American Apparel Sounds Alarm For Investors

It looks like the clothing retailer is in hot financial water.

After reporting yet another quarter of big losses, the company warned shareholders they risk losing everything if it cannot raise more money, Fortune reported yesterday (Aug. 12).

In a filing issued last Tuesday, American Apparel implied bankruptcy may be right around the corner if it is unable to recover from its worsening cash problem.

“The company’s existing and any new investors could suffer substantial or total losses of their investment in its common stock,” American Apparel explained in the filing.

While the company has reported money problems in the past, Fortune noted that this week’s disclosure was the first time it gave a direct warning to shareholders about their investments potentially coming up worthless.

“The company does not currently expect that it will have sufficient financing commitments to meet funding requirements for the next 12 months without raising additional capital and/or entering into some other financing transaction or agreement, and there can be no assurances that it will be able to raise such additional capital or refinance its obligations,” the filing continued.

According to the filing, American Apparel’s financial decline continued through the second quarter of this year, with sales dropping 17 percent. In the first half of 2015, the retailer’s revenue fell 14 percent to $259 million, while its net loss increased more than twofold to $45.8 million.

Just two months ago Fortune reported the company had announced its roadmap to get back on track, but with the latest filing it may be too little too late.

Since the company remains in talks with Capital One to negotiate the terms of a lending agreement, it did not submit a full Q2 earnings report for 2015.

“The company has been working with its advisers and has begun discussions with certain key financial stakeholders to analyze potential strategic and financial alternatives, which may include, among other things, refinancing or new capital raising transactions, amendments to or restructuring of its existing indebtedness and other obligations and consideration of other restructuring and recapitalization transactions,” the filing said.

Whether negotiations can be reached or not, it’s clear American Apparel’s next move will be a crucial one to its future.

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