Wet Seal files for bankruptcy
January 16, 2015 10:31 AM
(Bloomberg) -- Wet Seal Inc. became the latest clothing retailer to seek bankruptcy protection as mall-based stores lose business to big-box chains and online merchants.
The company said today it has a reorganization plan under which B. Riley Financial Inc. will acquire 80% of its stock exchange for a $20 million loan to fund operations during bankruptcy. Riley is the parent of liquidator Great American Group LLC.
Wet Seal, based in Foothill Ranch, CA, has lost more than $150 million over the past two years and defaulted on $27 million in senior convertible notes in December. It announced last week that it is closing about two-thirds of its stores and cutting almost 3,700 jobs after failing to win concessions from landlords.
The 338 stores that are shutting represented about 48 percent of its sales in the nine months ended Nov. 1.
The retailer joins Deb Stores Holding LLC, Loehmann’s Inc. and Coldwater Creek Inc. in filing for bankruptcy. A slowdown in mall traffic has sent sales tumbling. Wet Seal’s comparable- store sales, a key retail benchmark, declined 15% in the third of quarter of 2014, according to company filings.
“The continuing fundamental shift in consumer behavior away from traditional mall shopping toward online-only stores and increased competition throughout the specialty retail fashion industry have created a difficult operating environment,” Thomas Hillebrandt, Wet Seal’s chief financial officer, said in the company’s Chapter 11 filing in U.S. Bankruptcy Court in Wilmington, DE.
Wet Seal is No. 416 in the 2014 Internet Retailer Top 500. The retailer brought back its e-commerce chief Jon Kubo last fall as it tried to revive sales on WetSeal.com. Online sales for the retailer declined 8.67% from 2012 to 2013, according to Internet Retailer estimates.
Wet Seal now operates 173 stores in 42 states and Puerto Rico, as well as WetSeal.com. It closed 338 stores around Jan. 7, Hillebrandt said in the filing. Third-quarter net sales totaled $104.3 million, compared with $114.9 million in the same period the year before.
Ed Thomas, the company’s chief executive officer, said today in a statement that directors “unanimously concluded” that filing was the “appropriate course of action.”
The retailer listed assets as of Nov. 1 of $93 million and debt of $103 million in the Chapter 11 documents. Wet Seal said it has about $250 million in tax losses it will try to preserve while in bankruptcy.
The company and creditor Hudson Bay Master Fund Ltd. entered a forbearance agreement on Dec. 29 that ended Jan. 12, according to a regulatory filing. The total amount due is equal to $28.8 million plus the costs of collection, attorneys’ fees and disbursements, Wet Seal said in the filing.