Struggling retailer and clothing producer American Apparel Inc has warned it may have to file for Chapter 11 bankruptcy protection after it swung to a loss in both its fourth quarter and full-year and expects to incur a further loss in the year ahead.
The Los Angeles-based business said in a filing with the Securities and Exchange Commission that it is “currently experiencing significant liquidity constraints.”
And it added that if it is unable to successfully implement steps to improve its liquidity position, it “may need to voluntarily seek protection under Chapter 11 of the US Bankruptcy Code.”
It has blamed falling sales together with rising yarn and fabric prices for adding to its woes, and believes “there exists substantial doubt that the company will be able to continue as a going concern.”
The company is no stranger to financial difficulty, and recently amended a credit agreement with one of its key lenders. Its founder and CEO Dov Charney is also facing a $250 million fine after a former employee filed a sexual harassment lawsuit against him.
American Apparel’s warning came as it swung to a fourth quarter loss of $19.3 million or $0.27 per share, from a profit of $3 million or $0.04 per share in the same period last year.
Sales in the three months to December 31 fell 8.9% to $144.0 million from $158.1 million, with declines across all business units. Retail sales dropped 10.4% to $96.9 million with same-store sales down 11.5%; wholesale revenues declined 6.0% to $36.2 million; and online sales slipped 4.4% to $10.9 million.
For the full year, net loss was $86.3 million or $1.21 per share, compared to a profit of $1.1 million or $0.01 per share the year before. Net sales slipped 4.6% to $533.0 million from $558.8 million, including a 13.4% slump in same-store sales.
Acting president Tom Casey described 2010 as “an extremely challenging but productive year,” and said production was disrupted after the firm was forced to dismiss thousands of illegal workers.
This “resulted in significantly higher production costs per unit and late deliveries of products to our stores and to our wholesale clients,” he said.
The company expects first quarter 2011 comps to be in the negative mid to high single digits, and says it is working to reduce inventories and generate $30 million in cost savings over the next few years through efficiencies in retail, distribution, administrative and manufacturing processes.
“I believe we are well along on our journey to restore manufacturing efficiency,” added Dov Charney, CEO and founder of American Apparel.
“We have solid plans to drive increased sales through existing and new channels. We are also diligently working on improving our return on invested capital through effective asset management. Therefore, I believe we will restore the company’s historical levels of profitability by 2013.”
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