American Apparel is already struggling to recover from sexual harassment lawsuits against its CEO, bad press suggesting questionable personnel preferences, and mass layoffs related to immigration probes. Now it could be going bankrupt.
The company has announced that it lost $86 million in 2010 only a year after posting a profit of more than $1 million, and may need to seek bankruptcy protection if it can't raise enough cash to continue operating. American Apparel's shares have plummeted in recent years.
In an interview with The Los Angeles Times,however, CEO Dov Charney put the odds of a bankruptcy filing at less than "1-in-1,000." He cited reduced manufacturing productivity stemming from the immigration-related layoffs last year as the primary reason for American Apparel's financial woes, and said the company was poised for a rebound this year and a return to profitability in 2012 as it worked to boost sales, cut costs, and improve liquidity.
Will the sexual hareassment suits against Charney have a financial impact on the company beyond the costs associated with litigation? Probably not, marketing professor Jeff Galak tells SmartMoney: "American Apparel targets the youth market, which is less likely to read the news. They go there for fashion. Will it hurt? Probably a little bit. How large a section of its customers? My suspicion is not very large at all."
That said, check out this five-year chart, courtesy of Google Finance. All is not well in American Apparel land.