Wet Seal files Chapter 11
Foothill Ranch, Calif. – In a move that was somewhat expected, The Wet Seal Inc. has filed for Chapter 11 bankruptcy. The move comes a week after the struggling teen retailer said it was closing 338 of its stores, leaving it with approximately 173 stores nationwide.
“After careful consideration, the Board of Directors unanimously concluded that filing for Chapter 11 was the appropriate course of action for the Company,” said CEO Ed Thomas.
Wet Seal plans to continue operations with a $20 million loan facility that is part of a debtor in possession financing arrangement it has reached with B. Riley Financial Inc. The company also has $31 million in cash on hand.
Wet Seal has asked the court for authority to make wage and salary payments, continue employee benefits, and honor gift cards and returns on purchases prior to the bankruptcy filing. The retailer said it intends to rebuild its business based on its existing stores and Internet business.
The Wet Seal announced it would close 338 stores, or about 66% of its total portfolio, on Jan. 7, resulting in the termination of some 3,695 full- and part-time employees. The retailer said the decision to close the stores was based on its overall financial condition and an inability to negotiate meaningful concessions from its landlords.
Similar to many other teen apparel retailers, Wet Seal has been hurt by a combination of slowing mall traffic and increased competition from such fast-fashion players as Forever 21 and H&M, and online upstarts. The company lost more than $150 million during the past two years.
In December, the retailer warned that it could file for bankruptcy protection if it was unsuccessful in addressing short-term liquidity needs. The retailer had previously engaged Houlihan Lokey and FTI Consulting to help it explore financing alternatives.
In the past month, fellow specialty apparel retailers Deb Shops, Delia’s and Body Central have also filed for bankruptcy.
“After careful consideration, the board of directors unanimously concluded that filing for Chapter 11 was the appropriate course of action for the company,” said Ed Thomas, CEO of Wet Seal. “Overall, we continue to believe in The Wet Seal and remain committed to executing on the strategic steps that we already started. We are thrilled to be working with B. Riley and other constituencies toward the successful and prompt emergence of the Company from Chapter 11.”
The Wet Seal bankruptcy case is in the U.S. Bankruptcy court District of Delaware; case no: 15-10082.