August 17, 2010, 5:46 PM

American Apparel says its survival is in question

Apparel retailer warns of possible loan default in a preliminary Q2 financial filing.

American Apparel Inc. announced today that it expects to post an operating loss of $5 million to $7 million for the second quarter and warned that the company likely will not be in compliance on a loan held by Lion Capital by Sept. 30. The company says that the loss and its projections for the remainder of the year indicate that “the company may not have sufficient liquidity necessary to sustain operations for the next 12 months.”  

American Apparel expects to report net sales for the quarter ending June 30 in the range of $132 million to $134 million, a decrease from the $136.1 million in net sales reported for the same quarter a year ago. It also expects to report a 16% decline in same-store sales. The preliminary release did not break out e-commerce sales. American Apparel is No. 269 in Internet Retailer’s Top 500 Guide. The retailer recorded $37.3 million in web sales in 2009.

American Apparel’s total debt increased to $120.3 million during the second quarter, an increase of $28.9 million from the first quarter. Inventory is expected to be in the $151 million to $154 million range for the second quarter, up from the $138.4 million reported at the close of the first quarter.   

The company also announced that its former accounting firm, Deloitte & Touche, had advised the company that further investigation may materially impact the reliability of either previously issued audit reports or the underlying consolidated financial statements for the year ended Dec. 31, 2009. Deloitte resigned as American Apparel’s accounting firm in July. The firm has since engaged accounting firm Marcum LLP. American Apparel also announced that it had received a subpoena from the U.S. Securities and Exchange Commission over its change of accounting firms. The firm says it expects to file second quarter financial data no later than Sept. 15.

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