American Apparel Inc. warned Tuesday it needs to raise money or refinance debt to avoid defaulting on a loan, adding it will miss a regulatory deadline to file its June quarter financial results.

The Wall Street Journal reported the financial negotiations last month when the retailer said it intended to close several stores as part of an aggressive cost-cutting plan.

American Apparel has posted losses for the past five years and has been caught in a legal tussle with its former chief executive, Dov Charney, who was terminated in December following allegations of misconduct and violating company policy.

The retailer, which last year also delayed its second-quarter filings amid negotiations with its lenders, said it had identified potential violations of certain minimum financial ratios under its Capital One credit line as part of a customary review.

It estimated that as of June 30, it had $7 million in cash and $6 million left in its Capital One credit line.

Meanwhile, the retailer said its second-quarter loss widened to $19 million, or 11 cents a share, compared with $16 million, or nine cents a share, a year earlier.

Loss from operations was $13 million, compared with a year-earlier profit of $3 million.

Net sales fell about 17% to $134 million while sales at established stores fell 14% adjusting for currency fluctuations.

Gross profit narrowed to 46% from 51%, the retailer said.

Write to Maria Armental at maria.armental@wsj.com

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