Dov Charney’s Out, American Apparel Rallies … and APP Stock’s Still a Bad Joke

by Dan Burrows | June 19, 2014 1:27 pm

American Apparel (APP[1]) stock soared Thursday before settling down at mid-single-digit gains after the company’s board moved to fire founder Dov Charney as chairman and CEO — but that still doesn’t make shares in the racy retail chain and soft-core pornographer a buy.

[2]True, APP stock jumped as much as 22% soon after the opening bell, but we’re talking about a penny stock here. Even after that eye-popping move, American Apparel stock topped out at only 78 cents a share.

And although American Apparel’s market cap might have ballooned on the news, it still stands at only about $120 million.

Face it: The only reason this microcap is on anyone’s radar is because of Dov Charney and his long history of bad behavior.

The amazing thing is that Dov Charney lasted this long. Quartz summed it up[3] best with a list of the five things Dov Charney didn’t get fired for. It’s both hilarious and stunning:

• “Hiring illegal immigrants to work in its US factory.
• Allegedly sexually harassing and assaulting numerous female employees, resulting in a slew of lawsuits. (Most of these were settled without costing the company any money.
• Trying to choke a male employee and throwing dirt at him.
• Running a company that hasn’t made an annual profit since 2009.
• Running a company whose stock has rarely traded over $2 since April of 2013.”

It’s that last item on the list that makes APP stock a no-go area. Even after Thursday’s action, American Apparel stock is off 44% for the year-to-date, and there’s no standard time frame you can chart that makes it a winner. Here are some examples of the carnage in American Apparel stock:

• Last 52 weeks: -66%
• Last three years: -20%
• Last five years: -79%
• Last 10 years: -91%

American Apparel Stock: Why?

American Apparel stock is an ugly joke and has been one since, oh, the end of 2007. But — hey — that just accurately reflects American Apparel’s bottom-line performance.

APP hasn’t booked a full-year net profit since 2009. Even then it reported net income of just $1.1 million on $558.8 million in revenue, giving it a net profit margin of … 0.2%. Over the same span, revenue grew to $634 million — or a whopping 13% in four fiscal years.

It gets better: American Apparel warned that it will be in talks with its lenders for a waiver, since ousting the CEO/chairman could trigger a default under the terms of its credit agreements.

That’s never good news, especially for a company with a balance sheet as skanky as American Apparel’s. At the end of the March quarter, American Apparel had total assets of $332 million and total liabilities of $385 million, negative free cash flow, and negative book value.

If it weren’t for Dov Charney’s scandalous behavior and American Apparel’s soft-core image, no one would care about this stock.

And that creates a truly ironic situation: The end of Dov Charney’s embarrassing reign of error could actually be the move that buries American Apparel once and for all.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.

Source URL: https://investorplace.com/2014/06/american-apparel-stock-app-dov-charney/

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