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Bigger Capital Delivers Second Letter To American Apparel's Board of Directors

Bigger Capital Delivers Second Letter To American Apparel's Board of Directors

States That the Board Must be Immediately Reconstituted to Replace Directors Danzinger and Mayer

Calls for Direct Representation of Minority Shareholders on the Board

NEW YORK, Nov. 14, 2014 /PRNewswire/ -- Bigger Capital Fund, LP, Bachelier, LLC and the Bigger Family, significant shareholders, collectively owning more than 2 million shares, of American Apparel, Inc. (NYSE: APP) ("American Apparel" or the "Company"), today announced that they have delivered a letter to American Apparel's Board of Directors.  The full text of the letter is included below:

November 14, 2014

Board of Directors
American Apparel, Inc.
747 Warehouse Street
Los Angeles, California 90021

Dear Members of the Board of American Apparel:

The Bigger Capital Fund, LP, Bachelier, LLC and the Bigger Family collectively own more than 2 million shares of American Apparel, Inc. (NYSE: APP) ("American Apparel" or the "Company"), which represents an ownership position significantly larger than the aggregate ownership of all members of the Company's Board of Directors (the "Board"), the CEO and the CFO.  We write to you to express our serious and growing concerns with the Company and provide the basis for our conviction that the Board must be immediately reconstituted to replace David Danzinger and Allan Mayer with direct representatives of American Apparel's minority shareholders.

In our letter to you of July 17, 2014, we demanded the immediate resignations of David Danzinger and Allan Mayer from the Board.  We did so because we believe that the lapses in judgment that led to the massive and continuing destruction of shareholder value following the abrupt ouster of the Company's former CEO Dov Charney, have discredited all the members of the prior Board.  Accordingly, Messrs. Messrs. Danzinger and Mayer must be held responsible and should not be allowed to serve as our representatives on the Board. 

We renew our call for the resignations of Messrs. Danzinger and Mayer for a number of reasons.  In the first instance, although we continue to be supportive of the replacement of five directors with three designees of Standard General L.P. and its affiliates ("Standard General") and two designees mutually agreed upon by Standard General and the Company, we are becoming increasingly concerned that the new Board, led by Co-Chairmen Danzinger and Mayer, is not as committed to protect the interests of all shareholders as we had hoped.  For example, this Board never bothered to respond to our July 17th letter or address our concerns in any form.  At a time when the Company is suffering ever widening losses, is embroiled in a much publicized investigation of its former CEO, is still absorbing changes in its senior executive team, and the stock is taking a beating, the Board has a heightened responsibility to soothe shareholder concerns and assure us that all is being done to protect our investment.  Such disregard of minority shareholders especially at this critical time is inexcusable.

We were concerned by Co-Chairman Mayer's statement in a CNBC interview that "The irony is the ally [Standard General] he [Charney] found…turned out to be our [Mayer and Danzinger] ally." We remind our representatives on the Board that their fiduciary duties are to serve the best interests of all shareholders.  In our view, this means addressing the concerns of shareholders like us.  It also means that the Board ought to provide full and fair disclosure of all material events to all shareholders.  There are a lot of questions about the state and the future of the Company and this Board has not done a good job of providing answers.

As things currently stand, American Apparel is continuing to sustain massive losses and erosion of shareholder value persists.  The Company has massively underperformed peers on a profitability basis for years.  For example, while American Apparel's Adjusted EBITDA margin is at 6%, its most comparable companies have significantly higher EBITDA margins on a trailing basis as follows:


EBITDA Margin*

American Eagle Outfitters, Inc.


The Buckle, Inc.


The Gap, Inc.


Hanesbrands Inc.


Urban Outfitters, Inc.


Zumiez Inc.


* Source: S&P Capital IQ

We believe American Apparel stock is deeply undervalued because the Company has a terrific franchise capable of generating superior EBITDA margins.  Our analysis of the underlying value of American Apparel leads us to conclude that, absent all the uncertainty and extraneous factors that have impacted the stock negatively, the Company's shares could be worth more than $2 per share.  The Company's Board and management need to take a sober look at the valuation gap and the causes for value erosion and provide an honest account to themselves and to all the Company's shareholders of the actions within their control that can unlock value. The market's negative reaction to the latest earnings release is an indication that the market has no faith that the Board as led by Co-Chairmen Danzinger and Mayer would unlock this value.

Perhaps most outrageously the Company spent $5.3 million in legal fees in connection with the ongoing investigation into alleged misconduct by Dov Charney (the "Charney Investigation").  It is of great concern that the Board and its Sustainability Committee have failed to complete the Charney Investigation to date.  The Suitability Committee was supposed to use its reasonable best efforts to conclude the investigation no later than 30 days from July 9, 2014 (subject to extensions that the Suitability Committee determines in good faith are reasonably required).  Four months later no conclusion has been communicated and shareholders remain entirely in the dark regarding the status of the investigation.  The uncertainty surrounding the investigation, the role, if any, of Dov Charney with the Company going forward, as well as the composition of the leadership team, generally, have deeply depressed the price of the Company's stock.  Every day that this Board roils in indecision and fails to provide firm answers is a day that shareholders lose money – both in the markets and as a result of the exorbitant costs associated with the investigative process.  This situation is unsustainable and unacceptable. 

The continued Charney Investigation is not only unduly expensive but is also, in our view, clearly compromised.  We had previously expressed our outrage that Co-Chairman Danzinger, who directly participated in the controversial ouster of Dov Charney was named as one of the three members of the Sustainability Committee conducting the Charney Investigation.  In short, there is undisputed evidence that Danzinger's judgment regarding this matter has been compromised and that he should not in any way be involved in what is intended to be an unbiased and fair investigation. Further, Co-Chairman Mayer has gone on record publicly stating that he will resign if Mr. Charney is proven not guilty in the investigation.  American Apparel's shareholders deserve fair and quick answers to end the uncertainty and stop the value destruction.

It is apparent to us that addressing the issues facing American Apparel requires that the following actions be immediately taken by the Board:

  1. The two directors remaining from the prior discredited Board, Messrs. Danzinger and Mayer must immediately tender their resignations.  Messrs. Danzinger and Mayer, together with their fellow directors at the time, directly caused enormous economic and reputational harm to the Company and must take responsibility.
  2. The Board must promptly invite direct representatives of the Company's minority shareholders to join the Board and fill the resulting vacancies from Messrs. Danzinger and Mayer's resignations.
  3. The Sustainability Committee must act with the utmost sense of urgency to complete the Charney Investigation without further delay.

In summary, we want to stress our conviction that at this critical time for the Company, it is imperative that the Board must conduct itself in accordance with the highest governance standards, representing fairly and vigorously the interests of allshareholders, providing transparency and full disclosure of all material events and addressing the concerns of all its shareholders.  Our expectation is that the Board will immediately engage with us to work constructively towards a solution along the lines laid out in this letter.  Should the Board disregard us again, we stand fully prepared to pursue all available courses of action that we believe necessary to protect shareholder rights and value, including seeking the election of director candidates on the Board of American Apparel.  We look forward to a productive dialogue with the Board.


Michael Bigger

Bigger Capital Fund, LP
Bachelier, LLC

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