American Apparel (APP) Reports Q2 Loss of $0.11/Share

American Apparel (NYSE: APP) reported Q2 EPS of ($0.11), versus ($0.09) reported last year. Revenue for the quarter came in at $134.4 million, versus $162.4 million reported last year.

Excluding the year over year impact from foreign exchange and stores closed in 2014, net sales decreased 14% from the same period in 2014. The decline in comparable sales was attributable to the lack of new style introduction for the spring and summer selling season. Net sales also decreased approximately $3 million due to the store closures. In addition, the unfavorable impact of foreign currency exchange rate changes contributed to the sales decrease of approximately 4% or $6.2 million.

Liquidity and Capital Resources

Under the $10 million "at-the-market" offering program, we may, from time to time and at our discretion, offer and sell shares of our common stock having an aggregate gross sales price of up to $10 million (but in no event more than 15 million shares). We have used the net proceeds generated through the program for working capital and general corporate purposes. As of June 30, 2015, we had issued 4 million shares of our common stock for net proceeds of $2.0 million. Sales of common stock under the "at-the-market" offering program are at our sole discretion and subject to the terms and conditions of the sales agreement related thereto, and there are no assurances that such sales will continue in the future.

As of June 30, 2015, we had $6.9 million in cash, $38.4 million outstanding on our $50.0 million asset-backed revolving credit facility with Capital One and $6.1 million of availability for additional borrowings as of such date. On August 11, 2015, we had $11.2 million in cash. As of June 30, 2015, we had $210.6 million aggregate principal amount of senior secured notes (the "Notes") outstanding. On April 14, 2015, we paid $13.8 million in interest on the Notes. The next scheduled interest payment on the Notes due on October 15, 2015 is approximately $13.9 million.

As of June 30, 2015, we were not in compliance with the minimum fixed charge coverage ratio and the minimum adjusted EBITDA covenants under the Capital One Credit Facility. For the April 1, 2015 through June 30, 2015 covenant reference period, our fixed charge coverage ratio (as defined in the Capital One Credit Facility) was 0.07 to 1.00 as compared with the covenant minimum of 0.33 to 1.00, and our adjusted EBITDA (as defined in the Capital One Credit Facility) was $4.1 million as compared with the covenant minimum of $7.4 million.

On August 17, 2015, Capital One assigned its rights and obligations as a lender to a syndicate of lenders that includes certain of our existing creditors, including funds associated with Standard General L.P., Monarch Alternative Capital L.P., Coliseum Capital LLC and Goldman Sachs Asset Management, L.P., and was replaced by Wilmington Trust, National Association ("Wilmington Trust") as administrative agent. Additionally, on August 17, the Capital One Credit Facility was amended pursuant to an amended and restated credit agreement among us, the new syndicate of lenders and Wilmington Trust (the "Wilmington Trust Credit Facility"). In connection with such amendment, the syndicate of lenders received certain amendment and closing fees and reimbursement of closing expenses. The covenant violations existing at June 30, 2015 were waived under the Wilmington Trust Credit Facility.

The Wilmington Trust Credit Facility provides for a $90 million asset-based revolving credit facility and matures on April 4, 2018, subject to a January 15, 2018 maturity in limited circumstances. Borrowings under the Wilmington Trust Credit Facility are subject to specified borrowing base requirements which is increased by $15 million, but such $15 million increase cannot increase the borrowing base above $60 million. Amounts repaid under the Wilmington Trust Credit Facility cannot be re-borrowed.

Borrowings currently outstanding under the Capital One Credit Facility will continue under the Wilmington Trust Credit Facility and bear interest at a LIBOR based rate plus 5.00% or a rate based on the prime rate plus 4.00%. New borrowings under the Wilmington Trust Credit Facility bear interest at a LIBOR based rate plus 7.00% or a rate based on the prime rate plus 6.00%.

Additionally, on August 17, 2015, we entered into amendments to the indenture agreement governing the Senior Notes and the Standard General Loan Agreement to permit us to enter into the Wilmington Trust Credit Facility.

We incurred losses from operations and negative cash flows from operating activities for the six months ended June 30, 2015 and such losses might continue for the remainder of 2015. Based upon the trends occurring in our operations since June 30, 2015 and through the date of this release, together with our current expectations and projections for the next four fiscal quarters, we believe that we may not have sufficient liquidity necessary to sustain operations for the next twelve months. These factors, among others, raise substantial doubt that we may be able to continue as a going concern.

As a result of the Capital One Credit Facility covenant default and the liquidity uncertainty described above, we have been working with our advisers and have 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 our existing indebtedness and other obligations, and consideration of other restructuring and recapitalization transactions. As of the date of this release, substantial uncertainty exists as to the ultimate outcome of those discussions, and there are no assurances that such efforts will result in any transaction or agreement, or that any such transaction or agreement, if proposed and/or implemented, will be successful. In addition, whether or not any such transactions or agreements were implemented or successful, our existing and any new investors could suffer substantial or total losses of their investment in our common stock.

For earnings history and earnings-related data on American Apparel (APP) click here.

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