When companies move from unprofitability one
year to profitability the next, there is usually
jubilation, if only among the shareholders. The
celebratory ambience is missing at American
Apparel, a company whose financial statements
are rarely written in indelible ink. Five years
ago, it was a clothes maker with just three
stores; now American Apparel is pushing the
200-store mark with locations in 15 countries.
As a seller of youth-oriented apparel, the
company has an outlaw image and is best known
for advertising that has been described as,
among other things, “almost porn” and “soft
core.” Sales, even comparable-store sales,
regularly register jumps of 25 to 30 percent.
The financial side of the business is something
else entirely, especially since the 2005 death
of CFO Mark Schlein. Interim CFOs, bookkeeping
by committee and outsiders imposed by
institutional investors have all had their
turns. Mistakes were made and restatements of
earnings followed. In a filing with the SEC when
it was going public last November, the company
admitted it had “identified certain material
weaknesses in American Apparel’s internal
control over financial reporting that will need
to be remedied.” One of these was “inadequate
expertise in the application of U.S. generally
accepted accounting principles.”
Becoming a public company was not accomplished
via a routine initial public offering of common
stock, but through a transaction known as a
“blank check” IPO in which a special purpose
acquisition company buys a private firm and
immediately goes public. The company’s shares
began trading on the American Stock Exchange in
December; the price rose as high as $16.80 and
bottomed out at $5.52, though it has bounced
back a bit since then.
Other companies on the Red to Black list have
had more conventional transitions from red ink
to black. NPC International, an operator of
Pizza Hut franchises, also went public last
year, while Einstein Noah has morphed from the
New World Restaurant Group a couple of years ago
into the operator and franchisor of such
quick-casual bagel restaurants as Einstein
Bros., Noah’s New York and Manhattan Bagels.
