American Apparel boots out founder Charney, shares rise

Thu Jun 19, 2014 3:17pm EDT

1 of 3. A woman walks past an American Apparel store in New York June 19, 2014.

Credit: Reuters/Brendan McDermid

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American Apparel ousts CEO

Thu, Jun 19 2014

(Reuters) - Clothing and accessories retailer American Apparel Inc (APP.A) ousted controversial founder Dov Charney as chairman effective immediately and moved to fire him as CEO and president following an ongoing investigation into alleged misconduct.

The company's shares rose as much as 20 percent in morning trading on Thursday.

Charney, who has been repeatedly targeted in sexual harassment lawsuits, will be terminated for cause after a contractual 30-day cure period, the Los Angeles-based company said late on Wednesday.

The company, known for its racy advertising and bright "Made-In-America" clothes, named Chief Financial Officer John Luttrell as interim CEO as it works with a search firm to look for a permanent replacement for Charney.

The retailer, which has not reported a profit in 16 of the past 17 quarters, appointed Allan Mayer and David Danziger as co-chairmen.

"We take no joy in this, but the board felt it was the right thing to do," Mayer said in a statement.

Charney, 45, who founded American Apparel's predecessor companies in 1989, has been at the helm since 2007 when the company went public.

Montreal-born Charney owned just over 27 percent of the company as of April 21.

"We believe investors will generally view this news positively, given perceived prior mismanagement and the potential for reduced future headline risk," Roth Capital Partners analysts wrote in a note to clients.

Brean Capital analysts said they believed the company remained on track, and reiterated a "buy" rating on the stock.

A spokesman for American Apparel declined to comment.

In 2011, a former employee accused Charney of keeping her as a teenage sex slave, fearing she could lose her job otherwise.

She also sued American Apparel and its directors for failing to stop Charney from acting as a "sexual predator." (reut.rs/1qudaUP)

The company, struggling with weak sales and heavy debt, said it could seek a waiver under its credit agreements that would avoid the company defaulting as a result of Charney's departure.

The company tapped restructuring advisers in February after coming close to breaching loan covenants, the Wall Street Journal reported at the time.

The company had long-term debt of about $214 million as of March 31.

American Apparel's shares, which have lost more than two-thirds of their value over the past year, were up 6.2 percent at 68 cents on the American Stock Exchange. The company has a market value of about $110 million.

(Reporting by Sampad Patnaik and Shailaja Sharma in Bangalore; Editing by Gopakumar Warrier and Maju Samuel)