American Apparel files for bankruptcy protection

American Apparel shop Image copyright Getty Images

Troubled clothes retailer American Apparel has filed for US bankruptcy protection.

The firm, which has been plagued by falling sales, high debts and several management crises, said it had agreed a deal to restructure its finances.

The Los Angeles-based company has been involved in a drawn-out legal battle with its founder Dov Charney.

American Apparel runs 260 shops and concessions in 19 countries. It expects the restructuring to take six months.

The company, which has been trying to turnaround its business, recorded a loss of $19.4m (£12.8m) in the second quarter.

Cutting debt

Chief executive Paula Schneider said: "This restructuring will enable American Apparel to become a stronger, more vibrant company."

Under the restructuring agreement, American Apparel's secured lenders will provide about $90m in financing, the company said.

It expects to cut its debt to $135m from $300m through the restructuring, with the programme set to be completed within six months.

The firm said it would continue to operate its retail stores, and its wholesale and US manufacturing operations throughout the process.

It has 18 stores and concessions in the UK including locations in London, Leeds, Glasgow, Manchester and Brighton.

The Los Angeles-based retailer, known for making its products in the US, has not turned a profit since 2009.

In August, the company flagged up problems with its finances, saying it might not have enough capital to keep operations going for the next 12 months as losses widened and cash flows turned negative.

'Only option'

American Apparel was founded in 1989 by Dov Charney. The firm fired him in December over misconduct claims, and Mr Charney is suing the company for defamation and fraud. In June, the company was granted a temporary corporate restraining order against him.

The combination of the firm's debts, falling sales and management crises have "finally proven too much for the iconic teen retailer", said Neil Saunders of retail analysis firm Conlumino.

"Bankruptcy protection is, in our view, the only viable option for American Apparel which is crippled by $311m of debt and is subject to a number of corporate lawsuits, including those brought by its founder Dov Charney," he said.

"Arguably, the big loser will be... Dov Charney, who will not only see his legal proceedings delayed but will also find, along with other shareholders, his holding in the company - currently worth some $8.2m - wiped out," he added.

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