American Apparel‘s (APP) recent press release on its Q3 2011 sales suggests it’s in the middle of a healthy turnaround: total sales are up 5 per cent, to $141 million. But, as I predicted in July, CEO Dov Charney‘s use of a new sales metric, “comparable store sales,” disguises how badly his retail locations are doing. At best, they may have added only about $2.9 million in sales over last year, according to a reverse-engineering of the information Charney left out of his press release.
Charney says “comparable store sales” are up 3 per cent. At most retail chains that metric measures sales only in stores that were open for more than a year. It helps investors see whether individual locations are adding sales or whether the company is merely opening new locations with lower average sales. It’s a measure of retail “heat,” in other words.
But in July, Charney announced he was redefining “comparable store sales” to a “combination of sales for its comparable stores and online channel.” That mushes together two entirely different sales channels and makes it more difficult to figure out how the stores on their own are doing.
- 2010 Wholesale: $40.9 million Retail: $83.7 million Online: $8 million Total: $134 million
- 2011 Wholesale: ? “increased 10%” Retail: ? Online: ? Total: $141 million “increased 5%”
The question marks indicate the numbers that Charney didn’t give in his press release, although he did say that Retail plus Online added up to a 3 per cent increase. Given that the difference between total sales over the two periods is about $7 million, and that $4.1 million of that must be the 10 per cent increase in wholesale sales, then the increase in store sales can only be $2.9 million at most (i.e. $7m – $4.1m = $2.9m).
That assumes that there was a zero increase in online sales, which is unlikely given online sales were up 23 per cent in Q2 2011. Retail sales are therefore probably added less than $2.9 million in new sales.
Charney adds in the statement that numbers for both stores and online are positive, but he doesn’t say how positive. Could it be that despite closing 31 of 278 stores over the last year, Charney’s remaining store sales are still all but flat? We’ll find out when the 10-Q is filed in due course.
Bonus points: If you noticed that American Apparel only started adding total sales after Charney lost a majority of his company’s stock and new management was installed around him. What an amazing coincidence!