliver on the great potential of the American Apparel brand,” said Dov Charney, chairman and chief executive officer.
Shares of American Apparel advanced 10.4 percent to close at $2.65 on the news on Tuesday. They’re up 77.9 percent from their $1.49 close last Thursday, before the arrangement with Lion was completed.
Gross margin in the quarter was 55.4 percent, up from 54 percent a year ago, due to higher retail and online sales that generate better margins than the company’s heritage wholesale business. The company ended the quarter with 260 stores in 19 countries, having added 32 units in the period. American Apparel expects to open 25 to 30 stores this year, well below its pace of 81 last year, as it focuses on free cash flow and retiring debt, according to Charney.
For the full year 2008, net income dipped 8.8 percent to $14.1 million, or 20 cents a diluted share, down from $15.5 million, or 31 cents, in 2007. Profits in 2008 were negatively affected by a $13.2 million, or 13 cents a share after taxes, expense related to a distribution of stock to American Apparel employees in last year’s third quarter. Excluding that onetime event, 2008 net income was up 47.9 percent to $22.9 million, or 33 cents, in line with previous guidance.
Net sales in 2008 increased 40.8 percent to $545.1 million, up from $387 million in 2007.
In a research note, analyst Todd Slater of Lazard Capital Markets said the results place American Apparel “in an elite group of performers,” considering the economy, the company’s rapid retail expansion and its recent debt refinancing issues.
On a conference call with analysts, Charney said the company is benefiting from improved lease terms from landlords for its new stores, due to the recession, which will allow it to open up to 30 stores this year while keeping capital expenditures between $20 million and $25 million. Last year, capital expenditures were $72 million.
However, cannibalization of sales by new stores will likely drive comps down to flat or negative midsingle digits for the year. Average retail sales per net square foot in 2008 were $605, but the company believes that figure can improve.
For 2009, American Apparel expects sales to increase 5 to 10 percent, to $575 million to $600 million, with operating income improving 12 to 30 percent to $55 million to $65 million, and EBITDA (earnings before interest, taxes, depreciation and amortization) to advance 15 to 30 percent to between $80 million and $90 million.
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