American Apparel has filed for bankruptcy, for the second time in 13 months with Canadian-based Gildan Activewear Inc. agreeing to acquire the company.
Gildan made the announcement on Monday morning with a letter to employees that was obtained by FORBES. The bankruptcy filing had been expected as a series of events over the last couple of weeks pointed to this outcome. Last week, American Apparel abandoned its 13 U.K. stores by hiring KPMG as administrators to wind down that operation. Inventory was no longer being shipped leaving only enough product for the holidays.
Before that, American Apparel also missed the first of two payments to unsecured creditors as required under its previous Chapter 11 plan. The missing $2.5 million in payments caused the litigation trustee to ask the bankruptcy judge in the first week of November to transfer disbursing power before the company filed for Chapter 11 protection again.
Other potential suitors besides Gildan included Authentic Brands and Sequential Brands, but the talks with Authentic Brands apparently broke down. Sequential Brands is knows for licensing products for Martha Stewart and Jessica Simpson but has never commented on acquiring American Apparel. Reuters had also suggested that investment firm B. Riley & Co. had shown an interest in the company.
Any of these companies could still step forward. Gildan noted in its letter that with the American Apparel court filing it will allow an auction process where other potential buyers could propose a better deal and submit competing offers. Gildan expressed confidence that it would be able to get the best deal done, although it noted that the auction process takes time to complete.
A key component of the deal is retaining the manufacturing in the United States and primarily in Los Angeles. This was a main differentiator of the company. In the employee letter, Gildan said it is invested in U.S. manufacturing and would keep the work in the Los Angeles area. It cited a recent acquisition of Alstyle Apparel that is also based in southern California and where Gildan has maintained operations.
American Apparel first found itself in trouble years ago as the former chief executive officer and founder Dov Charney ran afoul of the board with his unusual management style. He was swept out and replaced with Paula Schneider who oversaw the company’s emergence from bankruptcy. She resigned in September as the turnaround stalled and it looked as if the company would put itself up for sale. She is now at Delta Galil serving as the chief executive officer of the DG Premium Brands Unit.
American Apparel sales have struggled as Gen Z consumers purchase less clothing than their predecessors. The company has also struggled to move beyond its hypersexualized image, which was fashionable in the early 2000”_s, but has lost its appeal as of late.
Gildan is a decidedly unsexy apparel company known more for its basic socks and t-shirts. For example, it acquired Peds Legwear in July for $55 million. Peds makes foot apparel products and is also known for sock with medical needs. On the plus side, Gildan also makes Under Armour and New Balance socks. It reported $1.95 billion in revenue for the 2015 fiscal year. However, the stock has fallen 11% over the past year as the company has missed analyst expectations.
Dov Charney expressed interest in repurchasing the company but was rejected in those efforts. He is now starting a new apparel business and has begun posting pictures on a website called That’s Los Angeles.