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American Apparel in Race to Avoid Stock Delisting

American Apparel's (APP) disclosure that it cannot meet an SEC deadline to file its annual report fails to mention that for all intents and purposes it has started the clock ticking on whether CEO Dov Charney can stop the NYSE Amex exchange from delisting his stock.

The filing said it expected American Apparel to record lower revenues and a net loss, down from a putative profit of $1.1 million last year on revenues of $559 million. (That's "putative" because AA's 2009 numbers will have to be restated following an accusation by the accountants at Deloitte that management made "misrepresentations" about its numbers.)

The news plunged APP to below $1 on Friday, and the stock has yet to close above that level. All this means that there are two deadlines fast approaching for Charney: If he fails to file his 10-K or if the stock can't stay above $1 for 30 straight days, the company can be delisted. In fashion advertising terms, this is the equivalent of being grabbed by the bouncer, pulled out of the velvet rope area and kicked back onto the street with the uncool kids trading in unlisted securities.

It's a plausible scenario because AA has been here before -- last year, in fact, when the NYSE Amex threatened the company with delisting for failing to file quarterly reports.

More importantly, AA management's description of its problems suggest that it has not yet gotten control of the company -- and therefore gives no reason for its stock to rise. The good news is that it has reduced its retail footprint from 281 to 273 stores, which the company needs to do to reduce its operating costs and stop its own stores cannibalizing each others' sales.

But all AA's other expenses -- yarn prices, labor efficiency, the production costs of more complex styles, advertising, administrative costs, salaries, wages and benefits -- increased, the company said.

Many of those costs were in Charney's control, had he bothered to pay attention. It was Charney's decision to move away from T-shirts and leggings toward more complicated preppy clothes, thus increasing his costs and crushing his margins. And SG&A -- advertising and marketing and staff salaries and wages -- are all flexible options that Charney (pictured) can cut. But ... he didn't, apparently. Next stop: the Pink Sheets!

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