Struggling retailer American Apparel, facing mounting debt, declining sales and cash issues, said it may not be in operation a year from now as it released second quarter financial results, even as it aggressively pursues a turnaround plan.
“Based upon the trends occurring in our operations since June 30, 2015 and through the date of this release, together with our current expectations and projections for the next four fiscal quarters, we believe that we may not have sufficient liquidity necessary to sustain operations for the next twelve months,” American Apparel said in its release. “These factors, among others, raise substantial doubt that we may be able to continue as a going concern.”
The company had $11.2 million in cash as of Aug. 11, with a debt interest payment of $13.9 million looming in two months. On Monday, it transferred its revolving credit facility from Capital One to Wilmington Trust, increasing it from $50 million to $90 million.
As a result of being out of compliance with its loan covenants from Capital One, in addition to the debt and liquidity issues, American Apparel is working with advisers and stakeholders to find a way forward, including possible refinancing or new capital raising transactions, and debt restructuring or amendment. Finding a buyer was not listed among the strategic alternatives.
For the second quarter, American Apparel’s revenue was down 17.2% to $134.4 million, and net loss was up 19.4% to $19.3 million or 11 cents per share. The company said its drop in comparable sales was due to a lack of new style introductions for the spring and summer. Of the net sales decline, about $3 million was due to store closures, while the currency exchange impacts were responsible for 4% or $6.2 million.
In June, the company presented a turnaround plan to investors. It highlighted the new leadership team under CEO Paula Schneider – as it continues to battle ousted former CEO Dov Charney – the de-sexing of its famously racy ads, refining and reducing its offerings and hiring new design talent. The intermediate-term financial goals it listed were revenue of $700 million-$750 million and EBITDA of $65 million-$75 million, with a longer-term goal of $1 billion in sales and EBITDA of $125 million-$150 million.