i am sure many on here are happy to hear this one...
American Apparel going out of style: Bankruptcy looms for Canadian bad boy retailer
BY NICOLAS VAN PRAET, FINANCIAL POST
Montreal - Dov Charney, a 41-year-old eccentric Montreal native, built American Apparel Inc. into a global retail powerhouse in seven short years while taking substantial heat for his loose hiring policies, risqué ads and alleged sexual harassment of former employees.
Now, with regulators breathing down his neck, lenders shying away and the chain warning it might not have enough available cash to keep operating another year, Mr. Charney could be forced to relinquish control of the company he built from the footless plush pantyhose up.
“Dov Charney is at the moment of truth,” said Howard Davidowitz, chairman of Davidowitz & Associates Inc., a national retail consulting and investment banking firm based in New York City. “And all roads for him lead to hell. He’s got to pick the best of the worst choices.”
The company’s shares plunged further into penny-stock territory to a new low yesterday after it reported a preliminary second-quarter loss this week. It also raised doubt about its ability to continue as a “going concern,” a standard warning by companies teetering towards a bankruptcy protection filing.
American Apparel has ballooned to 280 stores in 20 countries in recent years, but also has double-digit drops in same-store sales in its last two quarters and a US$120-million debt as of June 30. That is, if the company’s numbers can even be trusted.
American Apparel disclosed this week it received a subpoena from the U.S. Attorney’s Office, which is probing the company’s auditing after Deloitte & Touche LLP quit as its bookkeeper late last month. Deloitte told American Apparel that its 2009 financial statements might not be reliable.
Federal prosecutors requested documents used to prepare financial statements, an American Apparel lawyer said. Those files will also be given to the U.S. Securities and Exchange Commission, he said.
The flamboyant Mr. Charney owns 53% of the company’s stock and is also its chairman and chief executive. But his involvement in the retailer goes far beyond that.
According to people familiar with the company’s operations, he is extremely hands on, evaluating fabrics in his Los Angeles factory and weighing new designs.
In a last-ditch effort to improve flagging sales, Mr. Charney is quickly repositioning the company’s image and clothing style. Earlier this month he declared the hipster trend which has been powering his expansion through the past three years “over.” He is moving his product with its ageing customers, swapping neon bike shorts for preppy blazers.
But he seems less obsessed with financials than he is with fashions.
When a Los Angeles Times reporter phoned him last week to ask him about the second-quarter sales information disclosed in a recent filing, he replied: “I don’t know anything about it.”
Craig Johnson, president of Customer Growth Partners, a consulting firm in New Canaan, Conn., said it is a company in need of radical surgery.
American Apparel once sold new and fresh-styled clothing but that reputation has faded, he said.
Beyond style choices, its woes now include corporate governance foulups, an overexpansion in its boom times and the embarrassing loss of 1,500 of its U.S. factory workers after an immigration bust in Los Angeles last summer.
Observers probably saw the immigration woes coming.
Two years ago, Mr. Charney started a fight with the U.S. authorities by running American Apparel print ads picturing two Guatemalan-born employees and criticizing that country’s immigration law as amounting to “an apartheid system.”
The ensuing loss of factory workers from the immigration raid meant shortages in key products and exacerbated the company’s financial woes. Things spiralled out of control from that point on.
The clothier might now be delisted from the New York Stock Exchange Amex because it will be late with its second-quarter financial statements after the auditor change. It also warned it will probably breach a debt covenant on a US$75-million loan from Lion Capital LLP, the London-based private equity fund.
American Apparel needs a new source of funding to stabilize itself, Mr. Davidowitz said.
Any new investor that swoops in will almost certainly push Mr. Charney out of the driver’s seat.
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