American Apparel (APP) Stock Jumps Today Following Possible Takeover Deal

NEW YORK (TheStreet) -- Shares of American Apparel (APP) are up 4% to $1.04 in pre-market trade after it was reported that the company has been approached by Irving Place Capital about a possible takeover, sources told the Wall Street Journal.

Irving Place sent an expression of interest to the board of the Los Angeles retailer in the last few weeks, the sources said. The board initially rebuffed the approach because the indicative price was too low, they added, according to the Journal.

Irving Place has since increased the price range to $1.30 to $1.40 a share and the board has yet to respond to the second approach, sources said.

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The news which was first reported by the New York Post.

The takeover approach came before the board this week officially terminated the employment of founder Dov Charney, who was suspended as president and CEO by the board in June for alleged misconduct. Paula Schneider was named to succeed him as CEO, the Journal noted.

American Apparel has struggled with falling sales and swelling losses. In the three months through Sept. 30, the company lost $19.2 million, compared with a loss of $1.5 million a year earlier. Sales fell 5% to $156 million from a year earlier.

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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