Wet Seal files for bankruptcy protection

FOOTHILL RANCH, Calif. - The Wet Seal Inc. (WTSL), a teen clothing retailer, has filed for Chapter 11 bankruptcy protection.

The announcement Friday comes a little over a week after the chain said that it was closing 338 stores, or about two-thirds of its total store count.

Wet Seal had warned last month that it might need to file for bankruptcy protection if it did not resolve its cash issues after reporting another quarter of losses.

Fellow teen clothing retailers Delia's Inc. and Deb Stores filed for Chapter 11 bankruptcy in December, further evidence of business woes among traditional teen retailers.

Wet Seal and other chains are being hurt by stores like H&M and Forever 21 that are wooing the young with fast-changing selections of low-priced fashion. Teens are also more interested in outfitting themselves with the latest tech gadgets than new jeans.

Wet Seal hopes to keep operating during the bankruptcy process. The Foothill Ranch, California-based company was running 173 stores in 42 states and Puerto Rico as of Thursday.

The retailer said that it has arranged a $20 million term loan facility that will give it the opportunity to fund its operations including paying its vendors and other providers of goods and services. That still needs to be approved by the U.S. Bankruptcy Court for the District of Delaware.

Wet Seal also expects to continue to fund its operations with available cash and cash generated during the Ch. 11 cases.

A plan sponsorship agreement with B. Riley Financial Inc. allows for the firm to receive a majority of Wet Seal's stock once the retailer reorganizes and exits bankruptcy protection.

Wet Seal had about $31 million in cash on its balance sheet as of Monday.

Shares tumbled 50 percent to 3 cents in premarket trading Friday.