American Apparel Reports Loss in Third Quarter
American Apparel—the Los Angeles–based vertically integrated manufacturer, wholesaler and retailer—is continuing to reposition itself with a greater emphasis on wholesale operations and a new leadership team, even as it reports results of another challenging quarter.
On Nov. 9, the company announced an $8 million loss from operations in its third quarter—a significant change from the same quarter in 2009, when it reported an income from operations of $11.2 million.
American Apparel’s third-quarter financial results also included net sales of $134.5 million—a decrease of more than 10 percent compared with the same quarter last year, resulting in a loss per diluted share of 13 cents. Comparable same-store sales for American Apparel stores open a minimum of 12 months dropped 16 percent.
The company pinned a gross margin loss of more than 52 percent in the third quarter on increased production costs due to lower labor efficiency, a production mix that leans heavily toward more complicated styles and a shift in sales away from retail and toward wholesale, something that American Apparel said generates a lower gross margin.
In a Securities and Exchange Commission filing on the same day, the company warned that noncompliance with “covenants under the Lion credit agreement [with lender Lion Capital LLC] would constitute an event of default under the Bank of America credit agreement, which, if not waived, could block the company from making borrowings under the BofA credit agreement. In addition, all indebtedness under the BofA credit agreement and the Lion credit agreement could be declared immediately due and payable.” These factors and others, the company said, “raise substantial doubt that the company will be able to continue as a going concern.”
Still, Dov Charney, the company’s founder and chief executive, struck a positive note, saying American Apparel is being proactive in its attempts to turn the company around. “We recently announced the hiring of Tom Casey as acting president, and we are in the process of hiring several additional new executives. The American Apparel brand remains strong, and many of our customers appreciate that our high-quality, fashionable basics are made in America,” he said in a statement. “I have seen reinvigorated interest in our brand, and our customers are recognizing us for our new products. We plan to continue driving sales of our basics as we align product design and development with more efficient manufacturing.”
Casey, who joined the company in October after leaving his post of executive vice president and chief financial officer of Blockbuster, said American Apparel plans to improve its financial results by “supporting the brand with a customer-focused supply chain, leveraging our speed-to-market capability with lower distribution costs. We are optimizing our retail store base through investments in technology and improved allocation while lowering our lease costs.”—Erin Barajas
