David Carrig and Gary Strauss

USA TODAY

American Apparel gained 7% Thursday following the ouster of Dov Charney, the specialty retailer's controversial CEO and founder.

Charney, 45, has been the target of several lawsuits alleging inappropriate sexual conduct with female employees. He has acknowledged having sexual relationships with workers, but said they were consensual.

In a statement released after Wednesday's annual shareholder meeting, board director Allan Mayer said the decision to replace Charney "grew out of an ongoing investigation into alleged misconduct."

"The board felt it was the right thing to do," Mayer said in a statement. "Dov Charney created American Apparel, but the company has grown much larger than any one individual and we are confident that its greatest days are still ahead."

Charney, who holds a 27% stake in the company, could not be reached for comment.

CFO John Luttrell will be interim CEO. Luttrell, who joined the company in 2011, is the former CFO at Wet Seal and Gap's Old Navy division. Mayer and director David Danziger and were also appointed as board co-chairmen. Mayer, a board member since 2007, is an executive at public relations firm 42 West. Danzinger, who joined the board in 2011, is an accountant.

Shares were up as much as 22% in pre-market trading, but finished up 4 cents to 68 cents. The stock is off 67% its 52-week high and more than 95% below its all-time, July 2007 peak of about $27.

Born in Montreal, Charney started American Apparel while a student at Tufts University. He moved the company to Los Angeles in 1997. He took a sharp cut in compensation last year, receiving compensation valued at about $1 million, down from $14.5 million in 2012 and $11.6 million in 2011, according to company proxy filings.

If Charney had resigned before 2014, he would have been entitled to salary and bonuses worth $6.24 million. But if terminated for "cause,'' Charney is not entitled to compensation.

In an interview with NPR's Marketplace earlier this year, Charney told host Kai Ryssdal that his biggest weakness is himself, saying "I'm my own worst enemy."

He also acknowledged his knack for pushing boundaries, such as with his company's controversial billboards and advertisements that often portray very sexual images.

American Apparel has 249 retail stores in 20 countries and about 10,000 employees. For its latest quarter, sales were off about 1% to $137 million, while losses narrowed to 5 cents a share from 42 cents a share in the year-ago quarter

American said management changes may trigger a default under its credit agreements and that it will talk with lenders for a waiver.

"The company has been floundering, riddled with debt and is continuously saddled with the embarrassing antics of Charney,'' notes Jerry Reisman, a corporate lawyer Reisman Peirez, Reisman and Capobianco. "Hopefully, new management will have the time and opportunity to change the course and direction of this originally creative and innovative company, which has obviously lost its focus and ability to compete in today's international markets."

Still, Roth Capital Partners analyst Dave King issued a buy recommendation on American Apparel Thursday, with a price target of 85 cents.

"While we worry somewhat longer term about the company's ability to sustain its brand with Charney nolonger at the helm making certain fashion strategy decisions, American

Apparel remains committed to its differentiated sweatshop-free, made in

USA manufacturing philosophy and we continue to see several areas of

near-term low-hanging fruit on the expense side,'' King said in a research report.

Contributing: Hadley Malcolm and Kevin McCoy.



