Mervyn's may file for bankruptcy protection: report

SAN FRANCISCO (Reuters) - Department store chain Mervyn's LLC will file for bankruptcy protection in the next few days barring a last-minute cash infusion, the Wall Street Journal reported on Monday on its website, citing people familiar with the situation.

Privately owned Mervyn's did not immediately return a call seeking comment.

The lower-cost chain, which Target Corp (TGT.N) sold in 2004 to a private investment group that included Sun Capital Partners, Cerberus Capital Management, Lubert-Adler and Klaff Realty LP, operates some 175 stores in seven states.

Mervyn's, which relies heavily on promotions and discounts on its clothing and home goods, has struggled of late due in large part to its exposure to the California and Arizona markets, where the housing market is still in turmoil.

Department stores as a sector have suffered during the U.S. economic downturn, as consumers cut back on trips to the mall and instead turn to discounters such as Wal-Mart Stores Inc (WMT.N), where they can buy food, clothing, home supplies and gasoline at superstores.

"You can't look at the numbers and not understand that retailers at every level are facing stress right now," said Bruce Bennett, a corporate reorganization attorney at Hennigan, Bennett & Dorman, who is not involved with Mervyn's. "The lending community is much more cautious than it's been in years."

If Mervyn's needs to borrow more money because of current trends in its business, it will be less successful than in previous years due to the stresses on its lenders, Bennett said.

Department stores from J.C. Penney Co Inc (JCP.N) to Bon-Ton Stores Inc (BONT.O) have seen same-store sales declines in recent months, with analysts noting that chains that cater to middle-income consumers are hurting the most.

The housing slump, together with escalating food and gasoline costs and tightening credit has put pressure on U.S. consumers, who have pulled back on spending on all but the most essential items.

The Journal reported previously that vendors have been holding back orders for Mervyn's just as the critical back-to-school season begins for the department store chain.

The paper reported that Mervyn's private-equity buyers would not lose much from a liquidation of the Hayward, California-based chain due to the way the deal was structured.

Trendy apparel retailer Steve & Barry's LLC filed for Chapter 11 bankruptcy protection earlier this month, coming on the heels of home goods retailer Linens 'n Things, which filed for protection in May.

Sun Capital, Lubert-Adler and Klaff did not return after-hours calls seeking comment. Cerberus CBS.UL sold out of the chain in 2007.

(Reporting by Alexandria Sage; Editing by Andre Grenon and Braden Reddall)