June 19, 2014, 4:26 PM

American Apparel ousts its CEO for alleged misconduct

Dov Charney, the colorful and controversial founder and CEO of American Apparel, is out of a job. Though no specifics were released he was fired for alleged misconduct.

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Dov Charney, the colorful and controversial founder and CEO of American Apparel Inc., is out of a job.

The board of American Apparel, No. 286 in the 2014 Internet Retailer Top 500 Guide, fired Charney yesterday for what the company termed “cause.” The board named executive vice president and chief financial officer John Luttrell as interim CEO.

The company also removed Charney from his position as chairman, replacing him with Allan Mayer and David Danziger as co-chairs. Mayer also serves on American Apparel’s compensation and corporate governance committees while Danziger served on the audit committee.

American Apparel didn’t specifically say why Charney was suddenly terminated but did note “the board’s decision to replace Mr. Charney grew out of an ongoing investigation into alleged misconduct.” Over the last six years American Apparel has been sued six times for sexual harassment by former employees, according to the company’s latest annual report filed in April with the U.S. Securities and Exchange Commission.

While announcing Charney’s ouster as CEO yesterday, the retailer says the termination will be effective in 30 days under the terms of Charney’s employment agreement. In 2013, excluding stock options, American Apparel paid Charney $1.065 million in total compensation, which included a base salary of $832,000. As chief financial officer, Luttrel was paid an annual compensation package of $960,786 and a base salary of $432,460.

“We take no joy in this, but the board felt it was the right thing to do,” Mayer says. “Dov Charney created American Apparel, but the company has grown much larger than any one individual and we are confident that its greatest days are still ahead.”

The search for a new full-time CEO is under way but no timetable has been released. The firing of Charney also impacts American Apparel’s financial base, the retailer says. “As a result of the management changes, the company may have been deemed to have triggered an event of default under its credit agreements and will be in discussions with its lenders for a waiver of the default.” As of the end of 2013 American Apparel had total debt of $218.9 million and restructured its debt with a new deal with Capital One Credit Facility in July.

For the first quarter ended March 31, American Apparel reported:

  • E-commerce sales of $15.2 million compared with $14.9 million in the first quarter of 2013, an increase of 2%.
  • Total sales decreased 0.7% to $137.1 million from $138.0 million.
  • Net loss of $4.9 million compared with a net loss of $46 million in the prior year period.
  • The web accounted for 11.1% of total sales compared with 10.8% in the first quarter of 2013.
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