Teen apparel retailer files for bankruptcy

In a not unexpected move, beleaguered teen apparel retailer Pacific Sunwear of California Inc. filed for Chapter 11 bankruptcy court protection.



In a court filing on Thursday in Delaware, the Anaheim, California-based retailer listed assets in the range of $50 million to $100 million and liabilities of between $100 million and $500 million. It listed Simon Property Group and Nike Inc. among its top creditors. The chain named RCS Real Estate Advisors, New York, as its real estate advisor.



Under a debt-for-equity restructuring agreement, PacSun plans to be taken private by Golden Gate Capital. The agreement calls for the retailer to convert more than 65% of its debt into equity and receive at least $20 million in new capital from Golden Gate.



PacSun said it would continue to operate all of its 593 stores and does not expect the bankruptcy filing to have an immediate impact on employees.



"The plan negotiated with Golden Gate Capital and approved by our board of directors places PacSun in a very promising position as we continue the brand and merchandising transformation that our team has worked relentlessly to achieve,” stated PacSun CEO Gary H. Schoenfeld. “Importantly, great brand partnerships will remain paramount to PacSun's success and the plan provides for all key suppliers to be paid in full following the effective date of the plan."



The company, which has been working to turn around its business with edgier fashions, said it would use the restructuring to solve two issues that it could not fix on its own. The first is a very high store occupancy cost of approximately $140 million annually, and the second involves nearly $90 million of long-term debt that comes due this year.



“The bankruptcy process gives us the ability both to fix our balance sheet by reducing our long-term debt by more than 65%, and reduce our annual occupancy costs, either through landlord negotiations or lease rejections, appropriately adjusting the fixed costs of operating our stores to better match the shifting retail landscape,” Schoenfeld said.



PacSun was a high flyer in the 1990s and early 2000s as teens eagerly sought out its California-cool clothing. But similar to the Wet Seal and some other former teen faves, it has struggled in recent years amid the rise of such fast-fashion giants as Forever 21, declining mall traffic, changing tastes and online commerce. (In March, mall-based teen retailer Aeropostale said it was exploring options, including a potential sale of the company.)



The retailer lost $10 million in the fourth quarter, compared with a net loss of $26 million over the year ago period. Same-store sales inched up 0.2%. For the full year, same-store sales fell 2.6%. PacSun has reported a profit only once in the past six quarters.