Teen Retailer Rue21 Files for Bankruptcy as Stores Closeby
Apax-backed company is latest casualty of U.S. mall meltdown
Chain began closing about 400 underperforming stores in April
The company filed for Chapter 11 bankruptcy in the Western District court late Monday, seeking up to $125 million in debtor-in-possession financing from its existing lenders to fund the firm’s operations during the proceedings, it said in a statement.
Rue21 said it began closing last month about 400 under-performing stores in its 1,179 store fleet to streamline operations and may evaluate shutting down additional stores. It’s also seeking up to $50 million in term loan debtor-in-possession financing from some of its existing lenders.
Increased operating costs and falling foot traffic hurt sales and tightened trade credit, acting chief financial officer Todd Lenhart said in court papers filed Tuesday. In addition, Rue21 was “historically slow” to consumer trends and its core demographics’ “constantly evolving” fashion interests, said Lenhart.
Warrendale, Pennsylvania-based Rue21 has struggled to keep pace with online competition while attempting to reduce its nearly $1 billion debt-load. It joins retailers such as dressmaker BCBG Max Azria and discount shoe chain Payless Inc. in filing for bankruptcy, as U.S. consumers spend less time at the mall and more time shopping online. American Apparel and Limited Stores also entered Chapter 11 in recent months, contributing to an epidemic of store closings.
“These actions are being undertaken with the goal of strengthening the company’s balance sheet, achieving a more efficient cost structure, and concentrating resources on a tighter retail footprint in order to pave the best path forward for Rue21,” Chief Executive Officer Melanie Cox said in the statement.
Rue21 has a $539 million term loan maturing in 2020 and $250 million in bond principal due the following year, according to data compiled by Bloomberg. Holders of the loan were said in March to have hired PJT Partners Inc. to protect their interests as the company attempted to restructure its debt. Rue21’s ratings were cut deeper into junk territory by Moody’s Investors Service in December and by S&P Global Ratings in January.
Rue21, founded in 1976, sells young men’s and women’s clothing, accessories and swimwear. Apax bought the company for about $1 billion in 2013.
The case is In re Rue21 Inc., 17-22045, U.S. Bankruptcy Court, Western District of Pennsylvania (Pittsburgh).