Business

Profit wears thin

The “Groupon Effect” has just clipped a fresh retail victim: American Apparel.

The hipster clothing chain racked up impressive sales gains during the holidays, but profits were squeezed hard as it took steep discounts, including those from a barrage of Groupon offers nationwide, sources told The Post.

The profit squeeze — which sources said may have cut the retailer’s profitability by nearly half in the year just ended — could also spur layoffs and cause the company to trip loan covenants with its major lender, Lion Capital.

American Apparel rang up millions of dollars in the fourth quarter selling cardigans, corduroys and sexy leggings through the daily deals site — a heap of bargains amounting to a “small but material” percentage of the company’s $157 million in total sales during the period, said one source briefed on the company’s finances.

“They made no margin on those deals, and they lost a lot of money on factory sales,” said the source, referring to a series of warehouse sale events American Apparel has staged this year in the US and Canada.

Along with stubbornly high operating costs, sources said American Apparel may make only half of what it had been targeting on a key measure of profitability, Ebitda, or earnings before interest, taxes, depreciation and amortization.

American Apparel officials declined to comment.

As recently as last month, CEO Dov Charney — who has long courted controversy with his racy ads and libertine lifestyle — had been saying publicly that the Los Angeles clothier was on track to generate at least $20 million in Ebitda for the fiscal year ended Dec. 31, compared with negative Ebitda of $7.4 million and a net loss of $86 million a year earlier.

But that figure, which internally had been estimated at $21.3 million, is in danger of coming in closer to $10 million based on preliminary estimates, according to several sources close to the company.

“It’s down to the wire in terms of whether they’ll trip covenants,” said one insider, referring to key requirements for financial performance in the retailer’s agreements with lender Lion Capital.

That’s despite the fact that American Apparel logged a better-than-expected 15-percent jump in December sales at stores open at least a year.

Facing a potential loss for the seasonally slow first quarter, the cash-strapped company may fire as much as 5 percent of workers at its stores and its factory in Los Angeles in a bid to slash costs, according to one company insider.