American Apparel has been on shaky financial ground for quite some time now and while you can get over negative press about elitist hipster dress code, getting over pressing loan payments is not as simple.
The company is about to announce a substantial loss in the second quarter due to slumping retail sales and high production costs. The costly production is a direct result of hiring over 1,600 new manufacturing workers, after last year’s layoff of over 1,500 alleged illegal aliens and the transition to more complex clothing styles.
Not surprisingly, with the forthcoming loss and negative cash flow, on September 30, American Apparel expects to be in loan agreement default. While they hope to work out a solution with the lender, there’s no guaranty.
“The Company’s current operating plan indicates that losses from operations are expected to continue through at least the third quarter of 2010. These factors, among others, raise substantial doubt that the Company will be able to continue as a going concern,” American Apparel said. So it just might be that by this month next year we will be buying our basics at Hanes.
