Jan. 14 (Bloomberg) -- Gottschalks Inc., the owner of department stores in six western states, and Goody’s LLC, a clothing chain serving towns in the southern and central U.S., sought bankruptcy protection after sales slumped.

Gottschalks, founded in 1904 in Fresno, California, is looking for a buyer. Goody’s, based in Knoxville, Tennessee, plans to liquidate after entering bankruptcy for the second time in seven months. Both companies filed their Chapter 11 petitions in U.S. Bankruptcy Court in Wilmington, Delaware.

“Persistent challenges in the economy and recent unexpected reductions to our borrowing capacity as a result of tightening credit markets have left us with no other recourse,” Gottschalks Chairman Jim Famalette said today in a statement.

The loss of 2.6 million U.S. jobs and the choking-off of credit have led Americans to curb spending. Sales at U.S. retailers fell for the sixth straight month in December, the longest string of declines in records going back to 1992, the Commerce Department said today. More than a dozen retailers, including Circuit City Stores Inc. and Linens ‘n Things Inc., have filed for bankruptcy in the past year.

As many as 21 more may be threatened, said Howard Davidowitz, chairman of retail consulting and investment-banking firm Davidowitz & Associates Inc. in New York.

“It’s going to get dramatically worse,” Davidowitz said in a Bloomberg Television interview. “The consumer’s behavior is changed forever.”

Gottschalks Auction

Gottschalks plans to hold a court-sanctioned auction by mid-March. The company, with almost 5,300 employees, has lost market share to lower-priced chains such as Kohl’s Corp. during the economic slowdown. Gottschalks said it owns 58 department stores, including 38 in California, one of the states hardest hit by the decline in home values. The remainder are in Washington, Alaska, Oregon, Idaho and Nevada.

The company listed $288 million in assets and $197 million debt in today’s Chapter 11 filing. Gottschalks said it secured a $125 million loan from lenders led by GE Capital to pay employees and vendors and cover other operating costs during its reorganization.

Gottschalks fell 7 cents, or 39 percent, to 11 cents at 10:56 a.m. New York time in over-the-counter trading. The shares reached $15.37 in April 2007.

Credit Halt

At Goody’s, suppliers stopped shipping on credit after Thanksgiving, Chief Financial Officer David Peek said in court papers. Monthly same-store sales since October fell four to six times more than the company had expected, dropping as much as 19 percent from 2007 levels. The net loss was $91 million for the 11 months through Jan. 3 on sales of $786 million, said Goody’s, which has 282 stores.

The company, formerly known as Goody’s Family Clothing Inc., listed assets of $206 million against debt totaling $202 million as of Jan. 3 in yesterday’s petition. Thirteen affiliates also filed.

Goody’s, acquired in 2006 by Prentice Capital Management, filed its first bankruptcy case in Delaware on June 9 and quickly reorganized by closing 74 stores and restructuring its debt. The company left court protection on Oct. 20.

In the new case, debt includes a $29 million secured revolving credit with General Electric Commercial Capital as agent, and secured term loans of $10 million, $15 million and $20 million.

Quebecor World (USA) Inc., the printer undergoing its own bankruptcy reorganization in the U.S. and Canada, is the largest unsecured creditor, with a $1.4 million claim.

Goody’s picked a joint venture of Hilco Merchant Resources LLC and Gordon Brothers Retail Partners LLC to run going-out-of- business sales at its stores. They guaranteed a recovery of about 78 percent of inventory costs.

The Gottschalks case is Gottschalks Inc., 09-10157, and the the Goody’s case is Goody’s LLC, 09-10124, both in U.S. Bankruptcy Court, District of Delaware (Wilmington).

To contact the reporters on this story: Bill Rochelle in New York at wrochelle@bloomberg.net; Steven Church in Wilmington, Delaware, at schurch3@bloomberg.net.

Last Updated: January 14, 2009 12:08 EST