American Apparel Has Finally Had Enough, and It's About Time

All investors can ask the board of directors of American Apparel (NYSEMKT: APP  ) is: What took you so long? After years of controversy and lawsuits, the board of the quirky clothing retailer finally fired its CEO.

Even while proudly proclaiming the company's clothes were made in U.S. garment factories, founder and CEO Dov Charney was a lightning rod for controversy, first with advertising that pushed the bounds of decency and then later with allegations -- and lawsuits -- charging sexual harassment.

There were also episodes of financial shenanigans, including firing Deloitte after the accounting firm uncovered information that it said, if further investigated, might have materially affected the reliability of its previously filed financial statements. American Apparel also faced a lawsuit by another former accountant and installed a revolving door in the CFO's office, one occupant of which Charney publicly called "a loser" without credibility in the industry -- while he was still working for the company! American Apparel was also forced to fire 1,800 factory workers, more than a quarter of its workforce at the time, because they were in the country without legal permission.

It would be an understatement to say the retailer was in turmoil. Even so, the board said in its announcement the firing wasn't a happy decision to make, but necessary. Ya think?

The termination will occur after a 30-day "cure period," the length of time necessary to theoretically give Charney the opportunity to "cure" his firing offense. The board did not specify the cause of the termination, only saying it was "for cause" based on "alleged misconduct." As a result, American Apparel will likely only have to pay Charney whatever he has earned to the date of termination, unlike executives who are fired without cause and subsequently renegotiate their pay packages to feature all sorts of gifts, bonuses, and rewards, whether they were earned or not.

American Apparel's board said it conducted an internal investigation based on new information, then voted unanimously to terminate Charney. The board said it couldn't simply respond to rumor and innuendo by firing Charney before now, which ought to leave investors wondering what was so horrendous this time around that tipped the scales in favor of action. 

CEOs with loose lips (let alone fast hands) have long created headaches for companies. Abercrombie & Fitch's top exec, for example, alienated whole swaths of potential customers by essentially saying chubby kids and dweebs need not shop at his stores. Scotts Miracle-Gro saw its CEO abruptly resign for some apparent salty language directed toward the board of directors, while tire maker Titan International nearly created an international incident when its CEO told a French minister to go pound salt when the company was approached to take over Goodyear's French factories. After insulting French workers as being lazy, he asked, "How stupid do you think we are?"

Whatever the reason, even with the bounce American Apparel is getting from this news, the stock still trades for less than a dollar. The company squandered nearly all the value it once held, so investors can only say, "It's about time!"

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Rich Duprey

Rich has been a Fool since 1998 and writing for the site since 2004. After 20 years of patrolling the mean streets of suburbia, he hung up his badge and gun to take up a pen full time.

Having made the streets safe for Truth, Justice and Krispy Kreme donuts, he now patrols the markets looking for companies he can lock up as long-term holdings in a portfolio. So follow me on Facebook and Twitter for the most important industry news in retail and consumer products and other great stories.


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9/3/2015 4:00 PM
APP $0.18 Down +0.00 -1.15%
American Apparel CAPS Rating: *