American Apparel Reports Shrinking Sales in Third Quarter
American Apparel filed for Chapter 11 bankruptcy protection in early October, but it still must report its revenues and earnings for the third quarter, ending Sept. 30.
In a preliminary filing, the troubled Los Angeles clothing company said its third-quarter sales plummeted 19 percent to $126 million, compared with nearly $156 million in the same period last year.
Sales were down because of major discounting of goods to get rid of slow-moving merchandise, store closings and foreign currency-exchange adjustments.
For the third quarter, American Apparel realized an $18.76 million loss compared to $19.2 million the previous year. The reduction in net loss was due to the decline in the company’s stock value, pegged at 11 cents a share before the bankruptcy filing. The stock price is so low it changed the financial impact of warrants, which give investors the right to buy stock at a certain price.
For the first nine months of this year, American Apparel’s revenues were $384.7 million, a 16 percent decline from $455.4 million in the previous period a year earlier. The company’s net loss during the nine-month period was $64.5 million compared with $40.8 million the previous year.
American Apparel filed for voluntary bankruptcy protection on Oct. 5 and is working to emerge as a privately held company rather than a publicly traded company on the New York Stock Exchange.
The company’s woes hit a crescendo one year ago when the board fired founder and former chief executive Dov Charney. Early this year, he was replaced by veteran apparel executive Paula Schneider.
Under the bankruptcy reorganization plan, the company struck a deal with its secured lenders to reduce American Apparel’s debt through a process called debt-for-equity conversion, which means the company’s bondholders swap their debt for shares in the company.
Those secured lenders will convert $200 million in bonds into equity in the reorganized company. They will also provide $90 million in debtor-in-possession financing as well as $70 million in new liquidity.
American Apparel’s debt will be reduced from $300 million to no more than $135 million, and annual interest expenses will be decreased by $20 million.
One of the biggest losers will be the company’s stockholders, whose value in the company will be reduced to zero. Charney was the largest individual shareholder, owning about 43 percent of American Apparel’s stock.