American Apparel is $120 Million in Debt and Might Actually Have to File for Bankruptcy

It's looking more and more dire for American Apparel. In the company's most recent financial statement, released today, AA remarks that it "may not have sufficient liquidity necessary to sustain operations for the next twelve months." Eek. There are plenty of reasons as to why this is happening. As we've reported in the past, the company is heavily in debt--$120 million. It owes one lender--Lion Capital--over $80 million. What's more, same store sales over the last quarter were down by 16%. AA says it's trying to work something out with Lion Capital. The retailer has also switched auditors, since its last auditor resigned. (Usually, if a company is really screwed, the auditor will just resign instead of reporting that it's screwed.)
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It's looking more and more dire for American Apparel. In the company's most recent financial statement, released today, AA remarks that it "may not have sufficient liquidity necessary to sustain operations for the next twelve months." Eek. There are plenty of reasons as to why this is happening. As we've reported in the past, the company is heavily in debt--$120 million. It owes one lender--Lion Capital--over $80 million. What's more, same store sales over the last quarter were down by 16%. AA says it's trying to work something out with Lion Capital. The retailer has also switched auditors, since its last auditor resigned. (Usually, if a company is really screwed, the auditor will just resign instead of reporting that it's screwed.)
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It's looking more and more dire for American Apparel.

In the company's most recent financial statement, released today, AA remarks that it "may not have sufficient liquidity necessary to sustain operations for the next twelve months."

Eek. There are plenty of reasons as to why this is happening. As we've reported in the past, the company is heavily in debt--$120 million. It owes one lender--Lion Capital--over $80 million. What's more, same store sales over the last quarter were down by 16%.

AA says it's trying to work something out with Lion Capital. The retailer has also switched auditors, since its last auditor resigned. (Usually, if a company is really screwed, the auditor will just resign instead of reporting that it's screwed.)

Here's what it comes down to: Dov Charney started with an awesome concept but expanded too rapidly. Charney also let his controversial "work policies" hinder the brilliance of his brand. (When you own a public company, you're not only answering to your customers and your employees, but also to shareholders. You have to live and work by a different set of much stricter rules.)

Will AA really close for good? I still find this highly unlikely. If Charney and co. are forced to file for bankruptcy protection, someone will swoop in and save them. (Maybe Ron Burkle, who now owns 6% of the company?) It will probably mean less American Apparel stores, but honestly, they've become as ubiquitous as Starbucks in New York. I admittedly like to shop at American Apparel, but do I need two of them within walking distance of my apartment? Not really.