June 25, 2024

DealBook: American Apparel Warns of Bankruptcy

American Apparel

American Apparel is losing its appeal among young urban shoppers.

The clothing retailer warned in a regulatory filing on Thursday that it might have to file for bankruptcy unless demand picked up for its cotton T-shirts and leggings — and its overall financial situation improves.

The company, known for its provocative advertising and controversial founder, has endured a rough year.

American Apparel reported an $86 million loss in 2010, compared with a $1 million profit the year prior. Cash flows were negative, too. And the company is predicting much the same for 2011, according to its annual filing with the Securities and Exchange Commission.

The company says it is hashing out a plan to spruce up its business. It is renegotiating real estate leases, a step that could include closing some stores. It is working with vendors and landlords to push back its bills. And it is considering laying off retail staff.

American Apparel, which has hired an outside financial adviser, is also trying line up additional sources of capital. It may also need to restructure some debt.

But unless its financial picture gets better, the company said bankruptcy could be the next stop.

“If the company is not able to timely, successfully or efficiently implement the strategies that the company is pursuing to improve its operating performance and financial position, obtain alternative sources of capital or otherwise meet its liquidity needs, the company may need to voluntarily seek protection under Chapter 11 of the U.S. Bankruptcy Code,” American Apparel disclosed in its filing.

It is the latest problem for a company that has been dogged by financial and legal issues over the past year.

In August 2010, the company disclosed that it had received a federal subpoena over its decision to change its accounting firm. At the same time, American Apparel said it was in danger of not complying with the terms of a loan, which raised doubt that the retailer could survive.

Last month, a former sales associate at American Apparel filed a lawsuit against Dov Charney, the company’s flamboyant chief executive and founder. She is accusing Mr. Charney of sexual harassment in a claim that names three other women.

As the company has suffered, investors have fled. In the last 12 months, the retailer’s stock has fallen by nearly 70 percent to less than $1.

Article source: http://feeds.nytimes.com/click.phdo?i=52ccd7f9c878a49836764e5dc13a2420

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