American Apparel warns it may file for bankruptcy

AP News
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Posted: Apr 01, 2011 1:37 PM
American Apparel warns it may file for bankruptcy

Troubled clothing chain American Apparel Inc., losing money and faced with a cash crunch, says it may have to file for Chapter 11 bankruptcy protection.

The New York company warned in a filing with the Securities and Exchange Commission Thursday that it "may need to voluntarily seek protection under Chapter 11 of the U.S. Bankruptcy Code" if it can't improve its sales or cash position or find other sources of financing to keep it afloat.

The retailer known for its sexually provocative advertising also indicated that even if it does file for bankruptcy, it may be forced to liquidate if it can't put together a reorganization plan or find bankruptcy financing.

The company's stock slid about 15 cents, or 16 percent, to 81 cents in afternoon trading. Over the past year, the shares have traded between 66 cents and $3.62.

American Apparel has been plagued by both financial and image problems. On Friday the company reported a fourth-quarter loss of $19.3 million, or 27 cents per share, compared with net income of $3 million, or 4 cents per share, a year ago.

Revenue for the three months ended Dec. 31 dropped 9 percent to $144 million from $158.1 million.

American Apparel's full-year results were also rough. The retailer posted a loss of $86.3 million, or $1.21 per share, compared with earnings of $1.1 million, or 1 cent per share, in the previous year. Annual revenue declined 5 percent to $533 million from $558.8 million.

In October, the company amended a credit agreement with Lion Capital so it could get some breathing room on its financial performance. That same month it avoided being delisted by the New York Stock Exchange Amex LLC after submitting a plan related to its financial filings.

Financial troubles aren't American Apparel's only problem.

Last month a former worker sued founder Dov Charney, alleging he sexually abused her. American Apparel has said that it expects the lawsuit will be tossed out because the former employee signed an agreement not to sue and to settle disputes in arbitration when she left the company.

The lawsuit is the latest in a string accusing Charney of inappropriate sexual conduct with female employees. In interviews, he has acknowledged having sexual relationships with female workers, but said they were consensual.