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Share of troubled clothing chain American Apparel Inc. sank for a third day Wednesday, after the company beloved by hipsters and T-shirt fans said on Tuesday that it might not have enough liquidity to sustain itself another year.
THE SPARK: On Tuesday, American Apparel reported preliminary earnings that include a second-quarter loss and expressed doubt about its ability to continue as a "going concern," standard language foreshadowing a possible bankruptcy.
The retailer also disclosed that it was subpoenaed by federal prosecutors last month as investigators at the U.S. Attorney's Office in New York sought documents related to its auditing. American Apparel said it was cooperating with the request.
American Apparel's auditor Deloitte & Touche resigned earlier this month and American Apparel hired back Marcum, its former auditor. American Apparel said its auditor needs more time to file its second-quarter results with the SEC and will file them "as soon as practicable" but no later than Sept. 15.
Deloitte is reviewing earlier financial results to see if they may need to be restated.
THE BIG PICTURE: Known as much for its racy ads and outre behavior of CEO Dov Charney as for its leggings and T-shirts, American Apparel has expanded rapidly since going public in 2007 and operates about 260 stores in 19 countries.
Now, it's encountering trouble. For the quarter that ended in late June, it expects to report a loss of $5 million to $7 million. It lost $7.3 million in the second quarter last year. Meanwhile, it expects revenue to fall to $132 million to $134 million, from $136.1 million in the quarter last year.
Revenue in stores open at least one year fell 16 percent during the quarter.
In a filing with the Securities and Exchange Commission, the company said it expects losses from operations to continue through at least the third quarter.
SHARE ACTION: American Apparel shares fell 17 cents, or 16.6 percent, to 86 cents per share in midday trading Wednesday.