Gottschalks Seeks Bankruptcy Protection

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Regional department-store chain Gottschalks Inc. filed for bankruptcy protections and said one possible resolution would be the company's sale.

The filing is not a surprise to many industry watchers, who had considered Gottschalks a likely victim of the slump in consumer spending.

The Fresno, Calif., company has negotiated $125 million debtor-in-possession financing from a group of lenders led by General Electric Co.'s GE Capital. With court approval, it will use the money to fund employee wages and benefits, vendor payments and other operating expenses. It said the amount should be enough to carry it through its reorganization.

Chief Executive Jim Famalette said Gottschalks expects the reorganization to proceed quickly and hopes to partner with a new owner. In the meantime, the company said it would continue normal operations.

The bankruptcy filing comes weeks after the company said an investment deal with Everbright Development Overseas Ltd. fell apart. The infusion from the British Virgin Islands firm, which helps trade between manufacturers and merchants in the U.S. and China, was to get a 75% stake in Gottschalks.

Last week, Women's Wear Daily reported on its Web site that Gottschalks was in talks with two potential investors -- Everbright and Spanish retailer El Corte Ingless – for a combined investment of $50 million as it looked to stave off a bankruptcy.

Retailers have been hurt by the current economic downturn as consumers cut back their spending and because many are burdened with debt after a decade of buoyant consumer spending encouraged them to overexpand and overborrow. Now, banks and private investors who financed the boom are pulling back.

Gottschalks shares closed Tuesday at 18 cents and weren't active premarket. The stock has lost more than 90% of its value since June.