Winnipeg Free Press - PRINT EDITION

Ongoing turmoil at American Apparel lifts stock

Charney's tossing stirs speculation it will be sold for cheap price

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NEW YORK -- Dov Charney's ouster at American Apparel Inc. may bring out the bargain-hunters.

Stock for the maker of T-shirts and neon spandex leggings climbed as much as 22 per cent Thursday amid speculation the $120-million company could be sold after the board pushed out founder Charney because of misconduct. While American Apparel hasn't had an annual profit since 2009, the brand is still attractive and its foothold in the 19- to 30-year-old demographic -- a lucrative one for retailers -- could lure suitors, said Brean Capital.

Even after Thursday's gains, buyers can get it on the cheap: The company remains a penny stock and traded at the lowest sales multiple of any similar-sized retailer. American Apparel's eclectic vibe may make it a good fit for Urban Outfitters Inc., said Jennifer Black & Associates.

Charney could also team up with another buyer to take the company private, Brean Capital said, estimating a deal valuation of $1.50 a share, or about $500 million including debt.

"This has gone from being on no one's radar to being something interesting," Eric Beder, a New York-based analyst at Brean Capital, said in a phone interview. American Apparel has a "very desirable market. It's a market that we've seen mainline players trying to get into and fail miserably."

American Apparel's board said Wednesday it suspended and will fire Charney amid an investigation into unspecified misconduct. Thursday, Allan Mayer, the company's now-co-chairman, said the ousting wasn't in preparation for a sale or bankruptcy.

"We are not pursuing any transaction," Mayer told Bloomberg News. "We have no intention to sell the company."

A representative for Los Angeles-based American Apparel declined to comment further.

Shares of American Apparel climbed 0.9 per cent to 69 cents Friday.

Charney's divorce from the company still could put his 27 per cent stake, as well as the rest of the company, in play, said Beder of Brean Capital. Shares of the retailer closed 6.7 per cent higher Thursday.

The company's strong brand may appeal to buyers, said Craig Johnson, president of Customer Growth Partners, a New Canaan, Conn.-based consulting firm. American Apparel, which promotes its products as "Made in USA," has almost 250 stores across 20 countries, including France and Japan. It had about $634 million in sales last year.

"The brand itself and the kind of style viewpoint it represents, we think has value beyond the company's current either financial or CEO-level challenges," Johnson said in a phone interview. "There's no tarnishing of the brand generally in consumer land.


-- Bloomberg News

Republished from the Winnipeg Free Press print edition June 21, 2014 B19

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