Future in Doubt for American Apparel

An American (Apparel) in Berlin? This popular store sits among many small European boutiques, but also near a Lee Jeans store, on Alte Schonhauser Strasse in Berlin. But shoppers, be ready to pay: its prices aren't adjusted for the conversion rate. CBS / Christine Lagorio

Troubled clothing chain American Apparel Inc. said Tuesday it might not have enough liquidity to sustain itself over the next year.

The news sent shares down 21 percent to a 52-week low.

The company also reported Tuesday a preliminary second-quarter loss. It expressed doubt about its ability to continue as a "going concern," standard language foreshadowing a possible bankruptcy.

American Apparel also said it might fall out of compliance with a credit agreement by Sept. 30. It is working with a lender to amend the agreement, but cautioned that without a reprieve, there may be a damaging financial chain reaction that could force the company to pay both credit lines immediately.

Known as much for its racy ads and outre behavior of CEO Dov Charney as its inexpensive leggings and T-shirts, American Apparel has expanded rapidly since going public in 2007 and operates about 260 stores in 19 countries.

For the quarter ended June 30, American Apparel expects a loss of $5 million to $7 million, compared with a loss of $7.3 million in the second quarter.

It expects revenue to fall to $132 million to $134 million, from $136.1 million last year.

Revenue in stores open at least one year fell 16 percent during the quarter.

In a filing with the Securities and Exchange Commission, the company said it expects losses from operations to continue through at least the third quarter.

American Apparel's auditor Deloitte & Touche resigned earlier this month and American Apparel hired back Marcum, its former auditor. American Apparel said its auditor needs more time to file its second-quarter results with the SEC and will file them "as soon as practicable," no later than Sept. 15.

Deloitte is reviewing earlier financial results to see if they may need to be restated.

Additionally, American Apparel, which is based in Los Angeles, also filed its first-quarter results with the Securities and Exchange Commission. Those earnings had been delayed and if they weren't filed by Monday, the company could have faced delisting.

For the quarter ended March 31, net loss totaled $42.8 million, or 60 cents per share, from $10.6 million, or 15 cents per share last year.

Revenue rose 7 percent to $121.8 million.

Shares fell 30 cents, or 21.6 percent, to $1.09 during afternoon trading, after earlier trading down to a 52-week low of $1.08.

The stock had traded between $1.14 and $3.95 during the past year.


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