American Apparel Inc. said Tuesday that its third quarter net income grew 78 percent due to lower expenses and a shift toward sales of higher-margin retail merchandise. The results beat Wall Street expectations.

The Los Angeles apparel maker and retailer reported net income of $4.2 million (5 cents per share), compared with $2.3 million (3 cents) a year ago. The year-ago quarter included $13.2 million in merger-related compensation expenses that depressed earnings.

Revenue fell 3 percent to $150 million. Retail sales rose 4 percent to $101 million, while sales from the lower-margin wholesale business fell nearly 15 percent to $40.2 million. Online consumer sales were down 13 percent to $9.1 million. The shift to higher-margin sales boosted the gross margin to 58.1 percent, up from 49.1 percent.

Analysts surveyed by Thomson Reuters on average expected net income of 3 cents per share on revenue of more than $145 million.

For 2009, the company expects results to range from a $1 million loss to a $4 million profit, with sales between $540 million and $555 million.

"While we are pleased that we were able to deliver a profit in the third quarter in spite of the difficult environment, I believe the successes we had in terms of streamlining our inventories and significantly reducing our indebtedness will prove particularly valuable as we move forward,” Chief Executive Dov Charney said in a statement.

Shares were down 8 cents, or 3 percent, to $2.53 in midday trading on the New York Alternet.