- Angela Gonzalez-Rodriguez |
American Apparel is not just “running out of cash” but also of time as between lawsuits, investigations and pressure from investors, American Apparel’s troubles don´t but increase. Now, the troubled retailer has announced that it doesn’t have enough financing to continue operations for another year, postponed its second-quarter results filling and suffered 35 percent dip at the trading floor.
To avoid bankruptcy, the Associated Press reports that American Apparel is looking at options such as raising money, refinancing, new capital-raising moves and restructuring its debt in order to support its operating costs.
In this vein, it is noteworthy that the Los Angeles-based company has lost money every year since 2010. Despite missing the submission deadline to inform the market regulator of its results for the second quarter, the fashion company estimates that it lost 19 million dollars in the past three months, bringing its total loss of the year to date to 46 million dollars (that is, doubling its losses from the year before.)
But to these 46 million dollars, another 15.4 million dollars bond payment that American Apparel will have to make this October needs to be added, as well as the estimated 3.6 million dollars in legal costs from its lawsuit with founder and former CEO Dov Charney, and the 34 million dollars that, according to ‘WWD’, it owes the federal government.
American Apparel misses Q2 submission deadline as keeps negotiating financing
In the umpteenth attempt to gain some money and secure cash, American Apparel is keeping up the discussions with Capital One to try to find a waiver for the federal government bill, what, according to the company, was the reason for them missing the deadline to submit its quarterly results.
In the filing, American Apparel said it was consulting advisers and “certain key financial stakeholders” to “analyse potential strategic and financial alternatives.”
Despite missing the deadline to submit its second-quarter results as these are higher than expected, the troubled retailer estimated that it loss will come in at circa 19 million dollars, or 11 cents per share, in the quarter ended in June. That included 3.6 million dollars in costs related to litigation. American Apparel said its quarterly sales fell 17 percent to about 134 million dollars.
Analysts keep lowering their ratings on American Apparel shares
While “running out of cash” might seem to be American Apparel’s worst fear at the moment, truth is that the troubled fashion retailer should be more concern about what the future lies for it, as they would miss a regulatory deadline to report second-quarter results; another battle with Capital One regarding credit facilities and an increasing number of analysts bad ratings.
As per the latter, Moody’s Investors Service on Wednesday cut American Apparel’s rating once again, citing a higher likelihood the company will default on its loans, highlights the ‘Wall Street Journal’.
The ratings company downgraded American Apparel to Caa3, what means nine points below investment grade.
The downgrade comes barely hours after American Apparel warned the market that it just had around 13 million dollars of available cash left or, in other words, roughly the amount to pay for its October interest payment.
Late on Tuesday, American Apparel (APP) submitted a filing with the market regulator that somehow implied that the company may be forced to seek bankruptcy protection if it can’t line up more money.
“The Company’s existing and any new investors could suffer substantial or total losses of their investment in its common stock,” American Apparel said in the filing. Although the company has warned about cash issues before, this is the first time it had warned shareholders that their investment in the company could end up worthless.
On the wake of the news, American Apparel stock fell as much as 35 percent on Wednesday to 0.14 dollars apiece, taking the shares value’s loss to 87 percent this year.
News of the company’s inability to meet operating costs comes just a month after it announced it would tackle a 30 million dollars cost-cutting plan to return the business to the right track.