American Apparel Inc. late Thursday said that it swung to a loss last year amid slumping sales, rising production costs and mounting debt problems. It warned that it may have to seek bankruptcy protection.

The downtown L.A. apparel manufacturer and retailer reported a net loss of $86 million for the year ended Dec. 31, compared with net income of $1.1 million in 2009, according to a 10k annual filing with the Securities and Exchange Commission.

The company repeated its “going concern” warning that it “may not have sufficient liquidity or minimum cash levels to operate the business.” It said it may need to file for Chapter 11 reorganization if it is unable to improve its operating performance and financial position, and obtain alternative sources of capital.

The loss comes as American Apparel has been working to boost sales, streamline its manufacturing and retail operations, and meet debt requirements set by its key lender, London private equity firm Lion Capital.

“Our principal goal in 2011 is to stabilize the business and create a platform for renewed growth and increasing sales,” Acting President Tom Casey in statement Friday.

American Apparel said it has retained a financial advisory firm to help it identify alternative sources of capital to finance operations. It is devising a plan to improve operating performance by reducing labor costs and shuttering retail stores, among other moves. The company also hopes to increase sales by adding more sophisticated clothing styles, such as button tops and pleated pants to its shelves.

Four former employees who have made sexual harassment claims against Chief Executive Dov Charney have filed suits against him and American Apparel in the past month. The annual report said the company does not believe the suits will have a material effect on its finances.

Attorneys for American Apparel and Charney are seeking to have the suits dismissed, on the premise that the employees signed agreements when they were hired agreeing to arbitration of any disputes. The company said its liability insurance should cover any arbitration settlements.

Shares on Friday closed down 6 cents, or 6.6 percent, to 90 cents on the New York Alternet.