American Apparel Could Face Bankruptcy Soon
American Apparel, the chain of clothing stores favored by young folks across the country, has announced that it could be facing serious financial trouble in the near future.
The company announced that it may lack the liquidity that it’ll take to sustain itself over the next year, according to the Associated Press. The statement from the company included wording that has been known to come before a bankruptcy filing.
After the news broke, the company’s stock shares fell by 21 percent, to their lowest price in a year.
American Apparel went public in 2007, and has since rapidly expanded, occupying 260 stores in 19 countries. Popular among young hipsters, they specialize in clothing basics in bright colors, slim cuts and 1980s-inspired styles like leggings and leotards.
American Apparel said that their losses in the second quarter could make its ability to continue a growing concern. The Associated Press noted that the terminology used by the company is “standard language foreshadowing a possible bankruptcy.”
American Apparel is also in danger of falling out of compliance with a credit agreement, with a deadline of September 30. If the company does not receive a reprieve, it said, they might be forced to pay off two lines of credit at the same time. The company is currently working to amend the credit agreements that it has in place.
According to American Apparel, the stress of the current agreement could set in motion a chain reaction of financial problems that would lead to the simultaneous payment of both credit lines.
The clothing company expects a loss between $5 and $7 million for the quarter that ended on June 30. In the second quarter, they experienced losses of $7.3 million. Revenue came in at $136.1 million in 2009, but that number is expected to fall to between $132 and $134 million this year.
The revenue brought in by stores that have been open for more than a year has fallen by 16 percent during the quarter, according to the Associated Press.
Based in California, American Apparel is also known for their racy ads and polarizing CEO Dob Charney, who has made headlines during sexual harassment trials and a legal dispute with Woody Allen. Charney is often portrayed as a foul-mouthed leader who has conducted meetings in his underwear and posted pornographic pictures in American Apparel stores.
American Apparel filed with the Securities and Exchange Commission, saying that they company expects losses to continue at least through the year’s third quarter.
According to the New York Times, American Apparel also faced an SEC subpoena for its switch from accountants Deloitte and Touche to Marcum to serve as independent auditors.
The loan agreement that American Apparel will like fall out of compliance under is with Lion Capital. Going out of compliance could trigger, according to the New York Times, “cross-defaults across other bank loans.”
The company also warned the SEC that its failure to file an earnings report with the SEC in a timely fashion for the second quarter could threaten its listing on the New York Stock Exchange Amex exchange.
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