May 24, 2018 / 12:46 AM / 5 months ago

CORRECTED-Eddie Bauer, Pacific Sunwear explore merger amid retail downturn -sources

(Corrects same store sale percentage in 8th paragraph, corrects spelling of Pacific Sunwear in final sentence)

By Jessica DiNapoli and Liana B. Baker

May 23 (Reuters) - Eddie Bauer LLC and Pacific Sunwear of California LLC are exploring a merger to consolidate their store footprint and weather a prolonged downturn in the U.S. brick-and-mortar retail sector, people familiar with the matter said on Wednesday.

The two sporty retailers have previously succumbed to bankruptcy and are searching for growth. In a merger, the companies could whittle down their store counts from their current total of nearly 700 together, the sources said.

Eddie Bauer and Pacific Sunwear are controlled by a common owner, private equity firm Golden Gate Capital. Golden Gate Capital has not yet decided whether to combine the two companies and its plans for the retailers could still change, the sources said, asking not to be identified because the deliberations are confidential.

Golden Gate and Eddie Bauer declined to comment. Pacific Sunwear could not be reached for comment.

More than 20 U.S. brick-and-mortar retailers have filed for bankruptcy since mid-2016 as consumers moved a lot of their spending online and sought choice and convenience that is often not offered in physical stores or malls.

Last year, Bellevue, Washington-based Eddie Bauer hired investment banks to explore strategic alternatives, including a potential sale, sources said at the time.

Eddie Bauer, which sells outdoor gear and apparel, is at risk of not keeping up with fashion changes, according to credit ratings agency Moody's Investors Service Inc. It has a $218 million term loan and a $200 million revolving credit line. The company's same-store sales are up 5 percent so far this year, one of the people said.

Golden Gate acquired Eddie Bauer out of bankruptcy in 2009 with a cash bid of $286 million. The retailer had been in bankruptcy five years.

Anaheim, California-based Pacific Sunwear emerged from bankruptcy in 2016 under the ownership of Golden Gate after the buyout firm converted its debt into equity in the restructuring. It emerged with a $100 million revolving line of credit from Wells Fargo.

The retailer has seen store sales rise 9 percent this year, one of the sources said. Both Eddie Bauer and Pacific Sunwear saw a 6 percent increase in same store sales in 2017, the source added. (Reporting by Jessica DiNapoli and Liana B. Baker in New York)

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