American Apparel Bankruptcy Appears Likely

American Apparel anticipates it will report a substantial loss of income for 2010’s second quarter, one of many problems that may lead the company to lose “liquidity necessary to sustain operations for the next twelve months”.

The cash-strapped clothing chain American Apparel Inc. is at risk of becoming American history. Photo: American Apparel

Troubled clothing chain American Apparel Inc. is at risk of becoming American history. The company said on Tuesday that ‘it might not have enough liquidity to sustain itself over the next year.’

Shares of the racy retailer – whose CEO Dov Charney has stirred controversy for his libertine lifestyle – lost 30 percent of their value yesterday after the company said it may breach a key credit agreement at the end of next month (by Sept. 30) as sales and profits continue to dwindle.

American Apparel also said that it’s working with a lender to amend the agreement, but cautioned that without a reprieve, there may be a damaging financial chain reaction that could force the company to pay both credit lines immediately.

Known as much for its racy ads and outre behavior of CEO Dov Charney as its inexpensive leggings and T-shirts, American Apparel has expanded rapidly since going public in 2007 and operates about 260 stores in 19 countries.

For the quarter ended June 30, American Apparel expects a loss of $5 million to $7 million, compared with a loss of $7.3 million in the second quarter (From the end of March to the end of June, the company’s debt has increased by almost $30 million, to total $120.3 million.)

It expects revenue to fall to $132 million to $134 million, from $136.1 million last year. Revenue in stores open at least one year fell 16 percent during the quarter. In a filing with the Securities and Exchange Commission, the company said it expects losses from operations to continue through at least the third quarter.

American Apparel’s auditor Deloitte & Touche resigned earlier this month and American Apparel hired back Marcum, its former auditor.

American Apparel said its auditor needs more time to file its second-quarter results with the SEC and will file them “as soon as practicable,” no later than Sept. 15. Deloitte is reviewing earlier financial results to see if they may need to be restated.

More over, American Apparel, which is based in Los Angeles, also filed its first-quarter results with the Securities and Exchange Commission. Those earnings had been delayed and if they weren’t filed by Monday, the company could have faced delisting.

For the quarter ended March 31, net loss totaled $42.8 million, or 60 cents per share, from $10.6 million, or 15 cents per share last year. Revenue rose 7 percent to $121.8 million.

Shares fell 36 cents, or 25.9 percent, to close at $1.03 Tuesday, earlier trading at a new low of 98 cents. The stock had traded between $1.14 and $3.95 during the past year.

Last year’s immigration crackdown was a startling slap in the face for American Apparel, which for years has lobbied for immigrant workers’ rights in its “Legalize L.A.” campaign.

“If it weren’t for the immigration bust by the Obama administration, the company would have been OK this year,” according to a source close to American Apparel. [American Apparel via NY Post, Huffington Post and Styleite]

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