Already facing falling sales and lawsuits from its ousted founder, shares of American Apparel plunged further Wednesday after the retailer said it doesn’t have enough financing to keep operating for the next year, meaning it will need to raise money or find new financing.
The Los Angeles company said it’s also discussing options like refinancing, new capital-raising moves, amendments or restructuring its debt and other financial obligations. It is not clear if any of those moves will come to pass, and American Apparel warned that investors could suffer big losses on their investments.
American Apparel also says it may be out of compliance with the terms of its revolving credit facility and is in talks with lender Capital One about changing the terms of that credit facility.
Its shares fell 7 cents to 14 cents in midday trading. Its market capitalization stands at about $24 million, according to FactSet.
American Apparel has lost money every year since 2010, with revenue wilting as competition from fast-fashion retailers has increased. The company is being sued by founder and ex-CEO Dov Charney, who was fired in December following allegations that he had violated the company’s sexual harassment policy. Charney denies those charges.
Charney has also filed a $30 million lawsuit against Standard General, one of the company’s biggest shareholders, for defamation.
The company said in July it would revamp its fall clothing line and close some stores to cut costs, and it warned it might not have enough financing for the next year. In a filing Tuesday with the Securities and Exchange Commission, American Apparel confirmed that is the case.
The company also said Tuesday it couldn’t file its second-quarter report on time because management is focused on talks with Capital One and other financial stakeholders. However, the company estimated it lost about $19 million in the quarter ended in June. That included $3.6 million in costs related to litigation. American Apparel said its quarterly sales fell 17% to about $134 million.
The company said it lost around $46 million in the first half of the year, more than double its loss from the year before.
