American Apparel stares into the abyss

It has been revealed that US fashion chain American Apparel is facing bankruptcy.

The chain, which has faced much criticism for its provocative and controversial ads, has almost 300 stores worldwide and 14 in the UK.

The company is ready to collapse under a mountain of debt of £77.2 million and has already warned that it is likely to breach the terms of its agreement with its main lender, private equity firm, Lion Capital, in September.

The group’s debt escalated by 32% to $120.3 million during the second quarter.

It has forecast an operational loss of $5 million-$7 million for the quarter to the end of June, compared with a profit of $7.3 million in the same period a year earlier. Like-for-like sales plunged by 16%.

Meanwhile, speaking to US markets, the company said it expects losses to continue throughout the third quarter and said it “may not have sufficient liquidity necessary to sustain operations for the next twelve months”.

It added: “These factors, among others, raise substantial doubt that the company will be able to continue as a going concern.”

The company, renowned for its colourful T-shirts and sweaters, has already faced many difficulties in the past.

The company’s chief executive, Dov Charney, has been repeatedly sued for sexual harassment, as well as a number of other allegations.

Furthermore, last July, a Government inspection established that 1,600 of its 5,600 manufacturing staff did not appear to be legally authorised to work in the US, while a further 200 had uncertain status.