American Apparel, the beleaguered US fashion chain, has warned that it might be forced to file for bankruptcy if performance does not improve following poor sales in 2010.

The retailer, which has 15 stores in the UK, said sales and net profits both dropped for the fourth quarter to December 31, which contributed to a 4.6% fall in full-year sales to $559m (£346.4m). It also reported a net loss of $86m (£53.3m) for the year.

A statement issued by the retailer, as part of its results filing, said it may need to voluntarily seek protection under Chapter 11 of the US Bankruptcy Code, the equivalent of filing an intention to appoint administrators in the UK.

The retailer said in a statement: “If we are not able to timely, successfully or efficiently implement the strategies that we are pursuing to improve our operating performance and financial position, obtain alternative sources of capital or otherwise meet our liquidity needs, we may need to voluntarily seek protection under Chapter 11 of the US Bankruptcy Code.”

The retailer blamed the fall in profits on rising cotton costs and disruption caused by an immigration inspection earlier this year which saw it having to dismiss 1,500 of its 7,000-strong workforce.

It is the second time in seven months that American Apparel has warned it might not be able to continue as a going concern. On August 16, the chain said that it “may not have sufficient liquidity necessary to sustain operations for the next 12 months” after revealing it had debts of $120.3m (£76.9m) and that second quarter operating losses would be between $5m (£3.2m) and $7m (£4.5m).

The retailer has also faced problems amid accusations of sexual harassment against founder Dov Charney by two former employees.