UPDATE 2-Mervyn's may file for bankruptcy protection -WSJ

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SAN FRANCISCO, July 28 (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: Quote, Profile, Research) 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: Quote, Profile, Research), 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: Quote, Profile, Research) to Bon-Ton Stores Inc (BONT.O: Quote, Profile, Research) have seen same-store sales declines in recent months, with analysts noting that chains that cater to middle-income consumers are hurting the most.