American Apparel to Raise Capital After Posting Wider Loss

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American Apparel Factory Boutique
A customer walks through the American Apparel Inc. factory boutique in downtown Los Angeles. The retailer had to heavily discount old inventory to make room for newer styles. Photographer: Patrick T. Fallon/Bloomberg

American Apparel Inc., the retail chain facing a legal fight with ousted founder Dov Charney, plans to raise money with a $10 million stock offering after posting a wider first-quarter loss.

The stock sale will be “at the market” -- meaning shares are sold from time to time rather than in one big block -- with the proceeds going toward working capital and general corporate purposes, the Los Angeles-based company said in a statement Monday. American Apparel’s net loss expanded to $26.4 million, or 15 cents a share, from $5.47 million, or 5 cents, a year earlier. Revenue fell 9.4 percent to $124.2 million.

Chief Executive Officer Paula Schneider is trying to reinvigorate sales and stem red ink after the tumultuous exit of Charney last year. The chain has lost hundreds of millions of dollars over the past three years, forcing it to sell stock and borrow money at high rates to stay afloat.

“This is a company that lost $340 million in five years -- the turnaround isn’t one quarter,” Schneider said in an interview. “It’s going to take a couple quarters to start showing off our brighter side.”

The stock fell 3.9 percent to 62 cents at the close in New York. The shares have tumbled 40 percent this year.

The retailer had to heavily discount old inventory to make room for newer styles. That lowered profitability, with its gross margin sank more than 10 percentage points to 42 percent. The company also declined to provide any guidance on future sales or profit.

Stock Sale

The company had $20.9 million in cash at the end of last quarter on March 31. That doesn’t take into account an interest payment on its bonds of about $14 million. The company also reiterated in a filing that it expects to have enough liquidity to meet funding requirements for the next 12 months. The stock sale will be handled by Cowen & Co., American Apparel said.

Charney, the company’s 46-year-old founder, was fired in December for alleged misconduct that included sexual harassment and misuse of funds. Since then, he has fought to return to the clothing company. Charney remains the company’s largest stockholder, although he shares voting rights with hedge fund Standard General.

During this volatile period, the retailer’s results worsened. The company also has racked up legal costs related to Charney, including $1.5 million last quarter.

Since taking over, Schneider has shaken up the ranks by firing some long-time Charney supporters and bringing in new design executives like Joseph Pickman, formerly of the Band of Outsiders brand.

When Schneider took over as CEO she said her friendly relationship with Charney would help ease the leadership transition. That has since changed as Charney has agitated for his return.

“Dov’s agenda is becoming abundantly clear with all the lawsuits that are flying toward us, but at the end of the day we have a really strong strategic plan,” Schneider said. “We haven’t spoken in quite a while.”

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