American Apparel might be closing down soon. The company strongly hinted at its closure in the near future, amidst rising losses and mounting debts.
Citing “substantial doubt” about its future prospects, American Apparel issued its strongest indicator yet about its impending dissolution. In a statement, the company said,
“The decline in comparable sales was attributable to the lack of new style introduction for the spring and summer selling season. We believe that we may not have sufficient liquidity necessary to sustain operations for the next twelve months. These factors, among others, raise substantial doubt that we may be able to continue as a going concern”
It’s no secret that American Apparel has been steadily losing business and its brand loyalty has strongly decreased. From a financial perspective, the company reported its sales were down 17.2 percent, and it sustained a net loss of $19.4 million, all within the last quarter, reported CNN. The company also announced it plans to reorganize its debt and extend an existing line of credit from $50 million to $90 million with Capital One. Despite these stopgap arrangements, the company is confident it will continue to bleed money for the rest of the financial year.
The next scheduled interest payment on its debt is due October 15 and the amount comes close to $14 million, reported MSN. Sadly, the company has just $6.8 million in cash on hand and during such crises, it clearly doesn’t have enough to even give out salaries, let alone clear its debt installments. Interestingly, the company used to make money when the dollar was weak. However, the continued upsurge maintained by the dollar, coupled with dwindling sales has weakened American Apparel’s bottom-line.
In simple terms, American Apparel might not be just closing, but is steadily inching towards filing for bankruptcy. Though in the last quarter American Apparel made a business of $134.4 million, it didn’t stop the company’s shares from being in an unending landslide. At the close of the trading market on Monday, American Apparel’s shares were trading at mere 14 cents, a fall of a whopping 87 percent within a single year.
Despite the odds hugely staked against the company, American Apparel is still trying to turn things around and avoid closing down its stores completely. The company is hoping some high level management changes, including a new CEO and a global sales manager, as well as, bringing down costs by about $30 million (heavy downsizing?) could help the American Apparel save its brand.
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