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American Apparel: Update On Continuing Saga

Thursday, 19 Jun 2008 | 11:10 AM ET
Oliver Quilla for CNBC.com

The hardest working legal team in retail is working away at the growing clothing store. As Dov Charney’s personal team winds up its appeal of the latest sexual harassment case against him, there has been a fairly-major reshuffling of the management team that has left Chief Financial Officer Ken Cieply on a job hunt.

Back in May, Chief Financial Officer Ken Cieply resigned from American Apparel. He is now considering other opportunities in Los Angeles and his native Montreal. Cieply left just over a week after the company reported first quarter earnings and two months after the Wall Street Journal reported the verbal slams that CEO Dov Charney delivered against him during an interview.

(According to reporter Nicholas Casey of the WSJ, Charney called Cieply a “complete loser” and said that the company needed someone who had more retail experience. Charney later recanted the comments through lawyers.)

The former CFO wouldn’t share the reasons for his departure. He said only that “the time was right” for him to leave and emphasized the fact that he was the executive responsible for taking APP public. In the meantime, American Apparel named William Gochnauer as the interim CFO. It will be interesting to see where Cieply resurfaces.

Right now, Cieply isn’t sharing the apparel company’s dirty laundry. The fact that he wasn’t on the May 13th conference call with analysts also left investors without answers to their financial questions. According to the WSJ’s Nicholas Casey – “Before a conference call with analysts May 13 to discuss first-quarter results, a company representative apologized for not being able to release financial information in advance.

During the call, Mr. Charney said first-quarter sales were at $111.6 million, up 52% from the previous year's quarter. But analysts had questions about the results that neither he nor anyone else was able to answer. Mr. Cieply wasn't present.”

Whenever questions about Dov Charney’s personal shenanigans arise, he downplays their importance and points to the company’s growth as proof of his leadership and business strength. Apparently, that doesn’t extend to knowledge of the financial details of the company’s growth story.

To be fair, the company is an amazing growth story with sales up 27% during the month of April and up 24% in May. Net income fell to $1.1M from $1.68M a year earlier but that was attributed to acquisition costs. While APP shares have tumbled of late along with the rest of retail, American Apparel recently announced a twenty-five million dollar stock buyback that has helped to boost the share price. Lazard analyst Todd Slater also gave shares a boost after reporting his view that the company has the strongest sales trends in the industry. Slater has a buy rating and a $17 price target on APP.

In the meantime, Charney’s own personal fight against the latest sexual harassment case against him continues in the LA Appellate court. His defense has the option of giving oral presentations to supplement their case on July 8th. A legal decision typically comes within two weeks or so of that final presentation.

Questions? Comments? retaildetail@cnbc.com

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