Orange County Business Journal

Wet Seal Files for BK Again

Mediha DiMartino Thursday, February 2, 2017

Wet Seal LLC in Irvine filed for Chapter 11 bankruptcy protection Thursday, and is taking steps to liquidate its assets.

The retailer’s estimated liabilities are between $50 million to $100 million, according to documents filed in the United States Bankruptcy Court for the District of Delaware. It’s the company’s second bankruptcy in two years.

Wet Seal said in court filings that it plans to “operate their business and manage their properties as debtors in possession while they wind down their operations and implement an orderly liquidation strategy ... primarily through going-out-of-business sales at the Debtors’ retail locations ... and corresponding discounts offered on the debtors’ website.”

Wet Seal has 142 stores in 37 states, mostly in “lease-based mall locations.” Store-closing sales are slated to conclude by Feb. 28.

Among its largest unsecured creditors are FedEx Corp. in Memphis, owed $608,977; Montebello-based Celebrity Pink out $302,098; and GF Holding Inc. in Los Angeles, out $225,573.

Wet Seal didn’t have “adequate liquidity to fund their ongoing operations,” after it “incurred operational losses stemming from, among other things, onerous lease obligations, underperforming retail locations, and increased competition in the teen fashion retail industry on a broad scale,” according to an affidavit Chief Financial Officer Judd Tirnauer filed with the court.

He said “challenges were amplified by unexpected operational hurdles that arose from relocation of the corporate headquarters and the transition to a third party distribution center.”

The company reported 2016 revenue of $144.5 million.

Chapter 11 filing came “after attempts to develop going concern restructuring options proved unsuccessful,” including “pursuing both strategic and operational business partners,” Tirnauer stated.

The retailer is looking for a buyer for its intellectual property and has retained Hilco IP Services LLC to “solicit interest in the IP and conduct bidding and auction process in connection therewith,” according to Tirnauer.

Some 80 corporate employees were let go on Jan. 27, together with 14 “field leadership employees, in an effort to reduce headcount in light of the debtors’ go-forward operational needs.”

Wet Seal closed 338 underperforming locations and laid off 3,695 full- and part-time employees in January 2015, just before filing for a prior Chapter 11 bankruptcy. It emerged several months later, under the ownership of Philadelphia-based private equity firm Versa Capital Management LLC.