Tuesday, August 17, 2010

American Apparel, Inc. (AMEX: APP): Now On Bankruptcy Watch

Shares of American Apparel plunged as much as 18% on Tuesday after the casual clothing chain warned that it might default on loans and not be able to stay in business.

Based on the Company's preliminary financial results for the second quarter ended June 30, 2010 and trends occurring in the Company's business after the second quarter and projected for the remainder of 2010, the Company believes that it is probable that as of September 30, 2010, the Company will not be in compliance with the minimum Consolidated EBITDA covenant under the second lien credit agreement.

The company said Tuesday that it expects to report a substantial loss from operations and negative cash flows from operating activities for the six months ended June 30, 2010. The company warned that it may not have sufficient liquidity necessary to sustain operations for the next twelve months.  The company's current operating plan indicates that losses from operations are expected to continue through at least the third quarter of 2010.

For the second quarter, the company expects to report sales of about $132-$134 million, down from $136.1 million a year ago. Same-store sales fell 16 percent in the quarter.

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