BUSINESS

American Apparel's net loss widens in first quarter

American Apparel posts first-quarter loss of $26.4 million, compared with loss of $5.5 million a year earlier

American Apparel Inc.’s losses widened as its new chief executive implemented a plan to turn around the company.

The Los Angeles clothing manufacturer said its net loss was $26.4 million, or 15 cents a share, in the three months ended March 31. That compares with a net loss of $5.5 million, or 5 cents, a year earlier.

Sales fell 9% to $124.3 million from $137.1 million a year earlier. U.S. wholesale revenue grew slightly to $49 million, while U.S. retail sales plunged 12% to $37.3 million.

American Apparel also said Monday it could sell up to $10 million more shares of common stock to use for capital and general corporate expenses. The company said Dov Charney, who was fired as chief executive in December, held anti-dilution rights that have expired.

The company reiterated that it was cooperating with a Securities and Exchange Commission investigation. American Apparel said the SEC is looking into whether federal securities laws were violated when Charney was in charge.

Paula Schneider, who took over as CEO in January, attributed the drop in sales and profits to efforts to clear out more than 1 million pieces of merchandise that were not selling well.

"We started at 20, 30% off, and went all the way up to 90% off at the end of March," Schneider said in an interview. "The whole idea is to clean out the ones that aren't doing well and keep the ones that are doing well and bring more product to the stores."

Schneider said the first steps of a "multi-quarter turnaround" plan have been implemented: a budget was finalized in March, inventory is being cleared out and a revamp of the e-commerce operation is underway. The retailer is also hustling to get spring and summer styles into stores, and it is buying yarns and fabric for its fall line.

"There are a lot of things happening all at once," she said. "We are flying the airplane while we're building the airplane."

Schneider said the furloughs of factory workers, which had caused discontent among employees at sewing and dying facilities across the Southland, had stopped. In April, the company laid off about 180 employees, largely in its manufacturing operations.

American Apparel also disclosed that it is involved in a dispute with the landlord of its headquarters and factory building in downtown Los Angeles. The building owner is alleging "certain alleged breaches under its lease.... Should the company fail to resolve this matter on acceptable terms, they could result in material liability," American Apparel said in a filing with the Securities and Exchange Commission.

American Apparel is facing a flurry of lawsuits filed since the board fired Charney. The board initially removed him as chairman and suspended him as CEO in June, citing evidence of inappropriate behavior with employees and misuse of company funds.

The lawsuits have accused American Apparel and Standard General, the New York hedge fund that failed to back Charney's return to the company, of violating securities laws and breaching fiduciary duty.

Charney filed a lawsuit last week accusing Standard General of defamation and other misdeeds. He said he planned to seek damages of at least $30 million, the lawsuit said.

American Apparel called the lawsuits "meritless claims" that serve as "public relations opportunities."

"If you look closely you will see a common thread and an agenda" in all the lawsuits, Schneider said.

Follow Shan Li on Twitter @ByShanLi

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