American Apparel going down on U.S.?
L: founder Dov Charney in a detail of a typically controversial early years post-coital ad featuring…himself and a “friend.” R: AA has consistently taken risks, both good and occasionally iffy.
Since selling to The Man, everyone’s favorite innovative hipster company has traveled a rocky financial road.
American Apparel has long been one of ele’s favorite companies.
They’ve proven to the business world that one can be hugely profitable while being Made in the USA (unlike most of our other favorite companies), offering great cuts and classic styles in sometimes-organic cotton, offering free ESL classes to their fair-wage-paid workers, running their downtown LA factory in a green manner, offering some non-toxic, affordable options, promoting gay equality (which too few companies do so publicly), featuring un-made up models, and running their stores in an out-of-the-box manner.
And, of course, they’ve been one of America’s most controversial companies given founder Dov Charney’s unashamed exposure of his bits and tackle, the occasional sexual harrasment suits, his hiring of thousands of illegal immigrants, and most infamously perhaps this advertising, which consistently walks the line between softcore porn and edgy, lecherous smut that portrays young women as sexual objects.
But recently, Dov’s business success story has gotten complicated. Profits are up, but strange loans are afoot. Sales are down, as is supply and cash on hand.
American Apparel has been hit especially hard by the GFC, with store sales dropping by around seven per cent in its fourth quarter.
And sales are expected to drop even further in the first quarter of the company’s new financial year, with an additional 10 per cent fall predicted.
The company has hit hard times with its CEO Dov Charney forced to sell a large chunk of his shares to private equity company Lion Capital, according to the New York Times.
That loan occured last month, according to a filing with the SEC.
That’s a small sum in AA’s terms. Shortly after, the company took $80 million from Lion Capital in the form of long-term debt. Why would Charney loan his own company chump change if he knew that significant new financing was on its way?
Here’s two speculative theories: The first is that he didn’t know that Lion would cough up the money, and as his company flirted with bankruptcy over Xmas that $4 million may…
Asked why he was confident the company would be able to pay down debts, including its new $80 million Lion Capital loan, when it already ran into trouble with its previous $51 million debt with SOF, Slater pointed to the strong fundamentals at American Apparel and the long-term nature of the new debt. “The company is one of a select few in retail generating both top- and bottom-line growth. They are generating a ton of cash flow — its estimated 2008 EBITDA [earnings before interest, taxes, deprecation and amortization] is $71.5 million and for 2009 will be $89 million,” he noted.
Careful planning is foremost in Charney’s mind this year. “We plan to run the business for cash flow this year,” Charney noted, adding the company has a “restrained” plan for store openings to add to its current 260-unit base
…According to the New York Post, American Apparel is facing adversity that could leave the mega retailer high and dry. Fourth quarter sales are down 23% as of this past Friday. Apparently in the past year and a half American Apparel has had difficulty keeping “their shelves fully stocked thanks to the vise-like grip on cash kept by Lion Capital, [a major stake holder and] the London-based investment firm whose March 2009 financing deal saved Charney’s bacon.” …<
…when the feds raided American Apparel’s Los Angeles warehouses last summer and “charged that one third of the workers at the retailer’s Los Angeles factory were illegal immigrants,” the loss of so much of the company’s workforce was crippling. Despite Charney’s longtime championing of workers’ rights, it’s the hiring of illegal ones that may be his downfall…
Still, all this talk seems mostly fodder for bored bloggers’ traffic (like mine, and others). American Apparel has great buzz, love ’em or hate ’em (all publicity = good publicity, you know the drill). They have a well-established supply chain, and fill a fashion niche aggressively and thoroughly.
Perhaps most crucially, they got the loyalty of the LOHAS/green/hippiester demographic. You know; you.
So if you’ve been eyeing some tacky gold metallic leggings or knee-high b-ball socks, now’s the time: go support this uniquely fascinating experiment is American business.
PS: Dylan, for now, I’d hold onto your AA stock.