The company, which is famous for ranks of sewing machines in its shop windows, has seen annual earnings before interest, tax, depreciation and amortisation hit £7.5m, from a £9.1m loss 12 months earlier.
The return to profit comes despite sales in the 12 months to January 31 falling from £221m to £199m, with like-for-like sales consistently in negative territory over the past six months.
However, AllSaints’ new chief executive, William Kim, claimed the company has been deliberately trying to shrink sales to grow profit margins.
“It is true that like-for-likes have fallen but we drove those results. We had a huge business model that had way too much stock. We over-produced inventory. The result was that we were forced to mark down prices to shift stock, especially during key retail periods. It wasn’t sustainable.”
Mr Kim said that a year ago AllSaints was marking down up to 85pc of stock to “on sale”. But in the latest set of financial results, gross margins have jumped 12 percentage points, from 53pc to 65pc. There is also 40pc less inventory being produced by the company.
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“Our aim is to convert more customers at full price, which will help increase growth. And we have seen that affect the bottom line immediately.”
AllSaints has been owned by Lion Capital since 2011. The private equity firm, which used to own fashion brands including Jimmy Choo, rescued the company when it was close to collapse and has now turned its attention to an international expansion programme.
It has 100 stores in nine countries across the UK, Netherlands and the US.
Next week, it is opening its first shop in Toronto, Canada, and plans a series of further store openings across North America and Asia.
“We are just on the brink,” said Mr Kim. “When we look ahead to 2013, the world is our oyster. The earnings potential is far in excess of double-digit growth.”
AllSaints is projecting around £17m of earnings for 2013, which will be used to fund further store roll-outs. The company is also investing heavily in non-apparel.