American Apparel Warns Shareholders They Could Suffer "Substantial Or Total Losses"
Sales at the retailer fell by 17% in its most recent quarter, and the stock has lost 80% of its value this year.
American Apparel's bad year is getting much worse, and the company is now warning its shareholders that they could lose everything.
The retailer which has been attempting a turnaround after ousting founder and ex-CEO Dov Charney last year, said today that sales fell an estimated 17% to $134 million in the second quarter. In the first six months of 2015, sales declined an estimated 14% to $259 million. The retailer estimated a net loss for the first half of the year of $45.8 million, compared with a $21.7 million loss in 2014.
Results were dragged down by legal fees, the impact of discounts on slow-moving inventory and an amendment to the company's lease on its headquarters in Los Angeles. The company's stock closed at 21 cents a share today.
American Apparel said that it was unable to submit its full quarterly earnings filing for the three months ended June 30 on time — hence the estimated numbers — because it's in the process of negotiating terms of a lending agreement with Capital One. The company's finances have deteriorated to such an extent that it's apparently not in compliance with certain metrics required by Capital One, and it's seeking waivers for the noncompliance. American Apparel was in the same situation in March, when it delayed its annual filing over waiver discussions with Capital One.
The retailer is shuttering stores and continuing layoffs, after cutting 180 jobs in April as part of its attempt to return the company to profitability. It appears to be keeping all options on the table as it tries to figure out what to do next.
American Apparel said in today's filing that it's working with advisers and "certain key financial stakeholders" to "analyze potential strategic and financial alternatives," such as raising new capital and amending or restructuring its existing debt. The company repeated that it doesn't expect to have sufficient financing commitments to meet funding requirements for the next 12 months without additional capital or another financing arrangement.
It also noted that whatever financial agreements it reaches, American Apparel's "existing and any new investors could suffer substantial or total losses of their investment in its common stock."
Not that there's much left to lose. The 21-cent share price today represents an 80% decline in the stock this year. American Apparel shares jumped to $1.21 in the wake of founder Dov Charney's termination in July 2014.