American Apparel Chief Executive Dov Charney’s highly sexualized lifestyle has cost him the company he created — and may close it.
American Apparel (APP) outed its founder Dov Charney as chairman effective immediately and looking to fire him as CEO and president following the ongoing investigation into alleged misconduct.
The retailer suspended Charney on Wednesday pending “an ongoing investigation into alleged misconduct,” American Apparel said in a statement. A source familiar with the matter characterized the behavior as poor judgment and questionable conduct with women.
Charney, who has been repeatedly targeted in sexual harassment lawsuits, will be terminated for cause after a contractual 30-day cure period, the Los Angeles-based company said in a statement late on Wednesday.
The company, known for their provocative advertising and bright “Made-In-America” clothes, said it named CFO John Luttrell as interim chief executive as it works with a search firm to look for a permanent CEO. The company also appointed Allan Mayer and David Danziger as co-chairmen.
In 2011, a former employee had accused Charney of keeping her as a teenage sex slave, amid fear she might otherwise lose her job. She also sued American Apparel and its directors for failing to stop Charney from acting as a “sexual predator.”
The company, which is struggling with weak sales and heavy debt, said the management changes may have triggered a default under its credit agreements, adding that it will be in discussions with its lenders for a waiver of the default.
In 2013, American Apparel reported a net loss of $106.3 million, compared with a loss of $37.3 million in 2012. Facing a cash shortfall, the retailer in March sold $28.6 million of stock to meet debt payments.
The Charney termination could trigger defaults under credit agreements with Lion/Hollywood and Capital One Business Credit Corp.
As of March 31, American Apparel owed Lion/Hollywood $9.9 million, a loan that matures in 2018, according to filings.
American Apparel filed documents with the Securities and Exchange Commission saying that ousting Charney from the Los Angeles retailer’s top slot could trigger defaults on nearly $40 million in outstanding loans and force the company into bankruptcy.
In February the company had tapped restructuring advisers after it had reached $240 million in debt and had come close to breaching loan covenants, debt terms designed to protect its lenders, according a media report.
The company’s shares, which have lost more than two-thirds of their value over the past year, closed at 64 cents on the American Stock Exchange on Wednesday.
Private equity firms could start circling soon, analysts said. The company also may face lawsuits from creditors and shareholders who worry that Charney’s departure may hurt the company.
