American Apparel Warns of Bankruptcy

The clothing retailer warned in a regulatory filing on Thursday that it might must file for bankruptcy unless demand picked up for its cotton T-shirts and leggings  and its overall financial situation improves.

American Apparel is losing its appeal among young urban shoppers.

American Apparel reported an $86 million loss in 2010, compared with a $1 million profit the year prior. Funds flows were negative, . And the company is predicting much the same for 2011, according to its annual filing with the Securities and Exchange Commission.

The company, known for its provocative marketing and controversial founder, has endured a rough year. But unless its financial picture gets better, the company said bankruptcy could be the next cease.The company says it is hashing out a plan to spruce up its business. It is renegotiating actual estate leases, a step that could include closing some stores. It is working with vendors and landlords to push back its bills. And it is thinking about shedding retail staff. American Apparel, which has hired an outside financial adviser, is also trying line up additional sources of capital. It may also need to restructure some debt.

If the company is unable to timely, successfully or effectively implement the strategies that the company is pursuing to improve its operating performance and financial position, receive alternative sources of capital or otherwise meet its liquidity needs, the company may need to voluntarily seek protection under Chapter 11 of the U.S. Bankruptcy Code,American Apparel disclosed in its filing.

It is the latest issue for a company that has been dogged by financial and legal issues over the past year. Last month, a former sales associate at American Apparel filed a lawsuit against Dov Charney, the company's flamboyant chief executive and founder. They is accusing Mr. Charney of sexual harassment in a claim that names five other females.

In August 2010, the company disclosed that it had received a federal subpoena over its decision to alter its accounting firm. Simultaneously, American Apparel said it was in danger of not complying with the terms of a loan, which raised doubt that the retailer could survive.

As the company has suffered, investors have fled. In the last 12 months, the retailer's stock has fallen by very 70 percent to less than $1.