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Aeropostale Officially Files for Bankruptcy

A rumor no more, Aeropostale announced its bankruptcy filing Wednesday, calling it the next steps in its “ongoing business transformation.”

The teen retailer filed its voluntary Chapter 11 petitions in the U.S. Bankruptcy Court for the Southern District of New York, and expects to use the bankruptcy process to optimize its store footprint, shed or renegotiate “burdensome” contracts, resolve its dispute with MGF Sourcing owner Sycamore Partners, and achieve long-term financial stability.

“While initiatives such as the implementation of our two-chain Factory and Mall strategy and our merchandise repositioning have started to gain traction, the ripple effects of an ongoing dispute with our second-largest supplier put substantial strain on our liquidity while also preventing us from realizing the full benefits of our turnaround plans,” Aeropostale CEO Julian Geiger, said in a statement. “As a result, we have chosen to take more decisive and aggressive action to create a leaner, more efficient business that is well-positioned to compete and succeed in today’s retail environment.”

The company says it will emerge from Chapter 11 within six months as a standalone enterprise with a smaller store footprint, improved operating efficiencies and fewer expenses. Aeropostale might also consider selling itself if the right buyer bites, and said any potential sale would be settled in the next six months.

An initial 113 U.S. stores will get the ax, as will 41 stores in Canada, starting in the next few days, and more closures could come upon the retailer’s review of its leases and other contracts to make sure they are competitive with the current market.

As part of the bankruptcy filing, Aeropostale secured a $160 million debtor-in-possession loan expected to help with its upcoming financial commitments. It also filed motions that, if approved by the court, would let it pay its employees’ wages and benefits without interruption, honor gift cards and pay its suppliers as planned. These motions are expected to be heard in the first days of the case.

Separately, Aeropostale will use certain Bankruptcy Code provisions that require suppliers to honor the terms of already-in-place contracts.

“We appreciate the loyalty and support of our customers, employees and business partners as we complete this process,” Geiger said.