Middle age isn’t being kind to Dov Charney.
The fast-talking CEO of American Apparel — whose libertine lifestyle and racy marketing campaigns have kept the clothing chain controversial and on the minds of its young shoppers — has had to scramble to keep his beloved company out of bankruptcy.
Charney had to give up a large equity stake in the operation to a private-equity firm, which rode to its rescue.
He also was forced to slow the chain’s rapid rate of expansion and had to deal with stores that couldn’t even keep their shelves fully stocked thanks to the vise-like grip on cash kept by Lion Capital, the London-based investment firm whose March 2009 financing deal saved Charney’s bacon.
All this since he turned 40 in January 2009.
Lion Capital “has Charney over a barrel,” said one investor close to the retailer.
“On one hand, it’s hard to argue with [Lion Capital’s] demands for financial discipline,” the source said. “But you also have to admit it has taken a little bit of the fun out of the whole enterprise.”
It certainly didn’t help Charney’s mood when, on Friday, the racy retail chain’s shares plunged 17 percent after the New York-based concern reported its fourth-quarter profits had dropped a jaw-dropping 23 percent. While soaring costs and anemic sales sapped profits, investors were likewise rattled as the company delayed giving an outlook for 2010, citing restrictions imposed on its operations by lenders.
That spooked investors, who raced for the exits — sending shares to a close at $3.17, down 67 cents.
American Apparel’s party has also been pooped by the federal government. Last summer, the Immigration and Customs Enforcement agency charged that one third of the workers at the retailer’s Los Angeles factory were illegal immigrants.
At the time, the company said the forced firings of about 1,500 workers wouldn’t materially hurt results.
But there was a new tune being played last week.
“The reduction in manufacturing efficiency was principally a result of the forced termination of over 1,500 experienced manufacturing employees in the third and fourth quarters of 2009 following the completion of the previously-disclosed I-9 inspection by US Immigration and Customs Enforcement,” Charney’s battered company said in a statement last week.
It’s a bitter irony for Charney, who has long portrayed himself as a champion of foreign workers’ rights.
The Canada native, whose wild antics — and the five sexual-harassment lawsuits filed against him — earned him a biting “Saturday Night Live” parody in 2008, pays workers in his manufacturing plant competitive wages and health benefits: he has plastered store windows with the company’s “Legalize LA” immigration campaign posters.
None of the sexual-harassment charges have been proven.
But American Apparel’s operations are facing even more hurdles. Last fall, the company pleaded with Lion Capital to loosen restrictions on its loan covenants in order to open more stores and upgrade its equipment and technology.
“We were unfortunately unable to reach a workable solution with our lenders,” Chief Financial Officer Adrian Kowalewski told analysts on a November conference call.
On Thursday, American Apparel said Lion Capital has loosened loan covenants for the first half of the year. That should allow the company wiggle room for sorely needed investments to drive store productivity, according to Todd Slater, an analyst at Lazard Capital Markets.
Still, American Apparel predicts its comparable-store sales will drop 10 percent in the three months ending April 30. A key problem is the understaffed factory, whose output has become less efficient even as it declines.
“Even after manufacturing productivity levels improve, the higher-cost merchandise will need to work its way through the stores,” Slater said.
Who’s minding the store?
Dov Charney, American Apparel’s controversial CEO, known for his provacative ads below, has been forced to focus on paying down debt at the expense of growth.
* Reduced revolving credit line by $26 million to $6.2 million in fourth quarter 2009 from previous quarter.
* Comparable sales down 7 percent, hampered by shrinking inventories which are down 5 percent.
* Net income was $1.1 million, or a penny a share for 2009, down from $14.1 million, or 20 cents a share, in 2008
* Company has deferred giving future guidance untill May to access factory delay information.