Shares of American Apparel (NYSE:APP) tumbled Friday after the company swung to a fourth-quarter loss from a year ago profit and warned it may soon be forced to file for bankruptcy protection.
If the retailer does not get enough funds to keep operating, the business may be forced to file for Chapter 11 bankruptcy, American Apparel said in a regulatory filing.
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The Los Angeles-based company posted a net loss of $19.3 million, or 27 cents a share, compared with a profit of $3 million, or 4 cents a share, in the same quarter last year. Revenue fell 8.9% to $144 million from $158.1 million a year ago, hurt by a 10.4% drop in total retail net sales and an 11.5% decrease in stores open at least 12 months.
Tom Casey, acting president of American Apparel, said 2010 was an “extremely challenging but productive year” due to both aftershocks of a major labor disruption resulting from an immigration intervention in 2009 and still challenging global economic conditions.
“The disruption of our 2010 production schedule resulted in significantly higher production costs per unit and late deliveries of products to our stores and to our wholesale clients,” he said. “We also experienced higher yarn and fabric costs in the second half of 2010.”
During the quarter the company closed 13 underperforming stores and expanded its offering of fashion forward items to enhance its core basics. While online sales grew 25%, though, the company said it may not make it without some significant changes.
“We are currently experience significant liquidity constraints,” the company said in a filing. “If we were unable to implement a plan of reorganization or if sufficient debtor-in-possession financing were not available, we could be forced to liquidate under Chapter 7 of the U.S. Bankruptcy Code.”
In an interview in Friday’s edition of the Los Angeles Times, American Apparel CEO Dov Charney put the odds of filing of bankruptcy at “not even a 1-in-1,000 chance.”