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NEW YORK (TheStreet) -- Shares of American Apparel Inc. (APP) - Get AppLovin Corp. Class A Report are gaining by 3.77% to $1.10 in pre-market trading on Monday, following reports the apparel retailer's board received a letter from the British buyout firm Lion Capital, urging the company to explore its strategic options, including a sale, Reuters reports.

In the letter Lion Capital said it would nominate Lyndon Lea, one of the firm's founders, to American Apparel's board of directors, Lea was on the board previously, but stepped down in 2011.

Lion Capital is a former lender to American Apparel and has the right to nominate two of the company's nine board seats, Reuters added.

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The firm has warrants to acquire up to 12% of the company, Reuters noted.

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The letter is currently being reviewed by the retailer's board and asks that the board create a committee that would focus on evaluating the company's options, sources told Reuters.

Previously, Reuters had reported that Irving Place Capital has made an offer of up to $1.40 per share for American Apparel, an amount the company deemed to be much too low.

Separately, TheStreet Ratings team rates AMERICAN APPAREL INC as a Sell with a ratings score of E+. TheStreet Ratings Team has this to say about their recommendation:

"We rate AMERICAN APPAREL INC (APP) a SELL. This is based on the dominance of unfavorable investment measures, which should drive this stock to significantly underperform the majority of stocks that we rate. The company's weaknesses can be seen in multiple areas, such as its unimpressive growth in net income, weak operating cash flow, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Textiles, Apparel & Luxury Goods industry. The net income has significantly decreased by 1167.9% when compared to the same quarter one year ago, falling from -$1.51 million to -$19.18 million.
  • The share price of AMERICAN APPAREL INC has not done very well: it is down 8.63% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
  • Net operating cash flow has significantly decreased to $2.00 million or 60.58% when compared to the same quarter last year. Despite a decrease in cash flow of 60.58%, AMERICAN APPAREL INC is in line with the industry average cash flow growth rate of -61.50%.
  • AMERICAN APPAREL INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has reported a trend of declining earnings per share over the past year. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, AMERICAN APPAREL INC reported poor results of -$0.96 versus -$0.35 in the prior year. This year, the market expects an improvement in earnings (-$0.25 versus -$0.96).
  • APP, with its decline in revenue, underperformed when compared the industry average of 17.0%. Since the same quarter one year prior, revenues slightly dropped by 5.3%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
  • You can view the full analysis from the report here: APP Ratings Report

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