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Tiffany Montgomery
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American Apparel forges ahead with new stores despite cannibalization

By Tiffany Montgomery
May 20, 2009 11:30 AM

American Apparel's rapid retail expansion is cannibalizing sales at older stores but the company has no plans to slow its expansion.

During an earnings conference call Monday, the company said cannibalization was a large factor in its same-stores sales decline of 7 percent in the first quarter. The company operated 264 stores as of March 31.

American Apparel added 39 stores in the second half of 2008, increasing its store count by 36 percent from the end of the second quarter of 2008.

Despite the cannibalization of sales from older stores, the company wants to take advantage of good lease opportunities and plans to open 25 to 30 stores this year.

"I'm guessing right now, 60 percent can have some minimal cannibalization affect but this is something we are negotiating amongst (ourselves) internally, and we are having a lot of dialogue about it," CEO Dov Charney said during the conference call. "We are not running this business to have an impressive same-store sales number. We are running this business for long-term profitability. But at the same time we are being cautious and we care about investors and we do care about short-term optics to a degree. We will be balancing this."

Wholesale sales decreased 22 percent, with 40 percent of the decline coming from the decision not to ship product to the company's largest wholesale distributor, which was in the midst of a debt restructuring. That transaction was completed, so American apparel has resumed shipments.

Margins were hurt during the quarter as the company moved to create more complicated styles, including shirts and men's pants. American Apparel is most known for simple garments like T-shirts.

"We are becoming a more competitive source and we are bringing new value to the consumer," Charney said. "Our consumer is maturing, and they are getting older and they're going from punk to preppy. Those of you in the Gen X zone know what I'm talking about."

Overall, American Apparel's sales rose 2.4 percent to $114.3 million in the quarter. The company recorded a $9 million loss vs. $1.1 million in income for the same period last year.

 


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