American Apparel Inc. (AMEX: APP) has tapped a team of restructuring advisers as it struggles with mounting losses, slowing sales and a hefty debt load. The retailer has enlisted lawyers at Skadden, Arps, Slate, Meagher & Flom to help the company work through turnaround ideas according to sources who spoke with The Wall Street Journal.
American Apparel has been saddled with long-term debt, which jumped to $246.9 million in the nine months ending Sept. 30. The retailer has also come close to breaching loan covenants, debt terms designed to protect its lenders, in recent quarters. In order to prevent this, American Apparel refinanced the majority of its debt in 2011, a reality the company recently admitted to in late January.
Investors responded strongly to the news, sending American Apparel stock plummeting 32 percent on Thursday, then another 10 percent Friday.
On Feb. 7, American Apparel released its latest round of earnings and said that comparable-store sales for January were down 4 percent, compared with an increase of 10 percent a year ago.
The Los Angeles-based company employs 10,000 people in its 250 stores in 20 countries from Brazil to Sweden. Over the years, the company has faced several hardships, including a 2009 government immigration action that led to the loss of 2,000 garment laborers and surging production costs at the time.
More recently, American Apparel's earnings took a hit when the company transitioned to a new distribution center in 2013, which cost the company $5.9 million and ended up needing costly repairs. The company said the move reduced profits and negatively impacted cash flow.
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