Scandal plagued American Apparel has warned of its imminent closure after sliding sales and mounting debts hit the fashion brand hard.

The troubled retailer, which has a past chequered by sexual harassement cases and controversial ad campaigns suffered a 17.2 per cent drop in sales for the second quarter of 2015 coupled with a 25.3 per cent fall in profit from $82.4m to $61.5m.

In a statement American Apparel chief executive Hasan Natha said that it may not have" sufficient liquidity necessary" to sustain the business over the next twelve months.

"These factors, among others, raise substantial doubt that we may be able to continue as a going concern," it read.

In an effort to plug the losses American Apparel said it plans to implement a $30m strategic turn-around plan driven by cost cutting initiatives over the next 18 months.

The L.A clothing brand has been embroiled in a bitter legal battle with founder and former chief executive Dov Charney, who was fired last December for allegedly misusing funds and spreading nude photos of three women on the internet. He is now seeking $40m compensation for sexual harassment dismissal.

It's advertising campaigns have long drawn criticism for their overtly sexual nature and were regularly blasted by ad watchdog the Advertising Standards Authority (ASA) for the risqué ads.