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American Apparel’s business has shrunk, and so has its board of directors.
The racy clothing retailer reported a shocking loss as it revealed that two directors from key lender Lion Capital have left its board, confirming an exclusive report on The Post’s Web site yesterday afternoon.
The Los Angeles retailer — whose CEO Dov Charney has been embroiled in allegations that he kept a former employee as a sex slave — said it lost $86 million in 2010 and ended the month of February with a measly $5.3 million in cash.
In addition to the poor results, the departure from the board of Lion Capital partners Lyndon Lea and Neil Richardson stoked concerns that a rift has emerged between Charney and his lenders.
The British-based investment firm — which saved American Apparel from bankruptcy two years ago by throwing the company an $83 million lifeline — “remains supportive” of Charney and his efforts to turn around American Apparel, Lion Capital’s Lea told The Post when reached by phone late yesterday.
In a separate interview with The Post yesterday afternoon, Charney said Lion’s departure from American Apparel’s board was “a positive” for the company. Lion will now be freer from conflicts of interest, giving it more wiggle room to supply “creative financing,” such as buying additional shares to shore up the company’s liquidity, according to Charney.
“The story is that (Lion Capital is) in a better position to be our financial partner off the board than on the board,” Charney told The Post.
Nevertheless, sources say tension has escalated between Charney and Lion Capital as American Apparel’s business has continued to deteriorate this spring.
Charney, who injected $1.8 million into the retailer last month, is in talks with two other investors to prop up operations with another $3 million in the coming days, sources said. Still, insiders say the risk of a bankruptcy appears to be rising.
Indeed Lion’s departure from the board “gives [it] the ability to better look out for its rights and interests,” according to a source close to the situation
The source added that Lion is “long-term supportive” of Charney, but likely on the condition that Charney is “in a creative role rather than a CEO role” at American Apparel.
In its annual 10-K report for 2010 just released yesterday, the retailer said sales sagged more than 4 percent amid delayed inventory shipments to stores.
Profits were hit by soaring cotton prices and cost overruns at the company’s Los Angeles factory topped 35 percent as it continued to recover from a 2009 immigration bust that forced the firing of 1,500 workers.