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American Apparel

American Apparel Issues Dire Warning to Shareholders

2 min read
This story originally appeared on Fortune Magazine

American Apparel’s cash problems keep getting worse.

Late on Tuesday, American Apparel implied in a filing that the company may be forced to seek bankruptcy protection if it can’t line up more money.

“The Company’s existing and any new investors could suffer substantial or total losses of their investment in its common stock,” American Apparel said in the filing. The company has warned about cash issues before. But it was the first time it had warned shareholders that their investment in the company could end up worthless.

The filing also showed that American Apparel’s deterioration worsened in the second quarter of 2015. Sales declined 17%, which was worse than the first quarter drop. For the first half of 2015, revenue was down 14% to $259 million, while its net loss more than doubled to $45.8 million from $21.7 million a year earlier.

The company, which is still feuding with founder and ex-CEO Dov Charney, announced a plan two months ago to get back on its feet, relying less on sexy (or sexist, depending on whom you ask) imagery and more on better merchandise and more enticing stores.

But it is not clear that the company will even have the cash to implement its plan.

American Apparel didn’t submit a full quarterly earnings report for the second quarter because it is in the process of negotiating terms of a lending agreement with Capital One.

Such an agreement looks to be crucial for the company. In the filing, American Apparel said it was consulting advisers and “certain key financial stakeholders” to “analyze potential strategic and financial alternatives.” That could include raising new capital, as well as amending or restructuring existing debt.

The company, now headed by Paula Schneider after the exit of Charney last year after allegations of sexual and other misconduct, said yet again it doesn’t expect to have enough financing lined up to meet its needs for the next year in the absence of additional capital or another financing arrangement.

American Apparel shares fell 35% on Wednesday to $0.14. The stock has dropped 87% this year. So there isn’t that much more investors can even lose.

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