US clothing chain in danger of collapse as losses pile up
Published 19/08/2010 | 05:00
A LEADING American clothing chain faces closure after revealing that it expects to break its banking covenants next month.
American Apparel, which opened a store on Dublin's Grafton Street just over a year ago, said yesterday it expects to be in breach of its banking covenants from September 30 onwards after saying it will post a second quarter loss of between $5m (€3.9m) and $7m.
The retailer employs between 15 and 20 people at its Dublin store.
Its parent company's debts are now $120.3m -- up nearly a third on the first three months of the year. Comparable sales for stores open 12 months were down 16pc on a constant currency basis.
The company said it was working with its lenders -- the main one is private equity firm Lion Capital -- in an effort to restructure its agreements but could not guarantee they will be successful. Any breach "could block the company from making borrowings under [its] revolving credit facility" and "all indebtedness under the revolving credit facility could be declared due and payable.
"There can be no assurance that if either of these events were to take place, that American Apparel would be able to obtain the additional sources required to continue operations," the company said.
A spokesman for American Apparel in Los Angeles denied that the company was planning to close the Dublin store in the near future.
But a company statement said ongoing losses and trends in the retail sector indicate that the clothes manufacturer "may not have sufficient liquidity necessary to sustain operations for the next 12 months".
Known for its refusal to outsource its manufacturing business to low cost regions of Asia and Latin America, American Apparel has grown to employ about 10,000 people in 280 stores worldwide.
The company has regularly landed itself in controversy since it was formed in 1997.
Its chief executive, Dov Charney, has been accused of sexual harassment by a number of employees in the past, none of which have been proven.
The company has also been criticised for its perceived racy advertising. In 2007 the actor Woody Allen successfully sued the clothes firm after his image was used in advertising without his permission.