American Apparel predicts an operating loss for 2011. Above, an American… (Lawrence K. Ho, Los Angeles…)
American Apparel Inc. said sales declined and it lost money in 2010, and it warned that several risk factors this year could force it to seek bankruptcy protection if business doesn't improve.
In its 2010 annual report, filed Thursday, the Los Angeles clothing company — currently embroiled in two sexual harassment lawsuits that former employees filed in March — reported sales of $533 million last year, a 4.6% decline from 2009.
It also reported a net loss of $86.3 million for 2010 and said it expected an operating loss for 2011.
The company is facing numerous challenges, including rising cotton prices and ongoing debt issues, according to the 127-page filing with the Securities and Exchange Commission.
But Dov Charney, the company's founder and chief executive, said things weren't as bad as they appeared.
In an interview Thursday, he blamed much of American Apparel's struggles on reduced productivity at its manufacturing facilities as a result of thousands of layoffs last year. The layoffs stemmed from an immigration inspection that found that many employees didn't appear to be authorized to work in the U.S. or had discrepancies in their employment records.
Charney said he was confident that the company would get back on track this year and was developing initiatives to increase sales, reduce costs and improve liquidity. Of a possible bankruptcy filing, he put the odds at "not even a 1-in-1,000 chance."
"While it's a remote possibility, we think we're going to have a decent year," Charney said. "We're in here fighting hard.... We're seeing recovery in worker efficiency and we're seeing a recovery in sales momentum."
The company said in its filing that it had hired a financial advisory firm to explore other sources of capital and planned to renegotiate a number of real estate leases, which could result in store closures.
"Of course times are challenging. No question," Charney said. But "I think the prospects are that we're going to have a recovery year this year. 2012, we'll be back to our previous pattern of profitability."
In its annual report, American Apparel also acknowledged the recent sexual harassment lawsuits filed against the company and Charney. The company said that management believed the claims were "without merit or not material" and that it did not expect any financial costs associated with the suits to significantly affect its business.
Previously the company said the two suits, filed by five former employees, were attempts to extort money from Charney and the company.
On Thursday, Charney also said Lion Capital, one of the company's key lenders, was leaving American Apparel's board of directors "so they can be a better financial partner with us." Lion Capital held two seats on the company's nine-member board.