American Apparel faces fresh crisis

For clothing maker American Apparel, allegations that the company makes staffing decisions based on appearance may turn out to be the least of its concerns.

The company, known for its signature T-shirts, sexualized ads and controversial chief executive, recently reported that its quarterly operating loss had more than quadrupled from a year earlier, and warned that it risks defaulting on a credit agreement. The news sent its stock price, already trading in the low single digits, tumbling.

American Apparel is now scrambling to work out a deal with a major lender, Lion Capital, which also owns an approximately 18 percent stake in the company. The company has warned that by the end of June it likely won’t be able to meet the debt-to-earnings ratio that is required under its agreement with Lion Capital.

Even if the clothing company is able to resolve that crisis, production problems at its factories, which are contributing to its poor financial results, could take months to work out, the company has conceded. The Los Angeles-based company also has warned that it risks having its stock delisted from the Amex because it has repeatedly been tardy with its financial filings.

“American Apparel is unique because they’re on the cusp of a total collapse,” said Howard Davidowitz, chairman of the retail consulting and investment banking firm Davidowitz & Associates. “You don’t have many people out there breaching their loan covenants. They are not a going-forward company until they can resolve the financial issues.”

American Apparel has conceded that it made mistakes and said it’s unclear what the future holds. Dov Charney, the company’s flamboyant founder and chief executive, has said that the company is continuing to operate despite concerns about its debt.

“Our company in the past has been through these types of issues before and it’s never really presented us with any particular difficulties in running our business,” he said in a conference call with analysts last month after the company reported a $17.6 million quarterly operating loss on sales of $121.8 million.

(Via MSNBC)

Comments

Anonymous said…
like I said the writer of this story is offensive. Why does the CEO has to be described as flamboyant. He is a successful CEO who has made millions and like many other companies is doing bad, however the writer doesn't have the right to describe him like that because he was probably insulting him...
June 29, 2010 at 9:36 AM
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