American Apparel: The Next Urban Outfitters?

After listening to Dov Charney's, the charismatic CEO of American Apperal (APP), latest earnings conference call for the 2nd quarter, it got me thinking that this up-and-coming company based out of LA could be something to keep your eyes on. I realize there is no idea so good that it cannot be spoiled by pundits or nay-sayers. However, this next Urban Outfitters (URBN) posted Q2 numbers that would make Richard Simmons quiver.

American Apparel reported net sales for the quarter ended June 30, 2008 of $133 million, a 38.9% increase over net sales of $95.7 million for the quarter ended June 30, 2007. Total retail sales increased 58% to $81.3 million from $51.3 million for the prior year second quarter, with comparable store sales for stores open at least 12 months rising 23%. American Apparel ended the second quarter of 2008 with 195 stores, having opened 9 stores in the period. The company operated 154 stores at the end of the second quarter of 2007. APP is converting some of the old Shaper Image stores into the trendy APP stores - great idea considering there is little build out and some the Shaper Image stores had great locations. With the real estate market up in arms, APP has leverage in terms of negotiating great leases or purchases.

Operating expenses for the second quarter of 2008 increased to 47.7% of net sales, versus 43.9% for the second quarter of 2007. Operating expenses increased due to higher payroll, rent and occupancy expense related to the growth in the number of retail stores from 149 as of April 1, 2007 to 195 as of June 30, 2008, and an increase in advertising expense. Charney also mentioned that his company's forward looking penatrating into Australia as well as opening more then 20 stores in the UK by 2010.

Dov Charney, stated:

2008 continues to be a year of significant growth for American Apparel. We are pleased with our financial performance for the second quarter, and believe we are only still laying the groundwork for a very successful future. During the second quarter, American Apparel opened its first store in Spain and only its second store in Australia. We are very pleased with our performance in these new markets, which we believe speaks to the power and universal reach of our brand. We are excited to open our first stores in China and Brazil in the coming weeks, as well as all of the other stores that we have opening soon around the world.

Looking at the current charts, APP started breaking out around $7 or so on pretty good volume from a 6 month decline in price. Entering around here, I see the stock very easily passing $10 by end of Q3 - maybe Richard Simmons will have to quiver after all with that increase!

Disclosure: Author holds a long position in APP, no position in URBN