American Apparel Responds To Restructuring Reports

CEO: We Are Expecting A Record Year

American Apparel Responds To Restructuring ReportsDespite disappointing sales and press reports alleging financial turmoil, American Apparel (asi/35297) is poised for a strong year, says CEO Dov Charney.

Charney spoke with Counselor this week in the wake of a report in The Wall Street Journal that indicated the Top 40 supplier had reached out to restructuring advisers amidst a battle with weak sales and a heavy debt load. The report, which cited unnamed sources, said American Apparel had contacted the law firm Skadden, Arps, Slate, Meagher and Flom LLP to review restructuring strategies. Organizing bondholders for the Los Angeles-based clothier are interested in restructuring, the report said. A separate report from Bloomberg Media, which also cites unnamed sources, indicated American Apparel has been working with investment bank Brean Capital LLC as losses allegedly piled up.

While Charney said he couldn’t speak at length about the situation, he called the WSJ report a “mischaracterization,” adding that Skadden has been American Apparel’s outside counsel for several years. More importantly, he said, ASI distributors need not fear any disruption in service or product availability from American Apparel. “This is a critical year for us to bring new products to market,” says Charney. “We are expecting a record year.”

Nonetheless, the company has some work to do to hit a new high mark. In January, American Apparel reported that total sales dropped 1%, with online sales dipping 6% and comparable retail store sales slipping 5% when analyzed against the prior year. The bright spot in January was the company’s 7% increase in wholesale revenue, which includes sales to the ad specialty industry. “The 7% growth in wholesale net sales is noteworthy given it is on top of a 13% increase last January," Charney said in a statement.

Still, the tough start to 2014 followed a December in which total net sales fell 6%, with decreases recorded in the wholesale, retail store and online channels. For all of 2013, American Apparel’s total net sales increased 3% to $633.9 million, which included a 4% jump in wholesale revenue. It’s that overall annual gain that Charney and company are focused on building on through the remainder of the year – something the CEO is confident will happen, especially after what he characterized as a sales-damaging harsh winter relinquishes its grip. “Our management team is energized and we are excited about our prospects for Spring and Summer 2014 as well as for the calendar year as a whole,” Charney said.

In 2011, reports circulated that American Apparel was contemplating a bankruptcy filing, though the company maintains this was never given serious consideration. Regardless, the supplier – a vertically integrated manufacturer that makes its trendy fashion basics in Los Angeles – secured financing and then experienced rising sales, including a 7.3% increase in the wholesale division’s performance in 2012 over 2011. With 2012 North American ad specialty revenues of $96.8 million, American Apparel ranks 14th on Counselor’s list of the 40 largest suppliers.