American Apparel Inc warned on Tuesday that shareholders may lose their investment in the company if it cannot raise capital soon as its remaining funds are insufficient to run the business for another year.
Citing a regulatory filing, Reuters reported that the Los Angles-based retailer said it is negotiating with lender Capital One Business Credit Corp. to waive its non-compliance. If the company fails to get it, it will have an adverse condition on the company.
Another report on the Wall Street Journal said American Apparel only has $7 million in cash remaining and a $6 million in credit line from Capital Corp. It added that New York hedge fund Standard General LP, a major shareholder in the company, has expressed its willingness to assume American Apparel's commitments to Capital One.
The company, which has been struggling due to increased competition, changing shopping behaviour and controversies from former CEO Dov Charney, filed a partial report on its second quarter performance, but said it won't be able to submit its full report for the period due to.
American Apparel's second quarter guidance again showed that the company's slide continues, with revenues likely to drop by 17 percent to $ 134 million, while losses are expected to increase to $19 million from $16 million last year.
Reuters noted that the company has been posting losses for the past five years, and its market value has plummeted to $90 million from $540 million previously.
In July, the company announced a restructuring plan to get the business on track by reducing costs by $30 million through store closures, job cuts and supply chain improvements.
Aside from its turnaround challenges, the company is also facing 20 lawsuits from Charney, who was terminated last year for misconduct. Reuters said that Standard General LP sued American Apparel's former chief last July for alleged failure to deliver on his promises to the hedge fund and has sought a court order to prevent Charney's "destructive actions" against the firm.
