15:20 ET<\/span>
\n<\/span><\/p>\nThe US clothing chain American Apparel has said that there is “substantial doubt” the firm can continue as a going concern.<\/p>\n
Shares in the company fell by as much as 27% after it made the statement. <\/p>\n
But although the wording appeared in its financial statement for the fourth quarter, the company’s controversial founder played down the warning.<\/p>\n
The company has been criticised for sexually overt advertising. Its founder is fighting sexual harassment charges.<\/p>\n
American Apparel, which has 273 stores and 12,000 employees worldwide, reported sales down by 8.9% at $144m (\u00a389.4m).<\/p>\n
The statement said: “2010 was an extremely challenging but productive year. We suffered the after-effects of a major labor disruption resulting from an immigration intervention in 2009.”<\/p>\n
In that year a number of its employees were found to be illegal immigrants.<\/p>\n
‘Extraordinary challenge’<\/span><\/p>\nIt said the disruption to its production schedule led to “significantly higher production costs” per unit and late deliveries of products to stores and wholesalers.<\/p>\n
It also referred to what it called “extraordinarily challenging world-wide economic conditions” and higher raw material prices.<\/p>\n
It said there was “substantial doubt that the Company will be able to continue as a going concern” and that it could be prevented from borrowing under its credit agreements.<\/p>\n
The annual report said the company may determine that it is in its best interests to file for a pre-packaged, pre-arranged or other type of Chapter 11 bankruptcy. <\/p>\n
But the founder, Dov Charney, played down the warning. <\/p>\n
He told the Reuters news agency that the warning was a formality, saying: “We have to put it as a risk factor if it’s in the realm of possibility, even if it’s one in 1,000.” <\/p>\n
American Apparel has been expressing doubts about its ability to continue as a going concern since last August. <\/p>\n<\/p><\/div>\n<\/p>\n
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