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Costs Lead American Apparel to 34 Percent Earnings Drop

American Apparel Inc. on Tuesday reported a 34 percent decline in first-quarter earnings, hurt by start-up costs for a new dyeing and finishing facility.

American Apparel Inc. on Tuesday reported a 34 percent decline in first-quarter earnings, hurt by start-up costs for a new dyeing and finishing facility.

This story first appeared in the May 14, 2008 issue of WWD.  Subscribe Today.

For the three months ended March 31, earnings fell to $1.1 million, or 2 cents a diluted share, from $1.7 million, or 3 cents, in the year-ago period. Sales soared 51.9 percent to $111.6 million from $73.5 million, with same-store sales jumping 36 percent.

Management reaffirmed full-year guidance in the range of 32 cents to 36 cents a diluted share, before a onetime non-cash stock compensation expense in connection with a previously announced employee stock grant.

In a separate development, the Los Angeles-based company said it purchased assets from U.S. Dyeing & Finishing Inc. for about $3.8 million in cash. The assets include machinery and equipment related to fabric dyeing. American Apparel also got the lease for two buildings totaling 135,000 square feet. The facility, located in Garden Grove, Calif., has done contract work for American Apparel for about 10 years.

“While American Apparel already operated one of the largest cut-and-sew operations of its kind, this acquisition will further reduce our reliance on contract dye facilities, allowing us to expand our product offering, streamline our supply chain, lower costs and ensure better quality control,” said Marty Bailey, chief manufacturing officer.

About 140 U.S. Dyeing & Finishing workers will become employees of American Apparel.