Eric Watson's clothing company suffers hit

Eric Watson's shares in American Apparel dived. Photo / Kenny Rodger

Shares in Eric Watson's United States casualwear company American Apparel plunged on Friday after the company announced its auditors, Deloitte and Touche, had quit amid concerns over its accounts.

It is the latest in a string of bad news for the NYSE-listed wholesaler and retailer.

American Apparel told the US Securities and Exchange Commission that Deloitte resigned on July 22.

It said that in a March 31 report the accounting firm identified "material weaknesses in internal control over financial reporting" and advised that American Apparel hadn't maintained effective internal control over financial reporting as of December 31.

The company's shares fell 26 cents, or 14 per cent, to US$1.55 ($2.15), the Los Angeles Times reported.

Watson's interest in American Apparel is with US billionaire Jon Ledecky through their acquisition company, Endeavor Acquisition, which the pair founded in 2005 after raising US$130 million.

The company suffered another share-price drop in May after it warned it was unable to file its financial results for the first quarter of this year and was threatened with delisiting if it did not comply.

In its preliminary report for the first quarter, it reported a 10 per cent drop in comparable store sales and an operating loss of US$17.6 million, more than four times the loss reported in the same quarter of last year.

It was also forced to revise the terms of its borrowings to give it more breathing room after warning it could violate its debt covenants.

In March last year, American Apparel sold 18 per cent of its shares to private equity fund Lion Capital in a move aimed at reducing debt levels.

The Los Angeles-based company is known for its brightly coloured t-shirts and other basics. It has 285 retail stores in 20 countries and employs 10,000 people.

The company grew rapidly in the mid-2000s, adding more than 100 stores, and was hit by increased financing costs on its debt following the credit crunch.

Last year, an inspection of its Los Angeles factory by US immigration officials resulted in it firing around 1500 employees.

Coming in at No. 23 on this year's National Business Review Rich List with a fortune of $250 million, there are reports Eric Watson is quitting New Zealand as his Karaka property Westbury goes on the market.

His New Zealand entity Cullen Investments said no one was available to comment.