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American Apparel Gets Financial Lifeline of $25M

Zacks Equity Research

The share price of American Apparel Inc. (APP) increased almost 2% after it inked an agreement with New York-based investment firm, Standard General LP, to bring in financial support worth $25 million. The struggling apparel retailer is reportedly going to use a portion of it to repay its $9.9 million debt to Lion Capital.

As part of the deal, American Apparel will have to reshuffle its board and include three representatives of Standard General on its seven-member board. The company founder Dov Charney, who, in June, was alleged of misconduct and misuse company funds, will have to step down from the board in addition to three other members. Additionally, two directors will be chosen jointly by Standard General and the current board.

Ongoing investigation into Mr. Charney’s allegations will continue per the deal. Mr. Charney will serve as strategic consultant until the end of the investigation.

Per the agreement, Standard General promised to support the apparel retailer’s sweatshop-free, “Made in USA” manufacturing philosophy. The retailer employs about 4,500 workers at its downtown Los Angeles factory. The financier aims to maintain this facility and sell its products within the country.

Due to cheap labor available abroad, the U.S. market is flooded with products manufactured outside. However, in view of the growing unemployment in the country, ‘Buy America’ cries promoting goods manufactured in U.S. are going strong.

Investors are encouraged with the deal which will provide American Apparel with the much needed capital. The company has been reporting lower earnings for the past few quarters due to soft revenue and challenging retail conditions. Moreover, it will dethrone Charney to the best interest of the company.

American Apparel currently carries a Zacks Rank #3 (Hold). Other stocks in the apparel sector worth considering include Christopher & Banks Corp. (CBK), Citi Trends Inc. (CTRN) and The Men’s Wearhouse Inc. (MW) sporting a Zacks Rank #1 (Strong Buy).

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