On the heels of refinancing its debt load in April, American Apparel Inc. has made a small purchase for itself: the New York specialty retailer Oak, WWD has learned.

This story first appeared in the August 1, 2013 issue of WWD. Subscribe Today.

Oak operates two trendy multibrand stores and an e-commerce site and wholesales its own branded men’s and women’s collections.

“I’m excited by this because I saw an opportunity to build Oak without a lot of extra costs. They can leverage our manufacturing capabilities, our POS [point-of-sale] and RFID [radio frequency identification] systems, our warehousing and our freight and distribution,” said Dov Charney, chairman and chief executive officer of American Apparel. “The Oak aesthetic is a very different look and feel than American Apparel, and it’s noncompetitive in price.”

This is the first acquisition of an independent retailer by Los Angeles-based American Apparel. Oak will operate as a separate division within the company. Oak founders Louis Terline and Jeff Madalena will remain at the creative and operational helm of Oak. “This is their division. They are being empowered to grow their business,” said Charney, adding the duo will also provide advice on American Apparel product.

Oak was founded in 2005 with a store in Williamsburg, Brooklyn, that has since moved to the Greenpoint neighborhood. At the end of 2006, Oak opened a Manhattan store on Bond Street in the NoHo area. There were also short-lived Oak locations in Park Slope, Brooklyn, and in the Pines enclave of Fire Island, N.Y.

Charney said Oak’s total sales were in the neighborhood of $5 million. “We think we can grow it to a multiple of that,” he noted.

Oak is known for carrying directional brands such as Comme des Garçons, Rick Owens Drkshdw, Grey Ant, Cheap Monday, Kill City, Sir New York, Won Hundred and Zanerobe.

The Oak men’s and women’s house label has a fashion-forward aesthetic with an emphasis on drape and jersey fabrics. T-shirts in the line retail between $75 and $120, jeans are $140 to $220 and coats are $400 to $1,000. The range is wholesaled to about a dozen accounts, including Net-a-porter, Saks Fifth Avenue and Selfridges. Oak will move a portion of production to the massive American Apparel facilities in Los Angeles.

Charney, Terline and Madalena are aiming to add new Oak locations. The first may be in Seoul, where American Apparel has an empty space in a multilevel store, which could be turned into an Oak unit within the next six months, said Charney. The trio is also looking at spaces in Los Angeles.

“We’ve known Dov for about a year and half. It’s been a long conversation that continued to crystallize,” said Terline of the lead-up to the purchase agreement.

Terms of the deal were not disclosed, although Charney characterized it as a small enough transaction that the company did not have to file a notice with the Securities and Exchange Commission.

The deal signals that Charney believes American Apparel is on more solid financial footing since closing its $206 million private bond offering, which allowed it to retire its higher-interest debt with Lion Capital LLC. The new notes are due in 2020.

American Apparel has been posting strong top-line sales figures, reporting 25 consecutive months of same-store sales increases through June. For the first half, total same-store sales were up 7 percent, and wholesale sales were up 9 percent.

While the company has steadily increased sales, it continues to bleed red ink. The last year it turned a profit was 2009. Losses are partially due to its debt and high interest payments — 13 percent on its new bonds.

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