Cost cuts and a re-examination of operations, American Apparel faces rough year ahead

IndustriesAssociated Press

American Apparel will begin shuttering underperforming stores and trimming its work force as it deals with falling sales and a slew of legal actions taken against it by ousted company founder Dov Charney.

The Los Angeles retailer plans to eliminate $30 million in operating costs over the next 18 months, but said that there is no guarantee it will have sufficient financing in the next year without raising additional capital.

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Shares slumped almost 9 percent in early trading amid broad market declines.

The company plans to "add new stores in areas of strong growth, while retreating from "over-saturated markets," it said Monday.

American Apparel Inc. also plans to revamp its fall clothing line, but warned of an extraordinarily competitive landscape in which rivals are discounting heavily.

Like its competitors, American Apparel has slumped as competition from fast-fashion retailers has increased. Last month Gap Inc. said it would close 175 stores in North America, or about 18 percent of its total stores.

American Apparel had 239 stores in 20 countries and about 10,000 employees as of March 31. It did not say where stores would open or close, or how many jobs might be eliminated.

American Apparel has lost money every year since 2010. Its sales fell 4 percent in 2014 and dropped another 9 percent in the first quarter of the current fiscal year. The company has also gone through a bitter breakup with Charney, who was fired as CEO in December following allegations of sexual misconduct. Lawsuits allege that Charney had inappropriate sexual relationships with female employees.

Charney says the relationships were consensual. In May he filed a $30 million defamation lawsuit against investment firm Standard General, one of American Apparel's biggest shareholders.

Shares of American Apparel have traded between $1.30 and 41 cents over the last year.