Cash-strapped clothing maker and retailer American Apparel Inc. got a boost from Los Angeles billionaire investor Ron Burkle, who disclosed Thursday that he had acquired a 6% stake in the company saddled by debt and weak sales over the last year.
According to a filing with the Securities and Exchange Commission, Burkle reported he had purchased 4.3 million shares in the open market for $5.9 million between June 10 and Monday. The filing said Burkle made the purchase "because, in his opinion, such shares were undervalued."
Burkle is now the second-largest individual stakeholder in American Apparel, behind the company's flamboyant founder and chief executive, Dov Charney. Both Burkle and Charney declined to comment.
Known for its colorful T-shirts, leggings and racy advertisements, the company has seen its sales drop and its earnings plummet over the last year as competitors were seeing gains. It also grappled with a series of run-ins with authorities. U.S. immigration authorities last fall forced it to lay off about 1,500 employees from its downtown L.A. factory because they could not be legally documented.
The company was also threatened with being delisted by the New York Stock Exchange because it failed to file its first-quarter earnings report, which was due May 31.(The company announced this week that it was granted an extension by the stock exchange until Aug. 16.)
When American Apparel released its preliminary first-quarter results May 20, it revealed a quarterly operating loss that had more than quadrupled from the same period last year. The company also warned that it might be unable to comply with the terms of its loan.
The report sent the stock, which had already sunk to around $2.50, reeling below $1.50. In June 2008 the share price was around $7. On Thursday, American Apparel shares jumped to $1.90 in after-hours trading on news of Burkle's stake after slipping 1 cent to $1.77 in regular trading.
Analysts said it appeared that Burkle saw a good buy.
"For an investor who has a taste for risk and likes a big upside, it was too good of a chance to pass up," said Howard Davidowitz, chairman of the retail consulting firm Davidowitz & Associates Inc. "Burkle's buying at a rock-bottom price. So if things turn around, there will be a big reward down the road."
Known as a shrewd businessman who built his fortune buying and selling supermarket chains, Burkle also has stakes in retailers Barneys New York and Barnes & Noble Inc. through his investment firm, Yucaipa Cos.
"I think experienced investors such as Mr. Burkle are able to see beyond the short-term bumps in the road and appreciate the uniqueness of American Apparel's operation and the long term," said Peter Schey, a spokesman for American Apparel.