American Apparel is struggling to draw in buyers from its teen demographic and the company is warning investors that it could run out of money in the next 12 months and may be unable to raise additional capital.
The company says it is in talks with lender Capital One Business Credit Corp to waive a non-compliance protocol, but there is no guarantee of a waiver.
While the company was once flying high, it has failed to post a profit in the last five years. During that period, its market value shrank from $540 million to $90 million.
In July 2015, the company launched a restructuring plan that includes job cuts and store closures.
The company is currently being sued by CEO Dov Charney after he was ousted in 2014 for allegedly misusing company funds and failing to stop a subordinate from creating defamatory blog posts about former employees.
American Apparel on Tuesday said the company’s investors could suffer substantial or total losses of their investment in its common stock..
The company’s stock has plummeted by nearly 80% since the start of the year.
American Apparel manufactures its clothes in the United States, in turn leading to higher manufacturing costs that have certainly not helped the company’s profits versus its biggest competitors such as Forever 21 which contracts with 21 different manufacturers located throughout the world.