Retail stocks are inherently volatile, but American Apparel's value dropped by about 40% yesterday. That's nuts.
Why? The Los Angeles-based specialty store announced that it might not be able to pay back a $80 million loan offered up by a London investment firm in March 2009.
While sales over the last year have improved, the company, run by Terry Richardson-kindred spirit Dov Charney, is operating at a huge loss. In fact, the company went $17.6 million over its budget this quarter.
If American Apparel can't pay that $80 million back by June, it could be forced to close. Do we think that'll actually happen? Probably not. The company will either make another deal with Lion, or it'll find additional funding. Whatever happens, it's pretty obvious that those running American Apparel's business need some help budgeting. If a company or person is willing to refinance the retailer, the new money source is going to demand that changes be made.