UPDATE 2-American Apparel raises going concern doubts, shrs sink

* Gets subpoena over resignation of auditor

* Says may breach EBITDA covenant at Sept. 30

* May not have liquidity to operate over next year

* Sees Q2 loss from operations of $5-$7 mln

* Shares sink to lifetime low
(Recasts; adds subpoena details, background, updates share

By Abhishek Takle

BANGALORE, Aug 17 (BestGrowthStock) – American Apparel Inc’s
(APP.A: ) woes continued as it raised “substantial” doubt about
its ability to continue as a going concern and warned it could
breach a loan covenant, sending its shares down 22 percent to a
lifetime low.

The company also said in a regulatory filing that it
received a subpoena from the U.S. Attorney’s Office for the
Southern District of New York in July, as well as inquiries
from the U.S. Securities and Exchange Commission regarding the
resignation of its former auditors.

American Apparel’s former auditor Deloitte had quit in
March after warning of problems with the company’s financial
reporting, and the subsequent reliability of its financial
statements for the year ended Dec. 31, 2009. [ID:nN29103163]

American Apparel Chief Executive Dov Charney, who is also
its largest shareholder, has been repeatedly sued for sexual
harassment and the company has faced several problems in recent
months from underperforming results to mass layoffs of illegal

The Los Angeles-based company, which opened its first
retail store in 2003, dodged a potential breach of debt
covenants earlier this year at the cost of higher interest
payments. [ID:nSGE65N0G3]

The company said on Tuesday it will not be in compliance
with the minimum consolidated EBITDA covenant under its second
lien credit agreement, as of Sept. 30.

American Apparel, known for its shiny spandex leggings and
cotton T-shirts, plans to work with the second lien lender to
obtain the appropriate amendments prior to the anticipated
covenant default, it said in a statement.

Popular with urban hipsters for “Made-in-USA” retro
apparel, the company now sees losses from operations continuing
through at least the third quarter, and said it may not have
sufficient liquidity to continue to operate through next year.

It also expects substantial operating loss and negative
cash flows for the six months ended June 30.

For the second quarter, the company forecast sales of about
$132-$134 million, down from $136.1 million a year ago.
Same-store sales, which fell in 11 out of 12 months in 2009,
were down 16 percent in the quarter.

American Apparel shares were down 22 percent at $1.08
Tuesday afternoon on the American Stock Exchange.

At their peak, the shares touched $16.75 in December 2007,
after blank check company Endeavor Acquisition Corp took the
company public through a reverse merger.
(Reporting by Abhishek Takle in Bangalore; Editing by
Gopakumar Warrier)

UPDATE 2-American Apparel raises going concern doubts, shrs sink