American Apparel confirms its fears:no cash left to keep the business afloat

If barely a week ago American Apparel rang all the alarms by missing the regulatory filing deadline to submit its second-quarter results as they were worse than expected, now the troubled retailer warns it might not have enough money even to keep the business afloat for another year.

So, as many in the industry have pointed out when the results came out, they were “bad and late”, confirming American Apparel’s worst fears: the company might not have enough capital to maintain operations for the next 12 months after net sales dropped more than 17 percent in the second quarter of 2015.

In a regulatory filing on Monday, the polemic-hit fashion retailer said that the numbers “raise substantial doubt that we may be able to continue as a going concern”.

American Apparel is desperately seeking for cash to pay its next-to-be-due debt

This basically means that the end may come sooner than later, as American Apparel needs to urgently find 13.9 million dollars to pay a scheduled bond payment in October. The problem is that that’s more than the cash American Apparel has available and more than its current borrowing capacity.

But with the company’s net loss growing to 19.4 million dollars, up from 16.2 million dollars on the same period last year, and sales also dropping by 17.2 percent for the quarter to 134.4 million dollars, finding that owed money doesn´t seem an easy task.

American Apparel (NYSE: APP) attributed the declines to unfavourable foreign exchange rates, store closures and the lack of new spring and summer fashion lines.

After closing for the umpteenth consecutive quarter in the red, American Apparel indicated that it “may not have sufficient liquidity necessary to sustain operations for the next twelve months” and may not “be able to continue as a going concern.”

“Such losses might continue for the remainder of 2015,” the company advanced in a statement.

American Apparel shares have lost over 87 percent of this value this year

On a related note and adding to the increasing concern of those invested in the company, the stock was trading at just under 15 cents giving the company a market cap of 27 million dollars, that’s exactly one hundredth of its peak (noted in December 2007 when American Apparel shares were trading at 15 dollars each, giving the company a market capitalisation of 2.7 billion dollars.)

American Apparel shares have fallen 87 percent this year and were trading at 14 cents at market’s close on Monday, levels that indicate Wall Street sees little chance of avoiding a bankruptcy, highlights ‘Fortune’ magazine.

As a silver lining, the ‘Telegraph’ reports that the company said that it has agreed to a new revolving credit agreement worth 90 million dollars, backed by a handful of hedge funds and which replaces a similar 50 million dollars deal with Capital One.

 

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