In news that’s surprising to no one, American Apparel on Monday announced that net sales for the quarter ended June 30 had tumbled 17.2 percent to $134.4 million from $162.4 million in the year-ago period, citing store closures and a lack of new styles for the spring/summer selling season.
Its net loss, meanwhile, widened to $19.4 million, or $0.11 per share, compared to $16.2 million, or $0.09 per share, in the second quarter of 2014.
Following last week’s announcement that it “does not currently expect” to have enough cash to see it through the next year, the Los Angeles-based company has since increased its credit line but declared Monday that it may not have “sufficient liquidity necessary” to sustain operations.
The clothier said it had breached covenants related to its $50 million Capital One credit facility as of June 30 and that the lender had handed over rights and obligations to a syndicate that includes Standard General and Goldman Sachs Asset Management, while Wilmington Trust would replace it as administrative agent.
Wilmington has waived the covenant violations and increased the credit facility to $90 million. As of August 11, American Apparel has $11.2 million in cash, but it has $210.6 million in long-term debt and a bond-interest payment of about $13.9 million due on October 15.
“As a result of the Capital One Credit Facility covenant default and the liquidity uncertainty described above, we have been working with our advisers and have begun discussions with certain key financial stakeholders to analyze potential strategic and financial alternatives, which may include, among other things, refinancing or new capital raising transactions, amendments to or restructuring of our existing indebtedness and other obligations, and consideration of other restructuring and recapitalization transactions,” the company said in the filing, adding, “Substantial uncertainty exists as to the ultimate outcome of those discussions… Our existing and any new investors could suffer substantial or total losses of their investment in our common stock.”
American Apparel has been struggling to lift itself out of the doldrums for a number of years. In addition to its market value plunging from $540 million to about $90 million in the last five years, fallen founder Dov Charney can’t stop suing the company. And CEO Paula Schneider’s turnaround plan, which includes cutting $30 million in costs by closing under-performing stores and eliminating jobs as well as replacing the brand’s risqué ads with more empowering images, has yet to have much of an impact.