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Aeropostale files for bankruptcy in latest retailer meltdown

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Aeropostale Inc, the teen-clothing chain, filed for bankruptcy protection after battling its main supplier and closing hundreds of stores to stem years of losses.

[DELAWARE] Aeropostale Inc, the teen-clothing chain, filed for bankruptcy protection after battling its main supplier and closing hundreds of stores to stem years of losses.

The latest in a spate of high-profile retail bankruptcies was filed Wednesday in the United States Bankruptcy Court for the Southern District of New York. It follows meltdowns by American Apparel Inc, Quiksilver Inc and Sports Authority Inc.

Mall-based retailers like Aeropostale have struggled to adapt to competition from online merchants and the changing tastes of teenagers. The New York-based company has also had to contend with fast-fashion competitors, who react to trends more quickly and get new styles on shelves sooner.

Since 2013, Aeropostale has closed about 215 stores, Poonam Goyal, a senior retail analyst at Bloomberg Intelligence, said in a report in April. The company has more than 700 locations left in the US, about 60 per cent of which are approaching the end of their leases, which means more closings are likely, Mr Goyal wrote.

Aeropostale intends to emerge from the Chapter 11 process within the next six months as a standalone enterprise with a smaller store base. It is also continuing its previously announced sale process, and expects any potential sale would be expected to be completed within the next six months, it said in a statement.

The company said it secured a commitment for US$160 million in debtor-in-possession financing from Crystal Financial LLC, which, combined with operating cash flow, will allow the retailer to meet financial commitments.

Bankruptcy can make shuttering stores easier because of rules that allow companies to cancel contracts, including leases. But the US Bankruptcy Code also grants landlords rights they can exercise to pressure a retailer into reorganizing quickly or liquidating.

Aeropostale's filing follows three straight years of losses and a feud with its main lender, Sycamore Partners, which also owns a key clothing supplier, MGF Sourcing.

Aeropostale said in March that MGF was holding up the delivery of merchandise and violating the terms of its agreement. The retailer said on April 15 that it would delay filing its annual report because it was distracted by the fight with MGF. 

In March, Aeropostale tapped Stifel Financial Corp to help assess a possible sale or restructuring. The company also is working with law firm Weil Gotshal & Manges LLP and FTI Consulting Inc on the filing.

Aeropostale on Wednesday also announced it will close 113 US locations, as well as all its 41 stores in Canada.

BLOOMBERG