American Apparel was one of our 10 Stocks Unlikely to Survive 2012, and it’s not out of the woods yet. The company has $8 million in cash and $91 million in long-term debt. Operating cash flow is negative in each of the last four quarters. But getting the SEC out of its hair with no more damage can’t help but raise shareholders hopes.

The list includes the following still-public stocks: Alimera Sciences, Inc. (NASDAQ: ALIM); AMR Corporation (NYSE: AMR); American Apparel, Inc. (AMEX: APP); Eastman Kodak Co. (NYSE: EK); Energy Conversion Devices, Inc. (NASDAQ: ENER); FriendFinder Networks, Inc. (NASDAQ: FFN); Nortel Networks Corp. (NRTLQ); Pinnacle Airlines Corp. (NASDAQ: PNCL); Reddy Ice Holdings, Inc. (RDDY); YRC Worldwide Inc. (NASDAQ: YRCWD). 

Almost all of these have either had a form of bankruptcy or reorganization, while others have been in the rumor mill for quite some time.  We included a write-up on each, and have even have gone as far as discussing some caveats which could help some of these stocks to survive. There is even a chance that a couple of these could end up being major turnaround stocks.

Alimera Sciences, Inc. (NASDAQ: ALIM) saw a share price implosion take place in November after the FDA all but rejected its eye drug.  We covered this one at BioHealthInvestor with a near 75% drop on the news after being public less than two years.  Shares fell to $1.96 with a $61 million market cap and shares are now at $1.30 with a $41 million market cap.  The good news is that it has no debt overhang and it may be able to scrap operating costs down to nothing.  Still, we cannot see how it can fund itself through another set of trials.  Mathematically it is more than financially challenged, even if the company manages to hang on as a NASDAQ listing.

AMR Corporation (NYSE: AMR) is effectively done already.  We had been expecting an NYSE delisting notice to come for a while, even though there was a time even in the last week of the year where shares gapped up big and traded as though there may be some intrinsic post-bankruptcy value left for common shareholders.  That would not be the normal post-bankruptcy value.  While anything is possible, this one will move to the pink sheets and will trade around with a 5-ticker symbol for a while.

American Apparel, Inc. (AMEX: APP) has so far managed to avoid being delisted and so far managed to avoid a bankruptcy through a shaky history.  Still, things have been sketchy here for so long that even a near-40% jump in shares from $0.57 to $0.75 since its early December business update showed improving store sales metrics.  This company has managed to survive on less than $10 million in cash but still has a net tangible value of $56 million despite a loss in 2010 of $86 million.  Here is the caveat” American Apparel has managed to exist in this diminished state for some time and its controversial CEO has managed to hang on.  Maybe the company can pull a rabbit out of a hat and turnaround.  American Apparel often notes “going concern” as a risk under its safe harbor statements in press releases.

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Eastman Kodak Co. (NYSE: EK) has done everything wrong and had everything go wrong that could go wrong.  Antonio Perez has been on our list of CEOs that need to be fired for years now and the company has stuck its head in the sand for far too long.  The bankruptcy rumors have swirled for long enough.  The real value left in the company is in the patents, but the company has not been able to make its patent machine turn into a survival machine.  The KKR board members have also resigned and that could be a sign that the private equity firm will try to force a move here so it can secure whatever value is left. At the end of September when we polled our readers, the poll response was that Kodak was more likely to go bankrupt than Greece.  Ouch.

What these companies can do to turn around differs greatly.  Each apparel retailer is a unique situation.  They are also effectively new companies as far as the public is concerned about three times a year on average.

Aeropostale, Inc. (NYSE: ARO) is just stuck in the mud, or maybe in quicksand.  The former flying-high retailer has lost its cool and trends keep going south here.  We thought this was looking a bit busted months ago when it was still well above $20 and now shares have been flirting with $11.00.  What this teen apparel retailer can do to get back the cool is hard to predict.  Maybe they need the next teen star endorsement.  This is the strongest of our weakest retail/apparel names today.  At $11.30 the market cap is over $900 million still even with a 52-week range of $10.34 to $27.73.  The company is also expected to keep making money, but with no growth and with no outside enthusiasm.  This one has also not loaded itself with long-term debt, but that is about the only good thing to say right now.

American Apparel, Inc. (AMEX: APP) is in limbo.  The company that was supposed to be ‘the next Gap’ just imploded, management scandal, financial woes, and other irregularities just have this one down and out.  Shares have stayed under $1.00 and it is not even a situation here where a stock market recovery is assured to even bring up any support.  Can Ron Burkle fix this situation?  At $0.91, the market cap is $94 million or so and the 52-week range is $0.66 to $1.90.  American Apparel has almost zero following by Wall Street, but let’s just say that finances have not been pleasant here and the moves by outside holders do not imply that shareholders will be treated well.

Coldwater Creek Inc. (NASDAQ: CWTR) has almost been forgotten about and we won’t publish our nickname for this one.  Being the Chico’s-wannabe has done little to drive the company.  SHares began their slide before the recession and the long-term chart just looks like a staircase straight down.  At $1.02, the market cap is $93.5 million and the 52-week range is $0.82 to $5.89.  This one was supposed to be an e-commerce and online winner, but it turns out that this was not the case.  The company is also expected to lose money in 2011 and in 2012.

Liz Claiborne Inc. (NYSE: LIZ) has lost much of its cool and even the Lucky brand has not come to its rescue as many hoped and its flagship brands have not really helped turn the ship either.  AT $4.31, the 52-week range is $4.02 to $7.90.  Liz got crushed going into the recession and this was above $40 in 2007.  Shares are higher than in early 2009, but to say this has foundered would be an understatement.  The market cap is over $400 million and the company has too much debt and not enough liquidity for safety.  Analysts are expecting -$0.55 EPS in 2011 and are looking for $0.20 EPS in 2012.

Pacific Sunwear of California Inc. (NASDAQ: PSUN) has been a shell of its former glory since the peak of the recession.  The performance today after a disappointing back to school season and after having missed prior targets in weeks and months earlier are becoming par for the course.  At $1.47 now, shares hit a 2-year low of $1.26 today.  The balance sheet is going to be a concern if Pac-Sun keeps missing the mark here.  The market cap is just under $100 million here and we are not endorsing anything positive to say at this point with another 30%+ drop on Wednesday.

The Talbots Inc. (NYSE: TLB) is in such a strange place that you have to scratch your head.  The upscale womens apparel retailer has faltered at each time it has tried to turn around.  Shares are now close to where they were at the peak selling of the late 2008 to early 2009 recession.  So much for that would be merger helping it out.  It seems nothing is working here.  Even at $2.78 it has a market cap of almost $200 million and the 52-week range is $2.33 to $13.43.  The one thing that may help is that expectations are so low and there still seems to be some hope for a turnaround next year that gets it closer to break-even again.  Liquidity remains a concern for us longer-term.

What makes apparel/retail so interesting is that the consumer can turn on a company extremely fast.  Every one of these companies was formerly something much greater.  But when those same-store sales turn south as customers go look elsewhere for the next cool, look out.

The good news is that the extreme cyclical and seasonal trends can also work for any of these companies.  One great ad campaign and one great product cycle, and any apparel retailer can be cool all over again.

Unfortunately, these companies and stocks are all in the dog house.  Some more than others.  These all share one thing in common: it will take far more than a stock market recovery to turn these companies around and to save their shareholders.

JON C. OGG

According to The New York Post, “Burkle and his investing partner are looking to take over a $75 million credit line, currently provided by Bank of America.”

The rumor is probably not true, because Burkle is not that dumb. American Apparel trades at $.90 down from a 52-week high of $1.90. The firm was on the brink of bankruptcy earlier this year. American Apparel has also received notice from the NYSE Amex Exchange that it is not within listing requirements.

On the positive side, perhaps, American Apparel said it would set up an online store with Ebay (NASDAQ: EBAY). It is impossible to say what this is worth.

American Apparel’s stock has remained below $1 for much of the last three months. No amount of news which might be perceived as good has pushed shares permanently higher.

The company lost $213,000 on revenue of $132.8 million in the second quarter.

Ron Burkle is not looking at American Apparel. He is not that stupid.

Douglas A. McIntyre

American Apparel announced right after the market close that it has received a letter from the NYSE Amex LLC related to the composition of the company’s audit committee and board of directors.

The letter shows that the company is not in compliance requirements that the Audit Committee consist of at least three members.  It also noted that the board of directors has “a structure which is not in compliance with Section 802(d) of the Company Guide, which the Exchange interprets as requiring that classes of a classified board be of approximately equal size and that a majority of directors be elected every two years.”

The company noted that resignations of certain directors as previously disclosed, its audit committee currently consists of two members instead of three members.  That also has its board of directors consisting of only three Class A directors, one Class B director, and two Class C directors.  This leaves two Class B vacancies reserved for the designees of Lion/Hollywood LLC and one Class C vacancy.

This letter gives American Apparel time either to its next annual meeting of stockholders or July 1, 2012 to regain compliance with listing standards.

American Apparel did announce that it intends to fill the vacancy on the Audit Committee and that it plans to realign its board of directors to fall within listing standards before the first date.  Our question is simple… CAN American Apparel find those independent directors?

This company is far from being without risk.  The company has had enough trouble and bad press that getting able-bodied members might not be as easy as it thinks.

Shares closed up almost 5% today at $1.13 and the 52-week trading range is $0.66 to $1.90.

JON C. OGG

Last Wednesday, we said that American Apparel, Sears, Saab and MySpace were among the brands that would not be around in 2012.  Our prognostications are already panning out.

One day after disappearing brands was published, Saab announced it could not meet June payroll.  The same day, it was reported that American Apparel’s controversial CEO, Dov Charney, failed to show for the company’s annual meeting of shareholders.  American Apparel later announced that it was replacing a third of its board.  Also on Thursday, Sears announced it was spinning off Orchard Supply Hardware Stores because, according to the company, there are “financial, operational and managerial benefits to both.”  Break ups of brands are sometimes what companies do when they face trouble.

And yesterday, exactly one week after we published our list of disappearing brands, MySpace was sold for $35 million. It has not been announced whether the new owner will retain the name.

As far as predictions go, 24/7 Wall St. is off to a good start.

- 24/7 Wall St.

Each year, 24/7 Wall St. regularly compiles a list of brands that are going to disappear in the near-term.  Last year’s list proved to be prescient in many instances, predicting the demise of T-Mobile among others. In late May, AT&T (NYSE:T) and Deutsch Telekom announced that AT&T would buy T-Mobile USA for $39 billion. The deal would add 34 million customers to the company and create the country’s largest wireless operator.

• Read the Ten Brands that Will Disappear in 2012

Other 201o nominees – including Blockbuster – bit the dust, while companies, such as Dollar Thrifty are on the road to oblivion. Last September, after finally giving in to competition from Netflix and buckling under nearly $1 billion in debt, Blockbuster filed for  Chapter 11 bankruptcy protection. In April of this year, Dish Network acquired the company for $320 million. Car rental chain Dollar Thrifty is still entertaining buyout offers from Avis and Hertz.  On June 6, the embattled company recommended that its  shareholders not accept Hertz’s recent offer, valued at $2.24 billion, or $72 a share.  Meanwhile, on June 13th, Avis Budget announced that “it had made progress in its discussion with the Federal Trade Commission  regarding its potential acquisition” of the company. Although Dollar Thrifty can remain choosy, a sale is a matter of when, not if.

We also missed the mark on a few companies.  Notably, Kia, Moody’s, BP, and Zales appear to be doing better than we expected.

Brands that have stood the test of time for decades are falling by the wayside at an alarming rate.  For instance, Pontiac – a major car brand since 1926 – is gone, shut down by a struggling GM. Blockbuster is in the process of dismantling, after it once controlled the VHS and DVD markets. House & Garden folded after 106 years. It succumbed to the advertising downturn, a lot of competition, and the cost of paper and postage. Its demise echoed the 1972 shutdown of what is probably the most famous magazine in history–Life. That was a long time ago, but it serves to demonstrate that no brand is too big to fail if it is overwhelmed by competition, new inventions, costs, or poor management.

This year’s list of The Ten Brands That Will Disappear takes a methodical approach in deciding which brands will walk the plank.  The major criteria were as follows: (1) a rapid fall-off in sales and steep losses; (2) disclosures by the parent of the brand that it might go out of business; (3) rapidly rising costs that are extremely unlikely to be recouped through higher prices; (4) companies which are sold; (5) companies that go into bankruptcy; (6) firms that have lost the great majority of their customers; or (7) operations with rapidly withering market share. Each of the ten brands on the list suffer from one or more of these problems. Each of the ten will be gone, based on our definitions, within 18 months.

The company (AMEX: AAP) raised $14.9 million through a sale of shares on April 25 to save itself from what was a likely bankruptcy. The shares were sold at a 43% discount to the market value at that time. The lead investors were Canadian financier Michael Serruya and Delavaco Capital.

Investors have sold off the stock since the arrangement was announced. The shares spiked up to $1.58 on the deal news. Shares are now under $1 – it’s dropped 6% today. Wall St. either thinks that the terms of the financing were unfavorable or that American Apparel will get into financial trouble again. Some investors may believe both. The firm’s auditor for the period which included the latest 10-K, Marcum, said in its audit letter that “the Company has minimal availability for additional borrowings from its existing credit facilities, which could result in the Company not having sufficient liquidity or minimum cash levels to operate its business. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.”

On May 10, the firm released results for its quarter which ended on March 31, 2011. Revenue fell from $121.8 million in the 2010 period to $116.1 million this year. American Apparel lost $20.7 million compared to $42.8 million loss in the same period last year. The company said same-store sales dropped 7.9% for the period. American Apparel ended the quarter with 258 stores, a reduction of 15 stores in the first quarter.

Same store sales are not American Apparel’s only problem. The high price of cotton has and will almost certain hurt margins.

American Apparel competes with several larger and more well-financed retailers. These include Abercrombie & Fitch (NYSE: ANF), American Eagle Outfitters (NYSE: AOE), and Urban Outfitters (NASDAQ: URBN). Wall St. does not like any of these operations now. Most sell at or near 52-week lows. American Eagle may close 100 of its stores soon to offset slow sales and increased costs. It has 929 locations.

The headwinds which face clothing retailers are growing. Unemployment levels in the US are no longer improving. The rising price of gas has damaged consumer spending and probably hurt traffic to malls and stores. High commodities prices currently drive the prices people must pay for clothing higher.

American Apparel needs to review its store portfolio and close the 20% that have the poorest performance. Investors would finally have something to cheer about.

Douglas A. McIntyre

CEO Dov Charney has reportedly been fighting a sex slave case and a sexual harassment case and PEHub notes that this ownership is now 54% to 60% of the company.  One issue brought up is whether or not Charney would get to stay with the company.  If you have witnessed the stock performance the answer is ‘likely not.”

There is another thought here that goes above and beyond what Lion Capital’s creditor position and beyond the possible bankruptcy talk.  The question which was not asked is if there is any real value here at all remaining in American Capital.  Is there any value?

Having a dominant majority ownership with a CEO in legal trouble while rumors of a possible bankruptcy is no joking matter.  At $0.84 this morning, the 52-week trading range is $0.66 to $3.62 and its market cap has fallen to under $64 million.  The company is choking in debt and is losing money.  Sales have not really gone anywhere and that rise cotton prices is doing the company no favors.

At one point it looked as though this company might end up being what Gap was from the 1980s to 1990s.  American Apparel had a chance of being one of the great SPAC success stories as the alternative IPO model.  That was not to be.

We do not want to circle the wagons with any immediate bankruptcy talk, particularly since PEHub has noted that discussion have been held with one potential buyer.  What we would point out is that creditors rather than shareholders end up owning a company if there is anything left after a bankruptcy filing.  A buyer might be able to step in to save the day, but the risk in acquiring this today is that existing shareholders get to vote (and can sue) even if they do not have a majority voting stake.  Many holders have already lost large amounts of money and some might fight against a merger to the bitter end. 

This is one of those cases where making an offer could just drive up the price yet still not save the company.  Buying the assets out of bankruptcy court in a deal worked out with creditors might be far easier than trying to save the company today. 

We’ll see if a buyer surfaces or not.  Stranger things have happened.

JON C. OGG