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American Apparel Reports Losses; Charney Files Lawsuits

Counselor Top 40 supplier American Apparel (asi/35297) suffered a $26 million net loss in this year’s first quarter – losses that Paula Schneider, the company’s CEO, said were “the initial phase of a multi-year strategic turnaround plan.” The Los Angeles-based manufacturer deeply discounted merchandise that was not selling with the intention of restocking stores with new products and styles. “While we knew this would have a temporary negative impact on sales and margins,” said Schneider in a statement, “it should improve store merchandising, working capital and liquidity going forward.”

The company’s wholesale division, which serves the advertising specialty industry, experienced slight year-over-year growth of 0.6% in Q1, increasing sales to $49 million versus $48.7 million in 2014. Total net sales for the company fell to $124.3 million from $137.1 million a year earlier for a 9% decrease. Retail sales decreased 12% for a total $37.3 million.

Schneider said that the company has “began the arduous but vital task reorganizing and restructuring a number of critical business processes,” including product development, operational and financial planning and much more. “We are dedicated to this process and in the early stages of the strategic turnaround that will require time,” she said.

The CEO told the LA Times that the company could sell potentially sell up to $10 million in common stock shares to use for capital and general corporate expenses. Last month, American Apparel laid off 180 employees, mostly in its manufacturing operations, in an effort to boost profitability. In its quarterly earnings statement, the company reported a decrease of $8.6 million in operating expenses compared to the same period last year.

While the firm tries to regain its financial footing, its ex-CEO Dov Charney continues to make headlines, seeking millions in damages. This week, Charney filed a lawsuit against American Apparel, accusing the company and its chairwoman Colleen Brown of defamation and false light, according to a public filing. The new suit echoes another one that Charney filed last week against Standard General for damages of at least $30 million. The hedge fund had loaned money to Charney last July that allowed the American Apparel founder to boost his ownership of the company in a bid to reclaim his CEO position.

Charney was terminated in December by American Apparel’s board of directors for alleged misconduct and violations of company policy. The suit accuses Standard General of defamation and claims the investigation was directed by American Apparel’s board with the intent to “manufacture” reasons to fire him. “The Charney ‘investigation’ was a sham, a witch hunt, a whitewash designed [by Standard General],” alleges the lawsuit. In a statement, Standard General responded that “Charney and his associates continue to file frivolous, meritless lawsuits at a breakneck pace.”