American Apparel Inc. on Monday filed itsdelayed update on second-quarter results with the Securities and Exchange Commission, reporting a loss and reiterating concerns about its ability to keep operating.
The Los Angeles-based retailer and producer of trendy basics said it incurred a substantial loss from operations and had negative cash flows from operating activities for the six months ended June 30. Based on results and projections for the rest of 2010, American Apparel said it “may not have sufficient liquidity necessary to sustain operations for the next 12 months. The company’s current operating plan indicates that losses from operations are expected to continue through at least the third quarter of 2010.”
American Apparel added in the regulatory filing that it is “probable that beginning Jan. 31, 2011, the company will not be in compliance with the minimum consolidated EBIT covenant under the Lion [Capital] credit agreement.” The company in the second quarter began classifying its obligations under the Lion credit agreement as current liabilities.
Shares of company rose 2 cents, or 2.1 percent, to 99 cents following the disclosure. As of the second quarter ended June 30, American Apparel said it had $8.1 million in cash and was in compliance with all required covenants of its Bank of America credit agreement and one from Lion Capital, which injected $80 million into the firm in March 2009. After June 30, however, the company was not in compliance with a covenant under its Bank of Montreal credit agreement, which required audited financial statements of American Apparel’s Canadian operations within 120 days after Dec. 31, 2009.
Noncompliance with covenants under the Lion credit agreement “constitutes an event of default” under the Bank of America agreement, which if not waived could impact American Apparel’s ability to borrow under the latter’s credit agreement. Moreover, once the Lion credit noncompliance is triggered, it could result in a declaration that all indebtedness under both the Bank of America and Lion credit agreements be “immediately due and payable,” according to the SEC filing.
American Apparel said it is working with lenders to obtain amendments before any covenant noncompliance, but that it couldn’t provide assurance that it will be able to secure them. It also raised questions about its own ability to seek alternative lending options should its indebtedness become due and payable.
“These factors, among others, raise substantial doubt that the company will be able to continue as a going concern,” American Apparel said.
Lion amended its loan agreement with the retailer last month to prevent a violation of the terms of the pact.
The second-quarter loss was $14.7 million, or 21 cents a diluted share, against income of $4.5 million, or 6 cents, in the year-ago period. Sales fell 2.4 percent to $132.7 million from $136.1 million. For the six months, the loss widened to $57.5 million, or 81 cents a share, from $6.1 million, or 9 cents, last year. Sales rose 1.7 percent to $254.5 million from $250.3 million.
Results include pretax store impairment charges of $1.4 million and $5.6 million for the quarter and six months, respectively.
The company said management is in the process of putting together a plan that would improve both its operating performance and financial position. It is also eyeing the possibility of store closures. As of June 30, it operated 279 stores in the U.S., Canada and 18 other countries.
Tom Casey, the former chief financial officer of Blockbuster Inc., joined the company as acting president last month.
@kith is moving into children’s. The men’s and women’s streetwear brand has launched Kidset, a Kith kids line located in New York at 64 Bleecker Street. The line includes mini versions of staple Kith pieces like the Astor bomber jacket and the Kith box logo sweatshirts, along with a wall that can display up to 120 pairs of shoes from @adidas, @newbalance, @timberland and more. #wwdfashion
“I just wanted to create this fully rounded character, but I do think what excited me most was just the opportunity to give a group of people representation that I feel needs it. I like to do characters in projects that stand for something and Karolina definitely does, so that was really exciting to me,” @ginnygardner says of her new role in @hulu’s “The Runaways.” Gardner plays Karolina Dean, a queer superhero, which is a rarity for @marvel. Read more about Gardner’s character on WWD.com #wwdeye (📷: @dandoperalski)
@heriethpaul and @gracebol have a moment on the @victoriassecret fashion show 2017. See every look from the runway on WWD.com. Link in bio. (📷: @giovanni_giannoni_photo) #wwdfashion #victoriassecret #VSFashionShow
“Azzedine has been one of the biggest influences in my life. He has always been such a strong, loving, fatherly figure to me. I call him Papa. His designs are indescribably unique, they are pieces of art. He knew how to make the female form look its loveliest. I have so many memories of him; my favorite might be during my first show with him in Paris. He liked me and he wanted to help me get more work. He called all his friends at Kenzo and Comme des Garcons, and asked them to book me. They said, ‘But she can’t walk!’ And he said, ‘but she has such a great ass!' His friendship and support has been the great privilege of my career. I can't imagine life without him. Repose en paix mon Papa.” - @stephanieseymour tells @wwd. #wwdfashion (📷: @steveeichner) #alaia #azzedinealaia
Azzedine Alaïa, flanked by two of his closest friends, models Stephanie Seymour and Naomi Campbell.
He designed Seymour’s dress for her 1995 wedding to Peter Brant, and treated Campbell (who famously called him Papa), like a daughter. For more on the legendary designer, tap the link in bio. #wwdfashion #alaia #azzedinealaia