by Vicki M. Young
From WWD Issue 05/11/2011
American Apparel Inc. on Tuesday reported after the market closed that it narrowed its first-quarter loss.
For the three months ended March 31, the company said the loss was $20.7 million, or 28 cents a diluted share, versus a $42.8 million loss, or 60 cents, last year. Sales fell 4.7 percent to $116.1 million from $121.8 million. Comparable sales declined 8 percent on a constant currency basis, the company said.
The firm ended the quarter with 258 stores, a reduction of 15 units in the quarter. One improvement is its gross margin, which the company said was 55.1 percent for the quarter, compared with 50.4 percent in the year-ago period.
Dov Charney, chairman and chief executive officer, said, “Our first-quarter financial results demonstrate early signs of recovery and our first quarter has historically been our least profitable quarter.”
He noted the retailer’s key selling season is May through October, adding that the firm’s inventory assortment is “well positioned.”
The company said comps were “essentially flat so far in the second quarter and we continue to expect to achieve positive comparable-store sales for 2011.”
Tom Casey, acting president, said recent sales trends are “somewhat ahead of our business plan.”
The company said on April 26 that it raised new capital, allowing it to continue with the execution of its business plan.
Showing posts with label American Apparel. Show all posts
Showing posts with label American Apparel. Show all posts
Friday, May 13, 2011
Wednesday, May 11, 2011
Wednesday, April 27, 2011
New Share Incentives for Dov Charney
by David Lipke
From WWD Issue 04/27/2011
Following last week’s investment in American Apparel Inc. by a group of Canadian funds led by private investor Michael Serruya, controversial chief executive officer Dov Charney no longer holds a majority stake in the company he founded. However, the retailer said Tuesday the financing agreement stipulates that Charney has rights to three additional installments of shares beginning in 2013 if certain stock price benchmarks are reached, ranging from $3.25 to $5.25. If all the targets are met, Charney would receive another 39.7 million shares, regaining a majority stake in the company.
American Apparel shares stayed level on Tuesday on heavy trading, after soaring 27 percent a day earlier on news of last week’s financing package, which rescued the retailer from a potential bankruptcy. The shares ended the day unchanged at $1.58. Volume was about five times average.
“I think American Apparel is a tremendously strong brand and Dov is a remarkable visionary and entrepreneur,” Serruya told WWD of his rationale for the investment. “I think he is one of the top trend-setters in America today. I think given the proper resources, American Apparel has the ability to really deliver results.”
In last Thursday’s deal, American Apparel sold 15.8 million shares at 90 cents per share to the group, reaping $14.2 million. The price was a 27 percent discount to the day’s close for the investors, which include Delavaco Capital, Dynamic Power Hedge, Front St. Capital, Power One Capital Markets, Sentry Select Capital and EdgeHill Partners.
The investors also received warrants that give them the right to purchase up to 27.4 million shares at the same price within 180 days.
“I’m confident the warrants will be exercised and that will give the company an additional $30 million,” said Serruya, who two years ago put together a similar financing package for Jamba Juice, which has since returned over 100 percent to that investment group. “That means American Apparel will have $45 million in cash to open new stores and for capital expenditures and to pay off debt.”
As part of the deal, Charney also purchased 800,000 shares at 90 cents — bringing another $700,000 into American Apparel’s coffers — with additional warrants for another 1.6 million shares.
According to SEC filings, Charney owned 44.9 million shares out of 82.8 million outstanding shares, or 54.2 percent of American Apparel as of March 24. Last week’s deal diluted those shares to below 50 percent, said Serruya.
Serruya dismissed any possibility of Charney relinquishing his ceo position. “The big reason for our investment was Dov. He really embodies the soul of American Apparel,” he noted. Of Charney’s legal battles related to multiple alleged instances of sexual harassment Serruya added: “I think a lot of what he is going through is a shakedown. We’ve done due diligence. Obviously it’s in front of the courts but I think time will tell.”
From WWD Issue 04/27/2011
Following last week’s investment in American Apparel Inc. by a group of Canadian funds led by private investor Michael Serruya, controversial chief executive officer Dov Charney no longer holds a majority stake in the company he founded. However, the retailer said Tuesday the financing agreement stipulates that Charney has rights to three additional installments of shares beginning in 2013 if certain stock price benchmarks are reached, ranging from $3.25 to $5.25. If all the targets are met, Charney would receive another 39.7 million shares, regaining a majority stake in the company.
American Apparel shares stayed level on Tuesday on heavy trading, after soaring 27 percent a day earlier on news of last week’s financing package, which rescued the retailer from a potential bankruptcy. The shares ended the day unchanged at $1.58. Volume was about five times average.
“I think American Apparel is a tremendously strong brand and Dov is a remarkable visionary and entrepreneur,” Serruya told WWD of his rationale for the investment. “I think he is one of the top trend-setters in America today. I think given the proper resources, American Apparel has the ability to really deliver results.”
In last Thursday’s deal, American Apparel sold 15.8 million shares at 90 cents per share to the group, reaping $14.2 million. The price was a 27 percent discount to the day’s close for the investors, which include Delavaco Capital, Dynamic Power Hedge, Front St. Capital, Power One Capital Markets, Sentry Select Capital and EdgeHill Partners.
The investors also received warrants that give them the right to purchase up to 27.4 million shares at the same price within 180 days.
“I’m confident the warrants will be exercised and that will give the company an additional $30 million,” said Serruya, who two years ago put together a similar financing package for Jamba Juice, which has since returned over 100 percent to that investment group. “That means American Apparel will have $45 million in cash to open new stores and for capital expenditures and to pay off debt.”
As part of the deal, Charney also purchased 800,000 shares at 90 cents — bringing another $700,000 into American Apparel’s coffers — with additional warrants for another 1.6 million shares.
According to SEC filings, Charney owned 44.9 million shares out of 82.8 million outstanding shares, or 54.2 percent of American Apparel as of March 24. Last week’s deal diluted those shares to below 50 percent, said Serruya.
Serruya dismissed any possibility of Charney relinquishing his ceo position. “The big reason for our investment was Dov. He really embodies the soul of American Apparel,” he noted. Of Charney’s legal battles related to multiple alleged instances of sexual harassment Serruya added: “I think a lot of what he is going through is a shakedown. We’ve done due diligence. Obviously it’s in front of the courts but I think time will tell.”
Tuesday, April 26, 2011
American Apparel Secures $14.9M From Rescue Financiers
Wall Street Journal
By Drew Fitzgerald
American Apparel Inc. said it raised $14.9 million in rescue financing from a group of investors led by Canadian financier Michael Serruya and private-equity firm Delavaco Capital Corp., allowing the casual clothing retailer to meet obligations to its lenders for the time being.
Shares slid 11 cents, or 7%, to $1.47 in recent trading after a halt was lifted on the stock. They have dropped 54% over the past 12 months.
Liquidity problems have dogged American Apparel for most of the past year amid declining sales. The company first warned in May that it could fall out of compliance with its debt covenants before it narrowly averted a default.
Under the deal, the company will sell about 15.8 million shares of common stock at 90 cents a share to a group of private investors led by Serruya, the former chief executive of Canada's CoolBrands International Inc. The investors also can buy an additional 27.4 million shares at the same price within 180 days, subject to certain adjustments. The price represents a 43% discount to Monday's close. The company had about 73.8 million shares outstanding at the end of last year.
Meanwhile, American Apparel Chairman and Chief Executive Dov Charney will buy 800,000 more shares at the same price with the option to buy about 1.6 million more shares.
"We believe in the American Apparel brand and we believe in Dov Charney," Mr. Serruya said. "We are convinced that with adequate resources, Dov and his experienced management team will lead American Apparel to new heights."
Media reports had speculated the latest rescue amount could have been as low as under $10 million or as much as $43 million.
After Tuesday's financing, the retailer would still need to raise another $5 million to $10 million to survive, based on estimates The Wall Street Journal reported last week. The company hopes that an improving economy may limit any need for additional funds.
The company is still discussing amendments to its credit agreements with lenders Bank of America Corp. and Lion Capital. The Bank of America amendment is expected to increase American Apparel's minimum excess availability requirement to $12.5 million from $7.5 million, while the Lion amendment will likely expand Lion's anti-dilution protections with respect to its warrants. The amendments also are expected to waive the requirement that the year-end audit for fiscal year 2010 be provided without a "going concern" or similar qualification.
At the end of February, American Apparel had $5.3 million in cash, down from $7.7 million at the end of December, according to regulatory filings. The company recently warned it may not have sufficient liquidity to sustain operations and to continue as a going concern.
By Drew Fitzgerald
American Apparel Inc. said it raised $14.9 million in rescue financing from a group of investors led by Canadian financier Michael Serruya and private-equity firm Delavaco Capital Corp., allowing the casual clothing retailer to meet obligations to its lenders for the time being.
Shares slid 11 cents, or 7%, to $1.47 in recent trading after a halt was lifted on the stock. They have dropped 54% over the past 12 months.
Liquidity problems have dogged American Apparel for most of the past year amid declining sales. The company first warned in May that it could fall out of compliance with its debt covenants before it narrowly averted a default.
Under the deal, the company will sell about 15.8 million shares of common stock at 90 cents a share to a group of private investors led by Serruya, the former chief executive of Canada's CoolBrands International Inc. The investors also can buy an additional 27.4 million shares at the same price within 180 days, subject to certain adjustments. The price represents a 43% discount to Monday's close. The company had about 73.8 million shares outstanding at the end of last year.
Meanwhile, American Apparel Chairman and Chief Executive Dov Charney will buy 800,000 more shares at the same price with the option to buy about 1.6 million more shares.
"We believe in the American Apparel brand and we believe in Dov Charney," Mr. Serruya said. "We are convinced that with adequate resources, Dov and his experienced management team will lead American Apparel to new heights."
Media reports had speculated the latest rescue amount could have been as low as under $10 million or as much as $43 million.
After Tuesday's financing, the retailer would still need to raise another $5 million to $10 million to survive, based on estimates The Wall Street Journal reported last week. The company hopes that an improving economy may limit any need for additional funds.
The company is still discussing amendments to its credit agreements with lenders Bank of America Corp. and Lion Capital. The Bank of America amendment is expected to increase American Apparel's minimum excess availability requirement to $12.5 million from $7.5 million, while the Lion amendment will likely expand Lion's anti-dilution protections with respect to its warrants. The amendments also are expected to waive the requirement that the year-end audit for fiscal year 2010 be provided without a "going concern" or similar qualification.
At the end of February, American Apparel had $5.3 million in cash, down from $7.7 million at the end of December, according to regulatory filings. The company recently warned it may not have sufficient liquidity to sustain operations and to continue as a going concern.
Friday, April 22, 2011
American Apparel Gets $15M Lifeline
From WWD Issue 04/22/2011
Dov Charney has used up one more of his nine lives.
The controversial retailer on Thursday finalized a private placement of shares in American Apparel that gives the company breathing room on its burdensome debt and a cash cushion to finance operations. The move averts a potential bankruptcy for the trendy Los Angeles-based company, which has repeatedly warned in filings that it faced an imminent liquidity crisis.
A group of investors led by Toronto-based Michael Serruya acquired $15.2 million in shares of American Apparel, at 90 cents each, a 27.4 percent discount to Thursday’s closing price of $1.24. The deal also includes warrants convertible to another $27 million in shares, also at 90 cents each, that are exercisable over the next 180 days.
As part of the deal, American Apparel also won a waiver from Bank of America on a covenant breach on a $58.2 million credit facility that could have immediately become due at the end of this month.
The strike price on the warrants in the financing deal is well below where shares are currently trading, so are likely to be converted to shares, said sources close to the agreement, which would bring yet more cash into American Apparel’s coffers.
London-based Lion Capital, American Apparel’s largest lender, now holds additional warrants for about 32 million shares, also at a below-market price, following the awarding of additional warrants related to this latest financing deal, said sources.
Any large-scale conversion of warrants to shares would dilute Charney’s shares in the company to below 50 percent, noted sources. However, Charney could regain majority control via stock options that vest at certain prices over the coming years.
The stock buy boosted Charney’s stake in American Apparel to just more than 47 million shares. In a March 1 filing with the SEC, Charney previously outlined ownership of 41 million shares, or 51.8 percent of the company’s 79.1 million total outstanding shares. That percentage increased with Charney’s new share purchases — and have now been diluted again in this latest deal.
Charney declined to comment about the transaction, deferring to an imminent 8-K filing with the Securities and Exchange Commission.
The consortium of investors also includes Dynamic Funds, Front Street Capital, EdgeHill Partners and Essentia Equity.
Serruya is a deep-pocketed investor who got his start as a frozen yogurt entrepreneur with a single Yogen Früz stand at the Promenade Mall north of Toronto, going on to co-found CoolBrands International Inc., which eventually operated nearly 5,000 franchises. More recently, Serruya made a big, winning bet on a Jamba Juice investment while its stock was severely depressed. He currently serves as a director of Swisher Hygiene Inc. and Response Genetics Inc.
Roy Sebag, managing partner in Essentia Equity, said the investment group believed American Apparel’s stock was undervalued in relation to the company’s fundamental strengths. “We are contrarian investors and look for opportunities where the market has discounted companies for reasons that are temporary,” said Sebag. “American Apparel is a perfect example of that. In my opinion, it’s one of the greatest brands that’s been created in the recent past — it went from zero to $550 million in sales in five years, has set countless trends, resonates with consumers around the world and is trading at a ridiculous valuation. Why? Because of sexual harassment lawsuits, an auditor resigning and employees being deported — which all makes for great headlines but has nothing to do with consumers around the world wanting to go into the stores and buying the product.”
Last year, American Apparel posted a net loss of $86.3 million and an EBITDA loss of $7.4 million. Same-store sales declined 13 percent during the year. Charney has been the subject of numerous sexual harassment lawsuits and a late 2009 government investigation of the company’s manufacturing facility in Los Angeles led to the loss of nearly 3,000 workers.
However, Sebag pointed out that American Apparel’s enterprise value is currently about $245 million, or four to five times normalized EBITDA. “Yes, last year was terrible for American Apparel — they had $25 million in professional fees — but in a normalized year they make $55 million to $60 million in EBITDA, which they did for years in a row. Compare that EBITDA to enterprise value and American Apparel is trading at four to five times EBITDA, compared to Abercrombie & Fitch, which is at 17 times EBITDA and Lululemon at around 70 times.”
Tuesday, April 19, 2011
American Apparel Seeking Financing
Wall Street Journal
By Mike Spector and Elizabeth Holmes
American Apparel Inc., the clothing manufacturer known for risqué advertising, is racing to seal a deal for up to $10 million in rescue financing to avoid a bankruptcy filing, said a person familiar with the matter.
The Los Angeles-based company has held talks with an individual investor in recent days who has expressed interest in providing money for the retailer, run by controversial Chief Executive Dov Charney. The money would come in the form of equity, this person said. The potential investor, whose identity couldn't be determined, isn't a well-known name, this person said. The company hopes to secure a deal as soon as this week.
Talks with the investor faced some wrangling in recent days, the person said, and optimism about clinching a deal has faded. If the talks fall apart, American Apparel could be forced to file for Chapter 11 bankruptcy protection as it runs low on cash, the person said. Some close to the company said it can still avoid bankruptcy even if the talks fall apart.
The rescue financing would give American Apparel some breathing room, but the retailer would still need to raise another $10-15 million afterward to survive, the person said. The company hopes that an improving economy may limit any need for additional funds.
An American Apparel spokesman declined to comment.
At the end of February, American Apparel had $5.3 million in cash, down from $7.7 million at the end of December, according to regulatory filings. The company recently warned it "may not have sufficient liquidity to sustain operations and to continue as a going concern."
Meantime, sales are slumping amid the company's cash strain and debt woes. Sales fell nearly 5% last year to $533 million. American Apparel lost more than $86 million last year after earning $1.1 million in 2009.
American Apparel's stock has been trading around $1 amid a series of close calls in which the retailer tapped new money to avoid seeking bankruptcy protection. Late last month, Mr. Charney raised his stake in the company to 54%, purchasing 1.8 million shares for about $2 million.
American Apparel has leaned heavily on Lion Capital, the UK private equity firm that extended the company a lifeline in March 2009. American Apparel has since amended debt terms with Lion Capital at least five times amid its financial difficulties. Two directors from Lion Capital left the board, the company said earlier this month.
American Apparel currently owes about $81 million to Lion Capital and an additional $58 million on a credit line with Bank of America Corp.
In the midst of the turmoil, American Apparel has been beefing up its management team. The company installed former Blockbuster Inc. chief financial officer Tom Casey as acting president in October. Earlier this year, the company named John Luttrell, former chief financial officer at Old Navy, a division of Gap Inc., as its chief financial officer.
Law firm Skadden, Arps, Slate, Meagher & Flom has been advising the company on its recent restructuring efforts alongside investment bank Rothschild Inc.
By Mike Spector and Elizabeth Holmes
American Apparel Inc., the clothing manufacturer known for risqué advertising, is racing to seal a deal for up to $10 million in rescue financing to avoid a bankruptcy filing, said a person familiar with the matter.
The Los Angeles-based company has held talks with an individual investor in recent days who has expressed interest in providing money for the retailer, run by controversial Chief Executive Dov Charney. The money would come in the form of equity, this person said. The potential investor, whose identity couldn't be determined, isn't a well-known name, this person said. The company hopes to secure a deal as soon as this week.
Talks with the investor faced some wrangling in recent days, the person said, and optimism about clinching a deal has faded. If the talks fall apart, American Apparel could be forced to file for Chapter 11 bankruptcy protection as it runs low on cash, the person said. Some close to the company said it can still avoid bankruptcy even if the talks fall apart.
The rescue financing would give American Apparel some breathing room, but the retailer would still need to raise another $10-15 million afterward to survive, the person said. The company hopes that an improving economy may limit any need for additional funds.
An American Apparel spokesman declined to comment.
At the end of February, American Apparel had $5.3 million in cash, down from $7.7 million at the end of December, according to regulatory filings. The company recently warned it "may not have sufficient liquidity to sustain operations and to continue as a going concern."
Meantime, sales are slumping amid the company's cash strain and debt woes. Sales fell nearly 5% last year to $533 million. American Apparel lost more than $86 million last year after earning $1.1 million in 2009.
American Apparel's stock has been trading around $1 amid a series of close calls in which the retailer tapped new money to avoid seeking bankruptcy protection. Late last month, Mr. Charney raised his stake in the company to 54%, purchasing 1.8 million shares for about $2 million.
American Apparel has leaned heavily on Lion Capital, the UK private equity firm that extended the company a lifeline in March 2009. American Apparel has since amended debt terms with Lion Capital at least five times amid its financial difficulties. Two directors from Lion Capital left the board, the company said earlier this month.
American Apparel currently owes about $81 million to Lion Capital and an additional $58 million on a credit line with Bank of America Corp.
In the midst of the turmoil, American Apparel has been beefing up its management team. The company installed former Blockbuster Inc. chief financial officer Tom Casey as acting president in October. Earlier this year, the company named John Luttrell, former chief financial officer at Old Navy, a division of Gap Inc., as its chief financial officer.
Law firm Skadden, Arps, Slate, Meagher & Flom has been advising the company on its recent restructuring efforts alongside investment bank Rothschild Inc.
Friday, April 15, 2011
Just When You Thought There Couldn't Possibly Be Another Article About American Apparel.....
American Apparel Gets Adult Supervision
The trendy, troubled apparel maker turns outside for management help
Bloomberg Businessweek
By Matt Townsend
On a recent conference call with American Apparel store managers, someone asked how to fix a printer. Embattled founder and Chief Executive Officer Dov Charney, whose company lost $86 million in 2010 and disclosed last month that a cash crunch could tip it into bankruptcy, piped up that he would look into it. "He should have said 'I will have somebody else do it,' " says Martin Staff, a veteran apparel executive brought in last month as chief of business development. "That's the conversion from a small company to a large company, and I think he's still learning."
At the urging of creditors, Charney recently brought in professional managerial help. Besides Staff, a veteran manager at Ralph Lauren and Calvin Klein, former Blockbuster Chief Financial Officer Thomas Casey is acting president. The company also named John Luttrell chief financial officer, a post he previously held at Gap's Old Navy chain. Staff says American Apparel holds promise. "I don't want to say this is low-hanging fruit," he says, "but this fruit is almost on the ground."
Charney already has been rocked by the fallout of a 2009 federal crackdown on undocumented workers that resulted in the departure of 2,500 employees from American Apparel's factories in California. He says production problems due to that staffing disruption are to blame for much of American Apparel's recent turmoil. "We've made it through the worst," Charney says.
Staff plans to take the brand's T-shirts and casual wear beyond its 273 stores, as he did at Calvin Klein in the 1990s. He got the designer's merchandise into other retailers and signed licensing deals for everything from aftershave to lingerie. "I have great respect for his talent," says Klein. "He's capable of running a company, and he has the experience of running all aspects."
This week, Staff says he met with executives from upscale retailers he won't name about selling American Apparel garments. The company already offers its wares in Galeries Lafayette in Paris and Selfridges in London, and both luxury chains want to put the merchandise in more of their stores, Staff says. Its wholesale business also holds potential, he says. It generated more than a quarter of the company's $532 million in revenue last year by mostly selling blank T-shirts to screen printers, who put logos on them for sports teams, companies, and special events. Staff says he's received interest from retail chains and competing fashion brands to use American Apparel's excess factory capacity, in part because its U.S.-based plants can turn around orders faster than Asian rivals. Charney says the company made about 47 million garments last year but could expand production to 70 million.
First American Apparel's new executives are coaxing majority shareholder Charney to avoid the minutiae of the business and concentrate on strategy while his team puts stronger inventory and logistics systems and financial controls in place. Casey says overlooking such basics is typical of fast-growing companies: "It's a fairly straightforward turnaround, but it's not done until it's done." Retail consultant Robin Lewis, who has watched Staff for three decades, says he has the "creative and marketing genius" to revive American Apparel. Then again, Lewis says, "they didn't hire him as CEO."
The bottom line: American Apparel recently brought in seasoned managers to help it revamp its business. It still may need a cash infusion.
The trendy, troubled apparel maker turns outside for management help
Bloomberg Businessweek
By Matt Townsend
On a recent conference call with American Apparel store managers, someone asked how to fix a printer. Embattled founder and Chief Executive Officer Dov Charney, whose company lost $86 million in 2010 and disclosed last month that a cash crunch could tip it into bankruptcy, piped up that he would look into it. "He should have said 'I will have somebody else do it,' " says Martin Staff, a veteran apparel executive brought in last month as chief of business development. "That's the conversion from a small company to a large company, and I think he's still learning."
Charney already has been rocked by the fallout of a 2009 federal crackdown on undocumented workers that resulted in the departure of 2,500 employees from American Apparel's factories in California. He says production problems due to that staffing disruption are to blame for much of American Apparel's recent turmoil. "We've made it through the worst," Charney says.
Staff plans to take the brand's T-shirts and casual wear beyond its 273 stores, as he did at Calvin Klein in the 1990s. He got the designer's merchandise into other retailers and signed licensing deals for everything from aftershave to lingerie. "I have great respect for his talent," says Klein. "He's capable of running a company, and he has the experience of running all aspects."
This week, Staff says he met with executives from upscale retailers he won't name about selling American Apparel garments. The company already offers its wares in Galeries Lafayette in Paris and Selfridges in London, and both luxury chains want to put the merchandise in more of their stores, Staff says. Its wholesale business also holds potential, he says. It generated more than a quarter of the company's $532 million in revenue last year by mostly selling blank T-shirts to screen printers, who put logos on them for sports teams, companies, and special events. Staff says he's received interest from retail chains and competing fashion brands to use American Apparel's excess factory capacity, in part because its U.S.-based plants can turn around orders faster than Asian rivals. Charney says the company made about 47 million garments last year but could expand production to 70 million.
First American Apparel's new executives are coaxing majority shareholder Charney to avoid the minutiae of the business and concentrate on strategy while his team puts stronger inventory and logistics systems and financial controls in place. Casey says overlooking such basics is typical of fast-growing companies: "It's a fairly straightforward turnaround, but it's not done until it's done." Retail consultant Robin Lewis, who has watched Staff for three decades, says he has the "creative and marketing genius" to revive American Apparel. Then again, Lewis says, "they didn't hire him as CEO."
The bottom line: American Apparel recently brought in seasoned managers to help it revamp its business. It still may need a cash infusion.
Thursday, April 14, 2011
Dov Charney: He’s Only Just Begun to Fight
By Laura M. Holson
Published: April 13, 2011
To many, Mr. Charney is not only a somebody but even something of a hero;
but to others, he is a morally challenged provocateur.
Can the embattled Dov Charney rescue his reputation and hold on to American Apparel?
Although The New York Times is charging for some of their content, readers coming through links from search engines, blogs and LinkedIn will be able to read any article without restriction.
Click here to read the entire article at www.nytimes.com:
Dov Charney: He’s Only Just Begun to Fight
Friday, April 8, 2011
American Apparel Glamour Fades as Cash Crunch May Spur Bankruptcy
By Matt Townsend
American Apparel Inc., the Los Angeles clothier once heralded as a U.S. manufacturing success story, said it may seek bankruptcy protection after slumping sales and productivity ate into its cash.
“We are currently experiencing significant liquidity constraints,” the company said yesterday. Chairman and Chief Executive Officer Dov Charney had almost doubled sales in the three years through 2009 before immigration-related staff firings, coupled with store overexpansion, sapped revenue.
Charney, 42, founded the retailer in college, building a U.S. empire known for colorful t-shirts and ads featuring scantily clad women. The chain, which has lost money for four straight quarters, has amended its loan agreements at least five times to avoid breaching debt covenants.
“There was a lot of glimmer and glamour associated with them,” said Craig Johnson, president of Customer Growth Partners in New Canaan, Connecticut. “It was a story built on image and now the more sunlight that gets shed on it, the sorrier the image has become.”
American Apparel declined 6 cents, or 6.6 percent, to 90 cents at 4:01 p.m. New York time in NYSE Amex trading. The shares have dropped 46 percent this year. The stock traded at an all-time high of $15.80 in December 2007.
Return to Profitability
The company doesn’t need more capital and doesn’t expect a bankruptcy, Charney said in a telephone interview. The chain is primed to become profitable again now that it’s hired and trained workers to replace those fired, and to return within two years to its 2007-2009 levels of earnings before interest, taxes, depreciation and amortization of about $50 million, he said.
The new staff, coupled with selling brand clothes at other retailers and opening as many as 70 stores, may help the company reach his goal of $1 billion in annual sales, Charney said. Revenue fell 4.6 percent to $533 million last year, according to a regulatory filing yesterday.
American Apparel was legally required to refer to possible bankruptcy in its disclosures, Charney said. “They disclose risk, but at the same time I believe in this opportunity, and I’m getting ready to have a great season,” he said.
The company also said yesterday that two of its board members, Lyndon Lea and Neil Richardson, both from lender Lion Capital LLP, resigned to evaluate the private-equity firm’s investment. Lion, based in London, lent the chain $80 million in March 2009 to pay off a credit facility. Lion also has 16.8 million warrants of American Apparel stock.
American Apparel said last year that it may not have enough money to keep operations going, creating “substantial doubt” about its future.
U.S. Manufacturing
American Apparel gained attention for manufacturing its clothes in Los Angeles, instead of cheaper labor markets, and for offering workers pay above the minimum wage. That prompted headlines such as “American Apparel: A Made-In-U.S.A. Success” from CBS News in 2006.
The chain almost doubled in size to more than 280 stores from 2007 through 2009. That growth may have been part of its decline as Charney, the retailer’s majority shareholder, said last year that expansion led to sales cannibalization in some markets. Productivity also slumped in 2009 after the chain fired 1,500 workers for immigration violations.
The company has closed 13 underperforming stores this year, according to a statement today.
Sales at stores open more than a year, a key metric of a retailer’s health, may decline in the high-single-digit percentages in the first quarter, a ninth-straight drop. For this year, American Apparel expects so-called same-store sales to increase.
2011 Goals
“Our principal goal in 2011 is to stabilize the business and create a platform for renewed growth and increasing sales,” Thomas Casey, American Apparel’s acting president, said in the statement. “2010 was an extremely challenging but productive year.”
The company has identified “material weaknesses” in control of its financial reporting as of Dec. 31, 2010, according to yesterday’s filing. Former auditor Deloitte & Touche LLP resigned last year, after telling the company it couldn’t determine whether its financial statements were reliable.
Charney has used his own money to boost the balance sheet. He purchased 1.8 million shares for $2 million in a private sale, according to a public filing March 24. The company needed money help pay for the cost of rising yarn prices, Charney said today. American Apparel had $138.4 million in outstanding debt and cash of $7.7 million as of Dec. 31.
Sexual Lawsuits
American Apparel and Charney are also facing two sexual harassment lawsuits filed by former female employees in March. Charney declined to comment on the litigation. Peter Schey, a lawyer for American Apparel, said the claims aren’t true, in a telephone interview on March 29.
“With all these ethical and legal issues, it’s too much of a distraction,” Johnson said. “Even if he had zero problems, there’s a huge problem to fix in the business. When you have that and all these other problems, it makes it more difficult.”
American Apparel has shaken up management to improve results. Casey, former chief financial officer at Blockbuster Inc., joined in October, tasked with devising a turnaround plan. John Luttrell, former CFO at Gap Inc.’s Old Navy, came on as CFO in February. Martin Staff became chief of business development in March after stints at Hugo Boss and Calvin Klein.
Thursday, April 7, 2011
American Apparel Warns It May Go Bankrupt After Horrendous 2010
Business Insider
Meredith Lepore and Gregory White
American Apparel has announced it may pursue bankruptcy after 2010 left it with a loss of $86 million, according to the Financial Times.
The company, which has been experiencing financial difficulties for some time after a rapid expansion, and has been under investigation for its labor practices.
Its CEO, Dov Charney, has been accused of sexual crimes on multiple occasions, and is currently being sued for sexual assault.
Charney has talked down the risk that his company may go bankrupt.
But where did it all go wrong for this darling company of the hipster generation?
CEO Dov Charney accused of sexual harassment, wracks up debt
Though Charney has been praised for his outspoken passion for the brand he is mostly known for his unusual business strategy and for allegedly sexually harassing employees.
Charney led the company's rapid expansion, which was financed by debt during the real estate bubble. The company now owes $121.5 million in debt to Lion Capital and Bank of America.
Charney even went so far as to personally guarantee more than $2 million in leases for five stores in New York, Chicago and Los Angeles.
CEO calls CFO a "complete loser"
Charney called former CFO Ken Cieply a "complete loser" in 2008 and said he had no experience in retail.
Cieply left the company two months later and the stock then plummeted.
The company expands like crazy
The company went from one LA store to 260 in 19 countries in less than eight years.
In New York alone there were six stores below 14th Street at one point.
Their ubiquitous nature goes against the store's original intention which was to be a niche brand.
Employees told to lie about inventory data
A former employee filed a lawsuit in 2008 for making him pad the inventory numbers to make the company appear to look better for potential investors. When the suit was filed shares dropped.
The government investigates firm on accusations it misled investors
In 2010 the company received subpoenas from the SEC and the U.S. Attorney's Office in New York.
In July 2010 its auditors Deloitte & Touche informed the company that there may be a problem with its 2009 financial reporting. Deloitte later quit. The SEC investigated the firm, and the Fed's filed a subpoena.
The company received a letter from NYSE noting its failure to comply with rules about filing quarterly documents.
Company sued for illegal advertising campaigns
American Apparels' ads managed to piss off Woody Allen and the UK Advertising Standards Authority and an entire neighborhood in Harlem.
In 2009 Woody Allen won $5 million in a settlement after he claimed the store used his image for an ad without his permission.
Also in 2009 the UK's Advertising Standards Authority criticized the company for an ad depicting a model who looked younger than 16-years-old though the company claimed she was of legal age.
And charged for employing illegal workers
In an immigration investigation in 2009 it was discovered that 1,600 of the 5,600 workers in American Apparel's California factory were possibly illegal immigrants. The investigation found 1,500 undocumented employees who then had to be layed off.
Charney promised to rehire the workers once they got their "immigration papers in order."
Employees hired and fired based on their looks
In 2009 the firm was also accused of having a policy of firing employees that were deemed not attractive enough to work for the brand. The company was requiring job applicants to send in full-body photos.
In response to the leak about the full-body photo policy it invoked a policy requiring employees to sign a confidentiality agreement prohibiting workers from speaking to the media about company practices. The policy has a $1 million fine.
Employees file lawsuits over wages and sexual harassment
Despite branding itself as a pro-worker/anti-sweatshop company a wage-and-hour class action was filed against it in 2009. It was filed by employee Guillermo Ruiz, who claims that, "the company failed to pay certain wages due for hours worked, to provide meal and rest periods or compensation in lieu thereof and to pay wages due upon termination to certain employees."
In 2009 three women also filed sexual harassment suits against Charney and claimed he created a hostile work environment. Another lawsuit filed by an employee claimed he kept naked photos of female employees and held meetings in his underwear.
The company fails to revamp its product line
The company is still pushing its whole ironic 80's-look featuring neon colors and shiny spandex despite the fact that the customers who were sporting those looks ten years ago are now approaching their 40's.
The brand has not evolved its brand to a preppier customer base even though Charney made claims that it would be moving in this direction soon.
The store has also been falted for not making many of its clothing products in sizes larger than a six.
Investors turn against the firm
Sales for the three months ending in September fell 11% to $135 million from the same period the year before. Gross margin decreased significantly dropping 6% to 52.2%. The company reported a net loss of nearly $9.5 million for the quarter.
In the last month alone the firm received a credit waiver with Lion Capital to help it avoid defaulting on its loan. The company said it was hoping to obtain a permanent waiver. Investor Ron Burkle also recently cut his stake in the company by 1.7%.
Meredith Lepore and Gregory White
American Apparel has announced it may pursue bankruptcy after 2010 left it with a loss of $86 million, according to the Financial Times.
The company, which has been experiencing financial difficulties for some time after a rapid expansion, and has been under investigation for its labor practices.
Its CEO, Dov Charney, has been accused of sexual crimes on multiple occasions, and is currently being sued for sexual assault.
Charney has talked down the risk that his company may go bankrupt.
But where did it all go wrong for this darling company of the hipster generation?
CEO Dov Charney accused of sexual harassment, wracks up debt
Though Charney has been praised for his outspoken passion for the brand he is mostly known for his unusual business strategy and for allegedly sexually harassing employees.
Charney led the company's rapid expansion, which was financed by debt during the real estate bubble. The company now owes $121.5 million in debt to Lion Capital and Bank of America.
Charney even went so far as to personally guarantee more than $2 million in leases for five stores in New York, Chicago and Los Angeles.
CEO calls CFO a "complete loser"
Charney called former CFO Ken Cieply a "complete loser" in 2008 and said he had no experience in retail.
Cieply left the company two months later and the stock then plummeted.
The company expands like crazy
The company went from one LA store to 260 in 19 countries in less than eight years.
In New York alone there were six stores below 14th Street at one point.
Their ubiquitous nature goes against the store's original intention which was to be a niche brand.
Employees told to lie about inventory data
A former employee filed a lawsuit in 2008 for making him pad the inventory numbers to make the company appear to look better for potential investors. When the suit was filed shares dropped.
The government investigates firm on accusations it misled investors
In 2010 the company received subpoenas from the SEC and the U.S. Attorney's Office in New York.
In July 2010 its auditors Deloitte & Touche informed the company that there may be a problem with its 2009 financial reporting. Deloitte later quit. The SEC investigated the firm, and the Fed's filed a subpoena.
The company received a letter from NYSE noting its failure to comply with rules about filing quarterly documents.
Company sued for illegal advertising campaigns
American Apparels' ads managed to piss off Woody Allen and the UK Advertising Standards Authority and an entire neighborhood in Harlem.
In 2009 Woody Allen won $5 million in a settlement after he claimed the store used his image for an ad without his permission.
Also in 2009 the UK's Advertising Standards Authority criticized the company for an ad depicting a model who looked younger than 16-years-old though the company claimed she was of legal age.
And charged for employing illegal workers
In an immigration investigation in 2009 it was discovered that 1,600 of the 5,600 workers in American Apparel's California factory were possibly illegal immigrants. The investigation found 1,500 undocumented employees who then had to be layed off.
Charney promised to rehire the workers once they got their "immigration papers in order."
Employees hired and fired based on their looks
In 2009 the firm was also accused of having a policy of firing employees that were deemed not attractive enough to work for the brand. The company was requiring job applicants to send in full-body photos.
In response to the leak about the full-body photo policy it invoked a policy requiring employees to sign a confidentiality agreement prohibiting workers from speaking to the media about company practices. The policy has a $1 million fine.
Employees file lawsuits over wages and sexual harassment
Despite branding itself as a pro-worker/anti-sweatshop company a wage-and-hour class action was filed against it in 2009. It was filed by employee Guillermo Ruiz, who claims that, "the company failed to pay certain wages due for hours worked, to provide meal and rest periods or compensation in lieu thereof and to pay wages due upon termination to certain employees."
In 2009 three women also filed sexual harassment suits against Charney and claimed he created a hostile work environment. Another lawsuit filed by an employee claimed he kept naked photos of female employees and held meetings in his underwear.
The company fails to revamp its product line
The company is still pushing its whole ironic 80's-look featuring neon colors and shiny spandex despite the fact that the customers who were sporting those looks ten years ago are now approaching their 40's.
The brand has not evolved its brand to a preppier customer base even though Charney made claims that it would be moving in this direction soon.
The store has also been falted for not making many of its clothing products in sizes larger than a six.
Investors turn against the firm
Sales for the three months ending in September fell 11% to $135 million from the same period the year before. Gross margin decreased significantly dropping 6% to 52.2%. The company reported a net loss of nearly $9.5 million for the quarter.
In the last month alone the firm received a credit waiver with Lion Capital to help it avoid defaulting on its loan. The company said it was hoping to obtain a permanent waiver. Investor Ron Burkle also recently cut his stake in the company by 1.7%.
Monday, April 4, 2011
American Apparel Faces Financial Precipice
From WWD Issue 04/04/2011
American Apparel is scrambling to find new financing as it faces a severe cash crunch and a looming April 30 deadline that could cut off its ability to borrow from banks and cover daily operating costs, which could potentially trigger a Chapter 11 bankruptcy filing.
The company has tapped the Rothschild investment bank to shake the money tree for potential investors, but so far there have been no takers, according to company insiders.
“Without an additional injection of cash, the company is done. Somebody has to write a check,” said Howard Davidowitz, chairman of New York-based Davidowitz & Associates, a retail consulting and investing banking firm. “There is no way the company can continue in its present state.”
Dov Charney, chairman and chief executive officer of American Apparel, insisted the company will not file for bankruptcy. “In my opinion, there’s no chance of that. That’s not an option we are going to explore,” he told WWD. “We have a variety of options. We could do a private placement of stock. Or we could use the resources we have. We do $10 million a week in sales.”
However, the company’s financial picture is bleak. Last week, it reported a net loss for 2010 of $86.3 million and an EBITDA loss of $7.4 million. As of Feb. 28, it had just $5.3 million in cash and $1.9 million of availability for additional borrowings on a Bank of America credit agreement and $1.2 million on a Bank of Montreal credit agreement. The company owed $58.2 million on the Bank of America facility and $4 million on the Bank of Montreal facility. Additionally, as of Dec. 31, American Apparel owed $81.2 million to Lion Capital, the London-based private equity firm that rescued the company from its last financial precipice, in 2009.
The company has repeatedly warned in its filings with the Securities and Exchange Commission that it may not be able to continue as a “going concern,” due to its financial circumstances. Charney has spun those warnings as boilerplate language meant to protect investors— but they have also triggered a serious potential covenant breach with lenders.
Both Bank of America and Bank of Montreal require the company to furnish audited financial statements that do not contain a “going concern” qualification by April 30. Unless American Apparel can win waivers for this covenant, its loans will go into default, preventing the company from making any additional borrowings, and the entire debts become immediately due.
In addition, defaulting on the Bank of America credit agreement would trigger a default on the Lion Capital loan.
“It’s a pretty meaningful date,” said Lyndon Lea, a founding partner at Lion Capital, of the potential April 30 covenant breach.
Lea and Neil Richardson, also of Lion Capital, both resigned from the American Apparel board last week, which some observers saw as an indicator that the investment firm is losing faith in Charney. However, Lea countered the move was taken to prevent a conflict of interest for the equity firm.
“As board members, we were responsible for a lot of different interests in terms of shareholders and creditors and stakeholders. Now that we have been talking about raising new forms of liquidity, and we’d have to have a clear point of view on whose interest we were looking out for, that made it more difficult. Something that was good for American Apparel might be bad for Lion Capital,” explained Lea.
Asked why the two joined the board in the first place, Lea responded: “That’s a damn good question. But hindsight is 20/20. We didn’t think there would be these liquidity issues when we first made the investment and the company was doing $80 million in EBITDA.”
Lion Capital may provide additional financing to American Apparel itself, with Lea saying he was “favorably inclined” to doing so but that no final decisions had been made. Lion Capital is exploring various loan and investment options, he added, noting that an additional cash infusion into American Apparel was probably necessary “within weeks.”
Asked his views on a possible American Apparel bankruptcy filing, Lea said he wasn’t concerned for Lion Capital’s funds. “If they do file, I feel okay. I believe the brand has a lot of value, and it’s more than what they owe me,” he noted.
Davidowitz pointed out that any new investors could wrest majority ownership of American Apparel from Charney, who currently holds 62.7 percent of the shares in the company, not inclusive of warrants held by Lion Capital, convertible to 16.8 million shares. “I don’t see how there is any way for him to retain a majority stake in the company. Any major equity investor will want a controlling stake,” said Davidowitz.
Saturday, April 2, 2011
American Apparel Posts Loss
Wall Street Journal
By Melodie Warner
American Apparel Inc. swung to a fourth-quarter loss on store-closure expenses and weak sales and reiterated doubts about its ability to continue as a going concern.
The clothing retailer, known for its risque marketing campaigns and colorful basic clothing, has long struggled with declining sales and mounting debt.
The company said it expects to post a 2011 loss from operations and generate negative cash flows. It said the going-concern opinion stems from global economic conditions, higher yarn and fabric prices and the possibility that the company could be prevented from borrowing under its revolving credit agreements.
"Our principal goal in 2011 is to stabilize the business and create a platform for renewed growth and increasing sales," said acting President Tom Casey.
Still, American Apparel said its sales declines are easing and it expects first quarter sales at stores open at least a year to show a percentage drop in the mid- to high-single digits, easing from the 11.5% decline seen in the fourth quarter. The company said it expects positive same-store sales for 2011.
For the fourth quarter, American Apparel reported a loss of $19.3 million, or 27 cents a share, compared with a profit of $3.1 million, or four cents a share, a year earlier. The latest quarter reflects higher payroll costs and store-closure-related charges. Sales dropped 8.9% to $144 million
Gross margin rose to 55.6% from 55% as manufacturing efficiency improved.
By Melodie Warner
American Apparel Inc. swung to a fourth-quarter loss on store-closure expenses and weak sales and reiterated doubts about its ability to continue as a going concern.
The clothing retailer, known for its risque marketing campaigns and colorful basic clothing, has long struggled with declining sales and mounting debt.
The company said it expects to post a 2011 loss from operations and generate negative cash flows. It said the going-concern opinion stems from global economic conditions, higher yarn and fabric prices and the possibility that the company could be prevented from borrowing under its revolving credit agreements.
"Our principal goal in 2011 is to stabilize the business and create a platform for renewed growth and increasing sales," said acting President Tom Casey.
Still, American Apparel said its sales declines are easing and it expects first quarter sales at stores open at least a year to show a percentage drop in the mid- to high-single digits, easing from the 11.5% decline seen in the fourth quarter. The company said it expects positive same-store sales for 2011.
For the fourth quarter, American Apparel reported a loss of $19.3 million, or 27 cents a share, compared with a profit of $3.1 million, or four cents a share, a year earlier. The latest quarter reflects higher payroll costs and store-closure-related charges. Sales dropped 8.9% to $144 million
Gross margin rose to 55.6% from 55% as manufacturing efficiency improved.
Monday, March 28, 2011
Dov Charney Ups Stake in American Apparel
From WWD Issue 03/28/2011
American Apparel Inc. chairman and chief executive officer Dov Charney has injected more of his own money into the cash-strapped company by purchasing six million shares, WWD has learned. The firm is expected to divulge the transaction in a regulatory filing with the Securities and Exchange Commission today.
In the purchase, Charney spent $2 million to buy 1.8 million shares at $1.11 each. Additionally, he has converted a $4.7 million personal loan he made to the company some years ago into another 4.2 million shares, relieving American Apparel of that debt obligation. Fifty percent of those shares have been issued immediately and the remaining 50 percent will be issued if and when the company’s stock price reaches $3.50. However, the price of the conversion will also be $1.11 per share.
On Friday, shares of American Apparel closed at 91 cents, down two cents.
The cash infusion will be used to fund the company’s ongoing operations.
In its most recent 10-Q filing, the company said it had $8.5 million in cash and $9.6 million available for additional borrowings as of Sept. 30. The company had negative cash flows for 2010 and expects to report an operating loss for the year, when it files its delayed year-end numbers on March 31. American Apparel previously warned investors that liquidity problems pose a threat to the viability of the company.
The stock buy will push Charney’s stake in American Apparel to just over 47 million shares. In a March 1 filing with the SEC, Charney previously outlined ownership of 41 million shares, or 51.8 percent of the company’s 79.1 million total outstanding shares.
London-based private equity firm Lion Capital, which rescued American Apparel from defaulting on its debt obligations in 2009, holds a 20.3 percent stake in the company, including warrants convertible to 16 million shares of common stock, also at the $1.11 share price.
Lyndon Lea, a founding partner of Lion Capital and a board member of American Apparel, expressed confidence in the company’s turnaround strategy in an interview with WWD last week. American Apparel has closed some stores, focused on improving the faltering productivity at its Los Angeles production facility and hired a new management team in recent months, including acting president Tom Casey, chief financial officer John Luttrell and chief business development officer Marty Staff, a former ceo of JA Apparel Corp. and Hugo Boss USA.
Thursday, March 24, 2011
This Guy Is A Jerk -- Chief of American Apparel Faces 2nd Harassment Suit
By Laura M. Holson
A lawyer for Dov Charney, the chief executive, denied the allegations in the suit, filed by a former sales clerk and three other women.
The New York Times operates under a "freemium" model, where a limited number of articles per month (20) may be viewed without a subscription fee.
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This Guy Is A Jerk -- Chief of American Apparel Faces 2nd Harassment Suit
Wednesday, March 23, 2011
American Apparel Eyes Growth Initiatives
From WWD Issue 03/23/2011
American Apparel is anxious to get back on the growth path — and wholesaling to other retailers could be part of the plan.
To spearhead the strategy, the company, which has been afflicted with debt issues, declining sales and controversies, has brought in Marty Staff as chief sales development officer. Staff, a former chief executive officer of both JA Apparel Corp. and Hugo Boss USA, starts in his new role today.
“His first mission will be, how do we get more dollars through the existing assets and systems that we have,” said Dov Charney, chairman and ceo of American Apparel. “In the words of that old Yiddish proverb: ‘Get me an order. Everything else will take care of itself.’ ”
The new hire brings to American Apparel one of the more colorful and voluble executives in the fashion world. Known as much for his tattoos, blunt talk and hard-partying personality as his business acumen, Staff has a career that spans more than three decades in the industry, including high-level tenures at Polo Ralph Lauren and Calvin Klein.
Staff approached American Apparel several months ago, following his departure in September from JA Apparel, owner of the Joseph Abboud business. He was introduced to Charney by Keith Miller, a board member of American Apparel and a partner at the New York-based private equity firm Goode Partners.
“I think the American Apparel name is better than the business. This is a hot brand with a lot of legs, and it can move in every direction,” said Staff, explaining his initial interest that led to a series of meetings in L.A. with Charney.
One of the first sales initiatives Staff will now oversee is exploring the possibility of wholesaling American Apparel product to other retailers. Currently, the company only wholesales to the imprintable T-shirt industry. However, two leased shop-in-shops, in Galeries Lafayette in Paris and Selfridges in London, have been performing well for American Apparel.
“I think it’s a careful discussion, but I believe there’s an opportunity. I think on a very careful, selective basis we could sell a store chain or more,” said Staff, who currently lives in Pennsylvania but will move to L.A.
Growing revenue is the linchpin of American Apparel’s strategy to turn around its struggling financial performance. “Our overriding goal is to increase sales. We can leverage our existing infrastructure and overhead and make this company a much more meaningful profit proposition,” said Charney.
For the nine months ended Sept. 30, the company reported a net loss of $67 million compared to a net loss of $1.9 million in the 2009 period, while net sales declined 2.9 percent to $389 million. Gross margin decreased to 51.4 percent, down from 58.1 percent in the year ago period.
Charney attributed the weak results primarily to the loss of several thousand improperly documented workers at American Apparel’s L.A. manufacturing facility in late 2009, stemming from an investigation by the U.S. Immigration and Customs Enforcement Agency. The company originally said it lost 1,600 of its almost 5,600 production line workers, but Charney said the actual number was closer to 3,000.
“Many of them self-deported. They knew there was an audit and they didn’t want to wait for the gringos to show up with handcuffs,” he said.
The company had difficulty hiring new workers due to financial restraints. Retraining workers and ramping up the factory took longer than expected, as well. “We didn’t start hiring until April of 2010. I was out of line with my loan covenants at the time and couldn’t spend money like a mad drunk,” said Charney of the delay. “That led to cost overruns and late deliveries to our stores. We couldn’t get bathing suits to the stores in time, for example, and missed out on replenishing hot sellers.”
American Apparel will need at least another nine months to get its L.A. production facility up to optimal operational efficiency, said Charney.
The company’s same-store sales have taken a hit from those production problems. For the nine months ended Sept. 30, comps contracted 14 percent. The company currently operates 273 stores, down from 281 at the end of 2009, and Charney said a few more stores could close this year.
“If we can increase top-line sales by 10 percent at our own stores, that will translate to over $20 million in EBITDA,” noted Charney. “Staff’s job is to get some gelt into those stores.”
Increasing EBITDA is crucial to American Apparel’s ability to refinance its $76 million loan with Lion Capital at more favorable terms — either with Lion or another lender—when that loan comes due.
Next month, the company will introduce a key push into women’s indigo denim, with jeans retailing for $80. “I’m also doing leather pouches. The nail polish is working and has become a multimillion-dollar business. My bag business is working. Men’s and women’s pants are starting to turn. We’ve brought a lot of new product into the product line,” said Charney.
American Apparel has hired three top executives since October, including former Old Navy and Wet Seal executive John Luttrell as executive vice president and chief financial officer, and Tom Casey, formerly cfo of Blockbuster, as acting president. Casey is being groomed by Charney to assume a big-picture corporate strategy role in the company, leaving Charney to focus on creative aspects of the business — although Charney has no plans to relinquish his ceo title.
Lyndon Lea, a founding partner at London-based Lion Capital and a board member of American Apparel, said the hires were “a significant step to professionalizing American Apparel.”
Casey said he has focused on improving the people, processes and systems at American Apparel during his five months at the company. “This is a classic entrepreneurial business that has grown rapidly and become a large and complex company. There were certain internal communication inefficiencies that needed to be addressed, and we’re working to enhance profitability and working capital efficiencies,” he noted.
American Apparel has delayed filing its fourth quarter and full-year results for 2010 but expects to release those numbers on March 31. Additionally, it will file revised numbers for 2009 by April 10.
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