Back in December, I wrote about American Apparel (AMEX: APP), which had recently gone public through special purpose acquisition vehicle, and its CEO's checkered reputation -- sexual harassment lawsuits, masturbating in front of a reporter, etc. etc. etc. The stock has taken a beating since then.
This weekend's Wall Street Journal has a lengthy profile of American Apparel and CEO Dov Charney, and it just gets juicier. In an interview, he referred to his company's CFO, Ken Cieply, as a "complete loser," which is pretty ambitious.
The freak show stuff aside, there are some fundamentals-related issues dogging the company as well: the company's former insurer has said it won't cover the sexual harassment lawsuits, "inadequate expertise in the application of U.S. generally accepted accounting principles," a history of accounting woes, an Immigration and Customs Enforcement inquiry seeking citizenship documentation related to its workers, a government tax audit, and a substantial debt load. If you have a lot of time on your hands, flip through the risk factors disclosed in the latest 10-K.
All of these problems have attracted the attention of short sellers, but investors have to wonder whether the company's strong sales and operating momentum are enough to overcome them. The company reported 28.7% same-store sales growth for March, a feat especially impressive given the current consumer climate. If American Apparel can continue to grow profitably, none of these issues really matter. In fact, concern over the CEO's eccentricity may actually be creating a buying opportunity.
My concern is that the company's products just aren't that unique and that success will breed increased competition, the death knell of many a fast-growing fashion company. The fact that the company doesn't slap its logo on the front of T-shirts could make the company's vulnerable to companies who can produce clothing with a similar fit at lower prices. The high wages Mr. Charney doles out and his resistance to outsourcing may also put the company at a competitive disadvantage.
That -- not the CEO's erratic behavior that has so far led to tremendous growth -- is what I would be worrying about.
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Reader Comments (Page 1 of 1)
4-12-2008 @ 8:09PM
User said...
This company is a complete joke and their CEO is a complete psychopath. Someone arrest that freak of nature and deport him... Anything.
4-12-2008 @ 8:09PM
Cap'n said...
"The high wages Mr. Charney doles out and his resistance to outsourcing may also put the company at a competitive disadvantage."
That statement is just what is wrong with this country. Those two items are reason alone to shop there!
4-12-2008 @ 10:59PM
dummy said...
Yeah arrest someone because he's a psychopath.... wtf!?
4-13-2008 @ 1:33AM
dummy said...
"his resistance to outsourcing may also put the company at a competitive disadvantage"
That's the reason this company exist in the first place.
And yeah throw people in jail because he's a "psychopath".
You people are hilarious.
4-13-2008 @ 8:59AM
Will Ashworth said...
The fact that American Apparel chooses to pay its LA-based t-shirt makers a living wage is commendable. Yes, the man is different. But, his business has thrived despite the fact he already has major competition from Gildan (NYSE:GIL). It's about time North America started figuring out it's better to produce closer to home, saving lead time on product production, not to mention shipping costs, etc.
It's trendy right now to knock Mr. Charney and he'd probably be the first to admit he brings this stuff on himself. At the end of the day, his company does more for our country than most.
4-13-2008 @ 12:41PM
User said...
Dummy,
I thought it was obvious I was being sarcastic. Even if I wasn't, it should be clear that he wouldn't be arrested because he's a "psychopath," but rather because he's a sex offender.
And I completely disagree with the poster before me. However, I do believe that Mr. Charney is a psychopath and by having him employed as CEO, AA is making a complete joke of themselves.
In other words: The business model is not only fine, but worthy of praise. The CEO is a sex offender and should be arrested. I have known about AA for a long time, and I've known about their CEO for almost as long. He is the precise reason why I do not purchase their products.
4-24-2008 @ 11:41AM
CT Moore said...
If American Apparel continues to grow despite unconventional practices, I think that any potential competitors that attracted into the plain-T retail market will have trouble competing with AA. I believe that a huge component to AA's persistent growth despite its management style is the culture that it sells along with its product.
Indeed, that culture itself regularly encounters scrutiny and outage; just look at the attention their ads receive. Nevertheless, AA's marketing machine has demonstrated a talent for lifestyle-based marketing that, as Apple and Steve Jobs has shown, can secure you longtail growth despite its eccentric management and more cost effective competitors.