American Apparel Inc.’s first quarter losses widened significantly and the company said it plans to sell $10 million in stock to help keep funds flowing as chief executive officer Paula Schneider works to turn around operations.
Net losses for the quarter widened to $26.4 million, or 15 cents a share, from $5.5 million, or 5 cents, a year earlier. Sales for the three months ended March 31 fell 9.4 percent to $124.3 million from $137.1 million.
First-quarter results were hit by a program to improve inventories by cutting slow-moving merchandise. The move was expected to have a negative impact on sales and margins, while improving liquidity moving forward.
The heavily indebted company borrowed $15 million from investor Standard General in March and ended the quarter with $20.9 million in cash on hand, up from $8.3 million at the close of 2014.
The $10 million “at-the-market” stock offering commenced Monday and the company said its proceeds would be used for working capital and general corporate purposes.
American Apparel certainly has plenty of places to put the money.
Schneider told WWD that there were signs of improvement: new spring merchandise outperformed spring looks from a year earlier and a full revamp of the company’s e-commerce operation was underway.
“We’re moving in the right direction,” she said. “This is a major process and this is a major turnaround. This is not a brand problem, it’s an execution problem. The brand is extremely strong.”
Schneider said the company has had to build many of the capabilities to create a strategic plan, such as demand planning.
“We’re sort of flying an airplane while we’re building it,” she said.
She said the turnaround would be measured more in quarters than years. “We’re not going to be talking about this [turnaround] in three years.”
On the laundry list of areas the turnaround effort is expected to touch are infrastructure; operational and financial planning;, expense control; design/product development; retail store productivity; e-commerce and wholesale optimization; e-commerce analytics; speed-to-market, and brand building.
Schneider has put together a new executive team to work on the perennially troubled company and is still fending off a former occupant of the corner office.
Dov Charney, American Apparel’s ousted founder, has been trying to find a way back into the company for months, meeting with workers and would-be bankers and taking his fight to the courts.
Charney last week sued American Apparel investor and debt holder Standard General for $30 million, alleging defamation and maintaining he was fired without cause as part of a takeover of the company by the New York investor.
The famously libertine ex-ceo is also pursuing millions in arbitration with the company.
Shares of American Apparel fell 1 percent to 64 cents Monday, leaving the company with a 38 percent decline for the year.
The stock was propped up late last year by some buyout interest from Irving Place Capital. The private equity company said it might pay as high as $1.40 for the company, pending due diligence, but those talks stalled, taking air out of the stock.