American Apparel. Apparently Not.

by James Perkins SOURCE Flatt Magazine

Former CEO of Thrasher Funds, photographer and entrepreneur James Perkins can bring a Soho purview to his look at Wallstreet. Here he talks about the death of American Apparel. Is the GDP really made of 0% partying?

Is it time to Buy American Apparel, Stock?

In March of this year, I wrote an article, “Is American Apparel Dead?“. There was a time when American Apparel was one of my favorite new stocks. I even openly defended Dov Charney on FOXBusiness during my Perkins’ Picks Live segment and said his shenanigans were brand building. Perhaps someone else should have been building the company. After the fall of other resonating brands like Tsubi/ Ksubi, I cant get the words, “Hipster’s Justification of Failure” out of my head. Today, American Apparel (APP) announced that it may not be able to stay in business. A huge slump in sales and manufacturing problems could cause the company to default on its loans. Not too long ago the company was force to lose many of its illegal workers. I wondered how much that would affect the company, because they strangely went from designing spot-on cheap basics that were harmonious with whatever the current season’s high-end fashion designs were to selling a lot of vintage clothing.

APPl added it is in talks with its creditors to amend its loan agreements, but that wasn’t enough to calm investors. Even after Tuesday’s 22% decline in the stock by midday Wednesday shares were off 19% to 83 cents.

Worst yet, the company also said its former accounting firm, Deloitte & Touche, is investigating the “reliability” of the company’s consolidated financial statements for all of 2009, the company’s financial results for the first quarter of 2010 and its projected financial results for the rest of 2010. Deloitte resigned as American Apparel’s accounting firm on July 22.

Are the old people right again? Have we all been partying too much? IS it true that we need to find a good solid company to work for, find a pension, contribute to our 401K, stop getting cool tattoos and wearing t-shirts from American Apparel 7 days a week? Ha, Yes! They are right. I am sure 0% of our GDP is made up of partying. Is that what American Apparel was, a really good corporate party and now everyone has to go home?

However, we do have to have a reasonable conversation about the value of the brand. Some years ago when I was at a hedge fund, we had a very interesting conversation about the value of a brand and whether Krispy Kreme Donuts wasa  zero. We were short the stock and made money but the question was, is Krispy Kreme a zero. This was an internationally known brand, can that really be worth zero? Had the time come to not only stop being short but to go long?

I have been shopping at an American Apparel store in Antwerp, Belgium across the street from Dries Van Noten. Will the investment community really let a brand with value just die, or will it be trading higher 2 years later after a young hedge fund heir who buys his t-shirts there acquires the company with his dad and restructures the debt;  turning American Apparel into Pacific Sun/ Zumiez/ the next Gap in the process? I am not making fun, that would be good business. Especially, if the new company offers a pension plan. The stock has traded off 20% two days in a row and is now a penny stock…maybe I’m buying at around $0.40 and saying that that is a more than reasonable risk adjusted return potential.

Photo credit: James Perkins