Chief Executive Paula Schneider Exiting American Apparel

After a tumultuous two-year ride as chief executive of American Apparel, Paula Schneider will be leaving the company on Oct. 3, sources said.

The seasoned apparel executive will be replaced by Chelsea Grayson, who has been with the company through its most difficult times, including when the company filed for bankruptcy last year and emerged as a private company earlier this year. Most recently, Grayson served as American Apparel’s general counsel and chief administrative officer.

Sources close to the company said that Schneider was not pushed out but voluntarily resigned and that the board is very confident in Grayson as the new head of American Apparel, which is still going through a rough patch.

Schneider said in her resignation letter that the turnaround plan for American Apparel was in place and that much of the heavy lifting and hard work had been done.

At the same time, it was revealed that board member Paul Charron, the former chief executive of Liz Claiborne Inc., left the board in August and is being replaced by Brad Scher, founder and managing member of New York consulting firm Ocean Ridge Capital Advisors.

Schneider’s resignation comes at a time when the company is up for sale. Los Angeles investment bank Houlihan Lokey is looking for strategic alternatives. An inside source said that people are interested in the company as a whole and in parts.

Schneider hinted that a potential sale of the company was another impetus for leaving.

Schneider started working for the company in late 2014 and became the chief executive on Jan. 15, 2015, replacing American Apparel’s founder, Dov Charney.

American Apparel was founded in Los Angeles by Charney in 1997 when he started selling T-shirts to the wholesale market.

Charney left American Apparel in December 2014 after the board of directors ousted him the previous June as the chairman and suspended him as the chief executive and president, pending an investigation into alleged misconduct. He was later fired.

The company’s reorganization plan, filed in Bankruptcy Court, converted approximately $230 million of bonds into equity into American Apparel and provided for the infusion of $40 million of exit capital and a commitment for a $40 million, asset-backed loan.

American Apparel’s debt was reduced from $300 million to no more than $135 million, and annual interest expenses were decreased by $20 million.

Charney tried to buy American Apparel out of bankruptcy with the help of two private-equity firms but failed.

At one time, the company’s annual revenues were more than $600 million. This year, American Apparel is expected to pull in less than $350 million in revenue.

One source who has looked at American Apparel’s pitch book said, “The company is losing so much money, it’s a joke.”