The hunt is on at Foothill Ranch-based Wet Seal Inc.
The young girls’ and women’s clothing retailer is looking for a replacement for Chief Executive Joel Waller, who’s spent the past two and a half years reworking the company.
In May, Waller said he wasn’t seeking a renewal of his contract, which expires in February.
“Joel was the turnaround guy,” said Jeff Van Sinderen, analyst at B. Riley & Co. “The turnaround is done.”
Wet Seal, which declined to comment for this story, has hired an executive recruiter to help in the search.
The company hopes to get “someone in place in a few months and have Joel there to sit side by side with them and take them through all the aspects of the business,” Van Sinderen said.
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“They have to find the right person,” he said.
Waller will leave an impressive track record.
With the help of merchandising consultant Michael Gold, Waller revamped Wet Seal and stabilized the company, which prior to his arrival had dismal same-store sales and management churn.
The company’s troubles started in the late 1990s, when its styles fell out of favor with teen fashionistas. Many expected Wet Seal to file bankruptcy, which it didn’t.
Under Waller, stores were closed. New managers and designers were hired and changes were made to improve operations.
“Waller has built a very solid team underneath him, including two very strong merchants,” wrote Elizabeth Pierce, analyst at Roth Capital Partners LLC, in a recent report. “There is no reason to believe that the company will miss a beat either during this transitional phase or under a new leader.”
Enter a new stage for Wet Seal.
The company has been moving on plans to open more stores.
It’s about to sign the remaining leases it needs to meet its goal of opening 55 to 59 shops this year, said Eric Beder, analyst at Brean Murray, Carret & Co. Last year, the retailer opened 30 stores.
Wet Seal now has 356 Wet Seal stores geared toward teens and 92 Arden B. shops for women.
The company said it eventually could have 600 to 700 Wet Seals and 200 to 250 Arden B. stores.
“The next CEO at Wet Seal needs to be a solid manager who is extremely comfortable working in a growth driven environment,” Beder said. “For the next five-plus years Wet Seal has the opportunity for 15% to 18% unit expansion.”
The chief executive spot will be “very attractive” and should be filled by year’s end, Beder said.
Wet Seal needs to expand because the big gains of its turnaround have slowed.
Same-store sales edged up 0.7% in June, beating last year’s results but below analysts’ estimates of 1.6%.
The company also missed Wall Street’s guidance in May, when same-store sales grew 1.9%, off from expectations of 3.2%.
Wet Seal is forecasting a low-to-mid single digit increase in July, citing the late start of back-to-school in Florida and Texas.
Arden B. is ironing out some challenges.
Among them: some fashion misses, such as tawny yellow clothes, which were a flop.
“The most recent delivery was not that impressive and therefore we are not greatly surprised by its disappointing performance,” Pierce said. “The older contemporary customer continues to have issues with the current fashion trends.”
Arden B.’s sales also are off because stores are running fewer discount sales, Pierce said.
It’s important to “wean customers from constant clearance sales,” but the “transition period can be tough,” Pierce said.
Wet Seal has to strike a balance, since some shoppers covet the sale rack.
“It is important to cater to this customer and not walk her to a competitor,” Pierce said.
“Fortunately, we believe these issues are fixable in the very near term,” she said.
Arden B. is coming out with new colors for fall, including a shade of blue called heliotrope,a mix of periwinkle and royal blues,and new styles, which are “considerably better than the last group,” Pierce said.
“We continue to believe the company has a lot of low hanging fruit to drive both top and bottom line growth,” Pierce said.
Wet Seal has to be careful to pick the right person to succeed Waller,not an easy job, B. Riley’s Van Sinderen said.
“It is slim pickings out there,” he said. “Anytime there’s a change in leadership, the new leader has to be a strong leader or problems can arise.”
Take Anaheim-based Pacific Sunwear of California Inc. The teen apparel retailer, which sells surf and skate garb, ran into troubles shortly after its longtime chief executive stepped down a few years back.
Pacific Sunwear, which recently named interim boss Sally Frame Kasaks as its permanent chief executive, still is seeing hit-and-miss sales.
Led by Waller, Wet Seal will take its time and choose carefully, Van Sinderen said.
“He’s not under the shotgun to do anything,” he said. “He’ll put someone in place he thinks highly of.”
