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American Apparel reports quarterly loss, lowers sales forecast

The announcement comes hours after it agreed to settle a lawsuit brought by actor-director Woody Allen for $5 million.

May 19, 2009|Andrea Chang

Trendy retailer American Apparel Inc. reported a first-quarter loss and lowered its annual sales forecast Monday, hours after it agreed to settle a lawsuit brought by actor-director Woody Allen for $5 million.

Chief Executive Dov Charney said "severe liquidity constraints" hurt sales and margins in the quarter that ended March 31. The Los Angeles firm posted a loss of $9 million, or 13 cents a share, compared with a profit of $1.1 million, or 2 cents a share, a year earlier.

The stock jumped 38 cents, or 7.5%, to $5.47 during regular trading Monday before the company's announcement, then plunged 18% to $4.47 in after-hours trading.

American Apparel lowered its full-year sales forecast to a range of $550 million to $575 million in 2009, down from its earlier forecast of as much as $600 million. It also cut its projections of income from operations to $40 million to $50 million this year, down from $55 million to $65 million.

First-quarter sales rose 2.4% year over year to $114.3 million, although sales at stores open at least a year declined 7%. The company operates more than 265 stores in 19 countries.

Matthew Wiger, an analyst at Monness, Crespi, Hardt & Co., blamed part of the retailer's "ugly quarter" on its legal saga with Allen as well as financial troubles that forced the company to negotiate a three-month extension on its debt before receiving an $80-million infusion from a British investment firm in March.

"As long as Dov has been focused on financing and focused on the Woody Allen thing, those are distractions from being able to manage the business," Wiger said. "American Apparel doesn't exist without Dov Charney. The more he's pulled away from the business, the more his hand is pulled away from the stores, it hurts."

Earlier Monday, American Apparel announced it had settled a lawsuit brought last year by Allen, who sued the retailer for $10 million for using his image on the company's billboards without his permission.

Charney said in a statement that most of the $5-million settlement would be paid by the retailer's insurance company, which decided to settle.

"Naturally there is some relief of not having to go through a trial," he said, "but I also harbor a sense of remorse and sadness for not arguing an important issue regarding the First Amendment, particularly the ability of an individual or corporation to invoke the likeness of a public figure in a satiric and social statement."


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