American Apparel Inc. is facing a nine-digit net loss for the year and possible delisting by the NYSE MKT exchange as it struggles to recover from the effects of the difficult phase-in of its new distribution facility.

This story first appeared in the March 7, 2014 issue of WWD. Subscribe Today.

The Los Angeles-based vertical retailer said late Thursday that it expects adjusted earnings before interest, taxes, depreciation and amortization for the year to hit within $1 million of $8 million, down from $36.6 million in the year ended Dec. 31, 2012. That implies a fourth-quarter EBITDA loss of about $3 million.

The net loss for the year is expected to be about $122.1 million, up from a $37.2 million loss in 2012. Included in the loss for the year are $14.9 million in costs associated with its problem-riddled distribution facility and $6.9 million in increased production costs. Offsetting these weights on the bottom line are $9 million in gross profit improvement resulting from higher sales.

Sales for the year were pegged at $634 million, up 2.7 percent from the $617.3 million recorded in 2012.

Dov Charney, chairman and chief executive officer of the firm, expressed confidence that better results were ahead as the distribution center, in La Mirada, Calif., has been “operating as designed since mid-November. Our distribution costs have dramatically declined, and in January they were substantially less than what we incurred last year.”

In projecting an improvement in 2014 results, he noted that $9.1 million in annual overhead had been cut in recent months and projected positive EBITDA of $45 million for the new year. However, with interest expense of about $39 million expected in 2014, the firm’s guidance still points to a net loss of about $24 million this year.

The company reported a 5 percent decline in comparable sales for February, with a 7 percent decline in same-store sales offset by a 3 percent increase in online sales. Wholesale revenues were up 9 percent during the month.

American Apparel was also notified that it’s fallen out of compliance with the listing requirements of the NYSE MKT exchange on which it’s traded and must file a plan outlining how it intends to adhere to the exchange’s standards by March 21. If American Apparel hasn’t made progress or regained compliance by April 15, it would face delisting proceedings. The section of the NYSE MKT code cited by the exchange covers companies with impaired operations that could be unable to meet financial obligations as they mature.

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