American Apparel seeks reprieve with stock sale

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NEW YORK — American Apparel used to enthrall 16- to 25-year-olds with its neon bike shorts and lace-thong leotards. Now, it's just trying to raise enough cash to keep creditors at bay for at least six more months.

The retailer sold $30.5 million of stock to cover an interest payment of about $13.4 million due April 15, the Los Angeles-based company said Wednesday. It had $4.9 million of cash and $2.7 million available under a credit pact on Feb. 28.

American Apparel, which hasn't made money since 2009, is in danger of being delisted as a result of its impaired finances and said it may have to refinance or restructure its debt. The company, whose founder, Dov Charney, started selling T-shirts while in college at Tufts University, received a waiver from its lenders after it ran afoul of financial requirements associated with a loan and got an amendment that resets those restrictions.

The equity offering "buys them some time, but it really doesn't advance the ball strategically," Craig Johnson, president of Customer Growth Partners, a New Canaan, Conn.-based retail consulting firm, said in a telephone interview. "It's almost mystifying that it really avoids the core issue that the company has, which is not just the brand, but the governance."

After making the April coupon payment in addition to working capital needs, American Apparel will be confronted with a potential cash shortfall by its next interest payment in October.Earnings last year were hurt by about $14.9 million of costs related to the company's new distribution center that began shipping in February 2013, according to a March 6 filing with the Securities and Exchange Commission. The transition to the facility reduced the company's ability to react to consumer trends and caused cost overruns.

"Although this was a painful and costly endeavor it was necessary in order for us to achieve the future productivity and growth potential associated with the American Apparel brand," Charney said in the filing.

To offset the higher costs, the retailer raised cash by borrowing $5 million under a previous loan agreement at 18 percent interest.

"They've secured themselves for the short-term, but they may need to go out and raise more equity if they're betting on a turnaround in the retail environment," Poonam Goyal, a retail analyst for Bloomberg Industries, said in a telephone interview from Skillman, New Jersey. "The consumer is watching where they spend their money and they're really just looking for value."

American Apparel, which sells $26 T-shirts and floral hats, estimated a net loss of $107 million, or 97 cents a share, in 2013, wider than its deficit of $37 million, or 35 cents, the previous year. Capital expenditures exceeded cash flow from operating activities by $15.2 million for the 12 months ended Sept. 30, according to data compiled by Bloomberg.