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American Apparel CEO: Tattered, but Not Torn

Tuesday, 10 Apr 2012 | 4:34 PM ET
Dov Charney, chairman and chief executive officer of American Apparel Inc.
Keith Bedford | Bloomberg | Getty Images
Dov Charney, chairman and chief executive officer of American Apparel Inc.

American Apparelhas gone through the ringer like a worn out T-shirt. However, its controversial CEO says that not only his clothing, but his business model, will be more durable than anything made in China.

"Made in the USA can be, and probably will become, the least expensive option," says Dov Charney. "Transportation costs are going to go up. The cost of doing business in China will go up."

Charney talked to CNBC in his first business interview in years. This as the company's losses narrow, and preliminary sales numbers for March show 15 percent growth, with comparable store sales jumping 21 percent.

Last month, American Apparel got an $80 million line of credit from George Soros-backed Crystal Financial, which Charney calls transitional funding. The loan, plus the extension of a second line of credit, allowed the company to remove language from regulatory filings about the possibility of remaining a going concern, though the CEO admits he's paying 14 percent interest on the financing.

American Apparel CEO Speaks
One year ago, American Apparel was warning of a possible bankruptcy and facing a new round of sexual harassment allegations against its CEO. Have things changed? CNBC's Jane Wells spoke with Dov Charney, the company's CEO, to find out.

Still, "We're optimizing and perfecting the business model," Charney says. "We have a long way to go. EBITDA margins we think we can compete and do better than the competition."

The company’s latest compensation filing shows the CEO received $10 million in stock last year.

Charney took CNBC on a tour of his seven-story facility in Los Angeles' warehouse district. Charney moved there because he said it was the last place in America where clothing was being manufactured on a mass scale, thanks to the Korean immigrant community there. Six thousand people work in the building, and Charney says some sewers can make more than $100 a day, depending on how productive they are.

American Apparel's Charney on Business Model
American Apparel CEO Dov Charney says his business model -- making clothes in the U.S. -- will eventually be more affordable than importing clothing from China.

American Apparel boasts 55,000 different products, turning out a million pieces a week. The company controls every aspect of the process from knitting to marketing.

However, the company is still recovering from an immigration investigation in 2009, which led to a $38,000 fine and the dismissal of 2,000 workers who did not have proper documentation. "It was devastating to the business," Charney says. "We have a broken immigration system in the United States."

The company is also trying to recover from a litany of lawsuits against Charney, including a sex slave lawsuit that was thrown out last month because it was already in arbitration in California, and allegations that he sexually harassed female employees.

"That's also a testimony to my success," says Charney, "that I'm the target of baseless lawsuits."

When pressed about whether all of the women are lying, he replied: "I'm not going to go through thousands of pages, but the allegations that I acted improperly at any time are completely a fiction."

American Apparel CEO Charney on Harassment Allegations
American Apparel CEO Dov Charney claims all accusations and lawsuits of sexual harassment are baseless. He also looks at parallels between Steve Jobs and himself.

Charney says the board has never asked him to leave, though two board members resigned last year.

"I know what I'm doing, and in my generation, I'm one of the only people that knows this business right now." As for suggestions that occasionally his behavior is, at best, weird, Charney paused before replying, "I like weird."

Watch the video for more of our exclusive interview with Charney. In one clip, he explains why he thinks the company will not only survive, but prosper. In the second, he answers questions about his behavior, the lawsuits, Steve Jobs, and Hugh Hefner.

Questions? Comments? Email us at consumernation@cnbc.com. Follow Christina Cheddar Berk on Twitter @ccheddarberk.

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