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A Bankruptcy Fitting For American Apparel?

Posted By admin || 2-Apr-2011

A Bankruptcy Fitting For American Apparel? American Apparel Inc. has once again announced that it is flirting with the idea of filing bankruptcy.

"We are currently experiencing significant liquidity constraints," the company said in a regulatory filing yesterday. The chain said that if it can't improve performance or get alternative financing, it may file for bankruptcy. The company also posted a 2010 loss of $86.3 million.

The clothing retail company, founded by Dov Charney has been struggling for at least the past two years.  Its revenue fell 4.6 percent to $533 million in 2010 and that's after the company tripled the number of stores in 2009.  At the time we were already in a recession, with retail stores taking some hard hits.  Some analysts thought the move to expand American Apparel's market share was a mistake and could lead to the need for bankruptcy protection.

But despite those fears, a bankruptcy filing for American Apparel is not set in stone-not yet. And the type of bankruptcy the company would file is not clear. Although a restructuring of their debts could happen in Chapter 11 bankruptcy, depending on the viability of the company, a Chapter 7 bankruptcy liquidation is probably not outside the realm of possibilities.

At this point the founder of the company is funding the enterprise with a large chunk of his own cash. He has invested $2 million into American Apparel in an effort to keep the company afloat and out of bankruptcy. But the fact that he needs to personally fund the enterprise may not be a good sign about how potential investors perceive the company's future.

(source: Bloomberg.com )

 
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