Top Five Supplier American Apparel Circling Drain?
The news was already bleak for ASI supplier heavyweight American Apparel early this year when it was revealed the company was close to triggering stipulations in loan agreements. The potential problem was averted when the debt was restructured in favor of a higher interest rate note. All that apparently did was buy some time for the inevitable debt crush.
The stock was hammered today as the company warned that it is facing a serious liquidity crisis. As the NY Times indicated in an article today on American Apparel which indicated they are all but out of options. Despite a reasonable uptick in sales industry wide this year they have reported sharp sales decreases. Without speculating much on the reason it could well be that the hypersensitive distributor model they have had for the last few years has failed and catering to skinny teens will not buy you strong sales among older executives. They also report that they will not file a timely report and therefore will likely be delisted.
It was just four years ago that 60 minutes hailed American Apparel as a made in USA success story but very clearly it was all smoke and mirrors. The company was always highly leveraged and was unable to adjust like other heavyweights like Broder Bros. was able to do in 2009. It is an unfortunate case of too much too fast as the company opened expensive stores in premium locations instead of hoarding cash in a recession. The unfortunate aspect of all of this is that more jobs are likely to be lost in the US.