American Apparel Posts Biggest Sales Drop in Four Years

LOS ANGELES, United States — American Apparel Inc., which has been without a permanent chief executive officer since June, posted a wider quarterly loss after the clothing chain's sales fell the most in almost four years.

The net loss in the third quarter expanded to $19.2 million, or 11 cents a share, from a loss of $1.5 million, or 1 cent, a year earlier, the Los Angeles-based company said today in a statement. Revenue fell 5.3 percent to $155.9 million, the biggest decline since the fourth quarter of 2010.

Dov Charney was removed as CEO in June by the board, which accused him of violating the company’s sexual-harassment policy and misusing corporate funds. He has vowed to get his job back and his lawyer called the allegations baseless. Since then, Charney has increased his ownership stake to more than 40 percent. That, along with wanting to avoid a legal fight, had led the board to consider keeping him at the chain in a lesser role, people familiar with the matter said last month.

The chain’s cash declined to $9.4 million from $10.2 million at the end of the second quarter. As of Nov. 3, the company has $8.4 million left to borrow from a credit facility. It’s also negotiating a $15 million unsecured credit agreement with Standard General LP.

Standard General is the hedge fund Charney struck an agreement with in June in which he borrowed about $20 million to boost his stake. To get the deal done, he agreed to share voting rights on his stock with the hedge fund.

The investment firm then pushed American Apparel to replace most of its board. Standard General then agreed to a capital commitment as much as $25 million to the chain to improve its finances. The first portion of that came when it bought a a $10 million American Apparel loan held by Lion Capital LLP that was at risk of default.

The company, now being guided by interim CEO Scott Brubaker, said adjusted earnings before interest, taxes, depreciation and amortization rose to $13.5 million from $9.8 million on lower costs.

The cost of the legal fees and investigation relating to Charney’s suspension totaled $5.3 million last quarter.

By Matt Townsend; editors: Nick Turner, James Callan, John Lear.