American Apparel’s financial situation is threadbare.
Bankruptcy is looming for the hipster retailer, which is short on cash and faces a hefty bond payment in less than three months — not to mention mounting legal bills from its ouster of former CEO Dov Charney over alleged sexual harassment.
Investors are bracing for the worst when the Los Angeles-based company releases quarterly earnings, expected in the next couple of weeks.
“My expectation is that the quarter will be horrible,” said Michael Bigger, who owns about 100 shares after slashing his stake earlier this year.
The company did not respond to requests for comment.
American Apparel needs to come up with $15.4 million to make an Oct. 15 debt payment. In April, it had to borrow money from hedge fund backer Standard General to make the twice-a-year bond payment.
American Apparel is burning through cash and likely has less than $10 million on hand, said a source close to the situation. The retailer said it had $21 million at the end of April, but that included the $15 million loan from Standard General to cover the April bond payment.
Shareholders shot down the company’s proposal at its annual meeting earlier this month to issue more shares, eliminating another avenue to raise cash.
“There can be no guarantee that the company will have sufficient financing commitments to meet funding requirements for the next 12 months without raising additional capital, and there can be no guarantee that it will be able to raise such additional capital,” it said this month.
Founder Charney remains the largest shareholder, although Standard General controls his voting rights. He is fighting to return to the helm and has sued American Apparel and the hedge fund after his firing.
He’s also seeking investors to help him buy the company back should it fall into bankruptcy, sources said. Charney declined to comment.