AMERICAN A-PERIL
Retailer known for its provocative ad campaigns may now be on the edge of bankruptcy,
LOS ANGELES— Beleaguered American Apparel Inc. said it is hanging on by a thread.
With sales sliding and cash dwindling, the Los Angeles company warned Monday it may not have enough liquidity to keep operating for the next12 months, according to a filing with the Securities and Exchange Commission. The losses may continue through the rest of 2015, the company said. All these factors, American Apparel said, “raise substantial doubt that we may be able to continue as a going concern.”
The warning comes as the company reported a second quarter in line with its original estimates filed with the SEC last week. The quarter was marked by bad news: Sales fell 17 per cent to $134 million (U.S.) and net loss widened to $19.4 million, or 11 cents a share.
American Apparel’s shrinking cash position is pushing it closer to filing for Chapter 11 bankruptcy, analysts said. The clothing manufacturer could then get out of leases for under-performing stores, which is crucial for slashing costs and turning around the business.
“It’s very hard to envision a save here without exiting many or most of the leases,” said Craig Johnson of Customer Growth Partners. “It has to be done.”
Despite the best efforts of Paula Schneider, the chief executive who took over in January, American Apparel’s troubles are too numerous to continue without drastic restructuring, Johnson said.
The company has nearly $235 million in long-term debt, and must come up with $13.9 million for a bond payment in October.
As of June 30, American Apparel had $6.9 million in cash.