US clothing retailer Francesca's Holdings has filed for Chapter 11 bankruptcy protection and inked a letter of intent to sell its business to investment firm TerraMar Capital.

The company voluntarily filed for relief in the US Bankruptcy Court for the District of Delaware on 3 December. Francesca's says it intends to use these proceedings to implement a sale process focused on the company's core retail locations as well as its promising digital expansion and new brand launches.

The retailer announced plans in November to close about 140 of its predominantly mall-based stores and plans to attempt to renegotiate a number of leases during this process, which may include closing additional boutiques. Currently, 558 boutiques remain open for business.

Francesca's says it has received a commitment from its existing lender, Tiger Finance, for a US$25m debtor-in-possession financing facility. This will enable the company to continue to operate the business and meet its financial obligations, including wages, and the continued provision of customer orders and shipments.

After thoroughly evaluating all strategic alternatives, the board of directors unanimously agreed that pursuing a sale of the business is a necessary step forward for the business. The company has entered into a letter of intent with TerraMar Capital, an investment firm that provides debt and equity capital to middle-market businesses, for TerraMar or an affiliate to become the stalking horse bidder for the auction and sale process.

"Implementing this process allows Francesca's to address our lease obligations and seek a new investor that can see Francesca's into the future," said CEO Andrew Clarke. "The financing provided by Tiger will enable Francesca's to pursue a sale process that will allow us continue to focus on our omni-channel strategies, optimise our boutique fleet, broaden our customer reach with brand extensions and drive sustainable, profitable growth.

"We are confident that we will emerge from this process as a stronger company poised to drive growth by exploring new brand avenues, expanding our e-commerce channels, and providing our customers with the latest fashion options and treasure hunt experiences they know and love us for."

The retailer reported a net loss of $17.2m for the second quarter ended 1 August from net income of $1.8m a year ago.

Net sales were down 29% to $75.7m from $106m in the comparable prior-year quarter. Francesca's attributed the decline in sales to a decrease in traffic and the temporary closure of a majority of its boutiques as a result of the Covid-19 pandemic.