Retail

American Apparel Shares Rally 20%

Clothes on hangers
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When founder and now former CEO of American Apparel Inc. (NYSE: APP) Dov Charney was fired last week, shares of the company’s stock reacted positively to the news. Then earlier this week Charney said he would sue to get his job back and the shares fell. Now, the still Charney-less company says it has hired an advisory firm to help it decide how to raise cash now that Charney is gone. And shares are up again.

What seems to be the cause behind Wednesday’s share price rise is the simple fact that the company’s board of directors has apparently demonstrated that it believes it is on solid footing in firing Charney and they are now going to proceed as if he and his threatened lawsuit don’t exist. What else could it be?

Shareholders almost always react badly when a company hires a firm to help it raise more cash. That inevitably means that existing shareholders will see their stakes in the company diluted.

In the case of American Apparel, how much worse could it get? The stock closed at $0.53 Tuesday and opened at $0.54 Wednesday. Anything the company does that could help it survive is good news: getting rid of Charney, filing for a secondary offering, issuing bonds (if it can find buyers), anything.

The blush of promise may not last very long, however, unless American Apparel can come up with a way to inject some new fire into a brand that has lost its place in the hearts of the fashion-conscious hipsters. The company may need a vision even more than it needs cash.

For now, though, the stock price was up more than 20% late morning Wednesday, at $0.64 in a 52-week range of $0.46 to $2.09.

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