Despite a $15 million cash injection last month, American Apparel is still hanging by a thread.
The troubled clothing chain — whose CEO, Dov Charney, is embroiled in a string of sex-harassment suits even as he scrambles to keep his company afloat — posted a narrower first-quarter loss, citing the recovery of its Los Angeles factory from a 2009 immigration bust that crippled its efficiency.
Still, American Apparel repeated a warning it gave earlier this spring that it may not continue as a “going concern” — accounting jargon that continued losses could force the company into bankruptcy.
On the positive side, sources said American Apparel’s comparable sales were slightly positive in April as bouts of warm weather on the East Coast goosed demand for its T-shirts and leggings. Meanwhile, a plunge in cotton prices this month also bodes well for profitability.
“The hope is that momentum will keep cash flow positive through the summer,” said a source close to the retailer.
American Apparel said it’s likewise looking to shore up cash by renegotiating a number of store leases, including possible store closures.
Nevertheless, American Apparel’s liquidity is still close to drying up.
On April 26, the company received $15.7 million from a coterie of Canadian investors in exchange for stock priced at 90 cents a share. But that cash is “already pretty much gone,” according to a source.
That’s partly because American Apparel was forced to immediately satisfy debts, including past-due store rents and $5 million to satisfy an availability requirement under its credit agreement with Bank of America.
In a securities filing yesterday, American Apparel detailed how it scrounged for money to stay afloat during the first quarter, with Charney pouring in $2 million while the company raised $3.1 million from a sale-leaseback of manufacturing equipment.
For the quarter ended March 31, American Apparel had a loss of $20.7 million, compared with a year-earlier loss of $42.8 million. Revenue fell 4.7 percent to $116 million.