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The battle to keep American Apparel afloat continues

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American Apparel is planning to raise money with a $10m stock offering after posting a wider first-quarter loss yesterday.

The stock sale will be “at the market”, which means shares are to be sold from time to time rather than in one big block. Proceeds will go toward working capital and general corporate purposes. The fashion chain recorded a net loss which expanded to $26.4m, from $5.47m, a year earlier. Revenue dropped 9.4% to $124.2m.

Chief Executive Officer Paula Schneider is trying to revive profit after the Los Angeles based company lost hundreds of millions of dollars over the past three years. As a result it has been forced to sell stock and borrow money at high rates to stay afloat.

“This is a company that lost $340m in five years - the turnaround isn’t one quarter,” Schneider said. “It’s going to take a couple quarters to start showing off our brighter side.”

The retailer has had to heavily discount old inventory to make room for newer styles, lowering profitability. In a statement issued yesterday, the American chain did not give any guidance on future sales or profit.

But are these figures the least of Schneider’s worries?

Following his ousting from the label he founded, American Apparel’s ex-CEO Dov Charney is riposting his dismissal last year with a $30m lawsuit.  

On the basis of defamation, the controversial Canadian is claiming that the retailer falsely cited “misconduct” for his departure, a conclusion that was a result of an independent investigation. Charney filed a lawsuit against Standard General, the hedge fund that controls American Apparel’s board of directors, “false, defamatory and libellous” accusations which resulted in damage to his reputation, shame and emotional duress.

"There was no independent, third-party investigation of Charney that led to his termination,” the filed complaint read.

Charney has described the investigation as a “secret conspiracy” and according to Bloomberg Business, the board comprises of “the very people who wanted to fire Charney, who conspired against him to be in control of the company”.

"I gave them my entire life's work and they agreed to put me back in. But, instead, they used this investigation to fire me. They betrayed me," the 46 year old said last year.

Since taking over, Schneider fired some of Charney loyal followers and recruited newbies.

When Schneider became American Apparel’s newest boss, she said her friendly relationship with Charney would help ease the leadership transition, but more recently she commented:

“Dov’s agenda is becoming abundantly clear with all the lawsuits that are flying toward us, but at the end of the day we have a really strong strategic plan. We haven’t spoken in quite a while.”

Published on Tuesday 12 May by Veebs Sabharwal

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