American Apparel Inc.’s third-quarter profits narrowed because of merger-related stock compensation, but the Los Angeles-based company reaffirmed its full-year guidance.

This story first appeared in the November 11, 2008 issue of WWD. Subscribe Today.

For the quarter ended Sept. 30, net income slid to $2.3 million, or 3 cents a diluted share, versus $6 million, or 12 cents a share, a year ago. Net sales were up 45.2 percent to $154.8 million, from $106.6 million.

American Apparel said it would have reported earnings of 16 cents a share without compensation expense related to its December 2007 merger with an investment firm formerly known as Endeavor Acquisition Corp. Analysts polled by Yahoo were looking for 13 cents on sales of $149.3 million.

The maker of slim-fit T-shirts and other basics said that pursuant to the merger, it awarded about 1.9 million shares of common stock to eligible manufacturing employees, at an expense of $13.2 million.

By division, U.S. wholesale sales increased 15.3 percent to $46.2 million, from $40.1 million, while retail jumped 48.5 percent to $46.7 million, from $31.4 million. The company said sales in Canada grew 63 percent, to $19.9 million, from $12.2 million, while sales elsewhere spiked 83.5 percent, to $42 million, from $22.9 million.

Dov Charney, American Apparel’s chief executive officer, whose alleged harassment of women led to a “Saturday Night Live” parody as well as criticism from women’s rights groups, said the company remains “cautiously optimistic” that its products “represent a unique value to consumers even in a weak economy.”

“As we look at 2009, having already experienced so much growth in 2008, we plan to tailor our expansion plans accordingly with an eye on the overall economic environment and our goal to generate significant free cash next year,” he said.

For the nine months, net income shrunk to $10.2 million, or 15 cents a share, from $12.5 million, or 26 cents a share. Revenue grew 44.8 percent to $399.4 million, from $275.9 million.

The company reaffirmed earnings between 32 and 36 cents a share for 2008, excluding the impact of the merger.

American Apparel said it expects to finish 2008 with about 80 new store openings for the year, up from its previous guidance of 50 to 55 stores.

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