Tuesday, May 17, 2011

American Apparel shares soar 27% after it secures financial lifeline

  1:38pm

American Apparel stock jumped 27% on Monday following news that a group of Canadian investors had agreed to inject up to $45 million to help the Los Angeles clothing company.

Shares increased 34 cents to $1.58.

Now that it has secured a financial lifeline, American Apparel will focus on optimizing efficiency at its downtown L.A. factory and increasing sales productivity at its stores, Chief Executive Dov Charney said in an interview Monday.

"Maybe once we optimize the factory and the top line of each average store, we might look at increasing store count," Charney said. "We still think it's a business in its early stages, and we'll continue to work to grow the company. ... We really think we can take the company to another level."

The deal, announced last week, helped the company stave off a potential bankruptcy filing. The investors agreed to pump in $15 million in equity at 90 cents a share, a 27% discount to the company's $1.24 closing price Thursday. The stock market was closed Friday in observance of Good Friday.

The investors also are getting warrants to buy an additional $30 million worth of shares over the next six months, also at 90 cents a share.

Charney agreed to contribute $700,000 of his own money. However, unlike other existing investors whose ownership stakes will be diluted by the issuance of shares to the new investors, Charney said his prior ownership stake can be restored if the stock price rises in coming years.

The investment group is headed by Michael Serruya, a prominent Canadian financier.

Just a few weeks ago, American Apparel -- which in recent months had faced a slumping stock price, sales declines and two sexual-harassment lawsuits brought by five former employees -- had warned that it had doubts about its ability to continue as a going concern.

-- Andrea Chang

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