Pacific Sunwear files for Chapter 11 bankruptcy
Pacific Sunwear (PSUN), staggering after nine consecutive annual losses, has filed for Chapter 11 bankruptcy protection.
But the beach-life clothing chain hopes to find its footing and continue to operate its nearly 600 stores under an agreement with the private equity firm Golden Gate Capital, a lender which plans to take it private after it restructures.
Pacific Sunwear, which defined surf cool in the 1990s and early 2000s, joins several other teen retailers who have suffered the blues as they grapple with the fast-changing tastes of teens. Teens are shopping more online, resulting in declining traffic at the malls. And the young crowd wants to be more individualistic in how they dress. Moreover, the traditional chains are facing stiff competition from the likes of Forever 21, which frequently infuses the stores with trendy affordable fashion.
The bankruptcy filing from Pacific Sunwear of California Inc. comes just seven months after surfwear retailer Quicksilver -- another ubiquitous presence in malls during the 1990s -- announced its Chapter 11 reorganization. And ailing teen retailer Aeropostale Inc. said last month that it was considering selling itself or restructuring the company as it struggles with several years of falling sales.
Gary H. Schoenfeld, president and CEO at Pacific Sunwear, said in a statement that the restructuring plan with Golden Gate puts the retailer in a "promising position" as it continues to transform the brand.
He said the bankruptcy process will enable the company to fix two structural issues- a high occupancy cost of about $140 million per year and a nearly $90 million of long-term debt coming due later this year. He said the bankruptcy process will allow the company to reduce its long-term debt by more than 65 percent and reduce its annual occupancy costs, either through landlord negotiations or lease rejections. That will help adjust the fixed costs of operating the stores to better match the "shifting retail landscape," Schoenfeld said.
Golden Gate plans to convert about two-thirds of PacSun's debt into equity in the reorganized company and provide at least $20 million in additional capital. The company, based in Anaheim, California, also secured a five-year, $100 million line of credit from Wells Fargo.
But the retailer has an uphill battle. Pacific Sunwear reported a loss of $10 million in its fiscal fourth quarter, ended Jan. 30, though it narrowed from a $26 million loss in the year-ago period. Net revenue for the fiscal fourth quarter was $232.9 million, virtually even with the $231.6 million a year ago.
Shares, which once traded for around $30, fell to a close of 6 cents on Thursday.