Investment Banking

American Apparel Hints at Bankruptcy

American Apparel doesn't have enough cash on hand to make its next debt payment, $13.9 million due on Oct. 15.
Matthew HellerAugust 18, 2015
American Apparel Hints at Bankruptcy

In its direst warning yet to investors, American Apparel has said its cash crunch may force it to go out of business despite its new management’s efforts to redefine the brand.

Announcing its second-quarter earnings, the embattled retailer reported that it incurred losses from operations and negative cash flows from operating activities for the six months ended June 30, 2015, and “such losses might continue for the remainder of 2015.” The net loss for the second quarter was $19.4 million.

Based on current trends and projections, American Apparel said in a regulatory filing, “[W]e believe that we may not have sufficient liquidity necessary to sustain operations for the next twelve months. These factors, among others, raise substantial doubt that we may be able to continue as a going concern.”

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Second-quarter sales fell 17.2% to $134.4 million, continuing the downward spiral of the past several years. American Apparel’s next debt payment, in the amount of $13.9 million, is due Oct. 15 — more than its cash on hand and current borrowing capacity.

As of June 30, the company had $6.8 million in cash, $38.4 million outstanding on a credit facility with Capital One, and $6.1 million of availability for additional borrowings. On Aug. 11, it had $11.2 million in cash.

As Fortune reports, American Apparel “announced a plan two months ago to get back on its feet, relying less on sexy (or sexist, depending on whom you ask) imagery, and more on better merchandise and more enticing stores.”

But Wall Street doesn’t see much hope for a turnaround. American Apparel shares have fallen 87% this year and were trading at 15 cents on Tuesday.

The company said it had “begun discussions with certain key financial stakeholders to analyze potential strategic and financial alternatives, which may include refinancing or new capital raising transactions, amendments to or restructuring of our existing indebtedness and other obligations, and consideration of other restructuring and recapitalization transactions.”

“American Apparel’s unexpected openness about its financial woes reads a little like an attempt to attract a white knight,” New York magazine commented.