Troubled Los Angeles clothing maker American Apparel Inc. reported double-digit sales declines and a $9.5-million quarterly loss Tuesday and warned that it had "substantial doubt" about its viability going forward.
In a continuing effort to turn itself around, the company announced several aggressive efforts to cut costs. It said it might have to close some stores, reduce manufacturing production levels, renegotiate real estate leases and reevaluate staffing levels.
For the quarter ended Sept. 30, sales totaled $134.5 million, a decline of 10.5% from the same quarter last year. At stores open at least a year, sales fell 16% — a troubling sign considering the relatively healthy sales that competitors have been reporting in recent months.
The loss of $9.5 million translated to 13 cents a share and contrasted with profit of $4.2 million, or 5 cents, a year earlier.
American Apparel's outspoken chief executive and founder, Dov Charney, acknowledged that the company had faced its share of challenges lately, including problems with its manufacturing efficiency that resulted in late deliveries to its retail stores.
Still, he took an optimistic view, saying the company is now focusing on improving in-store business.
"The American Apparel brand remains strong," Charney said in a statement. "I have seen reinvigorated interest in our brand, and our customers are recognizing us for our new products. We plan to continue driving sales of our basics as we align product design and development with more efficient manufacturing."
But a 59-page filing with the Securities and Exchange Commission on Tuesday revealed deeper problems at the company that has become known as much for its steamy advertising and Charney's office antics as its colorful basics such as T-shirts and leggings.
Among the red flags: American Apparel said it expected a loss from operations for fiscal 2010, might not have sufficient liquidity to sustain operations for the next 12 months and might violate a term of its loan agreement with London private equity firm Lion Capital, which it amended just last month.
"These factors, among others, raise substantial doubt that we will be able to continue as a going concern," the company said in the filing. "There can be no assurance that management's plan to improve the operating performance and the financial position of the company will be successful."
In recent months, American Apparel has grappled with problems with its debt, sales declines, delayed quarterly filings and an investigation by the U.S. attorney's office in New York related to the company's abrupt change in accounting firms.
Last month, it named Tom Casey, a former Blockbuster Inc. executive, as its acting president to help redirect the company. The move was intended to free Charney of some of his administrative duties so he could focus on the company's creative side.
American Apparel released its earnings after the markets closed. During regular trading, its shares fell 5 cents, or 4.2%, to $1.14. In after-hours trading, the stock was little changed. Its stock is down 63% this year.
The company has about 10,000 employees, many of them in L.A., and operates 278 retail stores.
From a brand standpoint, American Apparel is "becoming a bit of an afterthought" to its core hipster base and could take months to get back on the radar, said Eli Portnoy, a brand strategist and marketing expert.
The company's products are "fairly straightforward," he said. "That's as much a benefit in its early days as it is a drawback in its more mature stages."