American Apparel (APP) Stock Rallies Today After Ousting Founder Dov Charney

NEW YORK (TheStreet) -- Shares of American Apparel (APP)  are soaring, up 15.52% to $0.67 in pre-market trading on Wednesday, after the company fired controversial former CEO and founder Dov Charney yesterday, six months after he was ousted as head of the company.

Since then, Charney had been kept on as a paid consultant and remained active at the company, Bloomberg reports.

However, more than 30 executives asked the board to reconsider their decision to terminate Charney's employment, according to Bloomberg.

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As American Apparel's largest shareholder, Charney said that he expects to have a "strong relationship" with the company in the coming years, Bloomberg added.

Los Angeles-based American Apparel is a vertically integrated manufacturer, distributor, and retailer of branded fashions basic apparel and accessories for women, men, children and babies. 

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.
  • Net operating cash flow has significantly decreased to $2.00 million or 60.58% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 51.31%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 1000.00% compared to the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
  • 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 16.4%. 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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