An institutional shareholder in Foothill Ranch-based Wet Seal Inc. last week reiterated its intent to replace the specialty retailer’s directors and announced a slate of candidates for its five-seat board.
New York-based asset-management firm Clinton Group Inc., which called for the sale of the company weeks ago, said it will ask Wet Seal shareholders to remove four board members and fill a seat vacated when the board fired Chief Executive Susan McGalla in July.
Wet Seal has 468 Wet Seal stores aimed at teen girls and another 82 Arden B stores for young women.
Clinton owns about 5% of Wet Seal shares. Wet Seal has been struggling to get its footing on a turnaround for the past several years, and last week posted a $12.4 million loss for the July quarter, when sales fell 9% to $135.3 million.
“This board has failed shareholders,” Clinton Group Senior Portfolio Manager Joseph DePerio said in a statement. “After years of strategy shifts, personnel changes and financial and operational mismanagement, it is time for shareholders to put in place a board that will work feverishly to fix the damage, repair the brand and earnestly consider the company’s strategic alternatives. More of the same is simply not an option.”
A Wet Seal spokesperson didn’t respond to requests for comment.
Board Candidates
Clinton’s suggested replacements include: Raphael Benaroya, founder of New Jersey-based United Retail Group Inc.; Dorrit Bern, former chief executive of Pennsylvania-based retailer Charming Shoppes Inc.; Lynda Davey, chief executive of New York-based investment bank Avalon Group Ltd.; Mindy Meads, former co-chief executive of New York-based Aeropostale Inc.; and John Mills, president of retail consulting firm SDE.
Clinton Group would need votes from 50% of Wet Seal shareholders to remove current directors.
The plan to go to shareholders for a new board followed the release of another set of downbeat quarterly financial results, which Wet Seal blamed on a failed retail strategy under McGalla of reducing in-store and online discounts.
A recently announced strategy shifts the retailing emphasis back to fast-fashion merchandising ahead of the holiday selling season.
“This is not a new or turnaround strategy,” Wet Seal Chairman Hal Kahn told analysts. “It’s about this company getting back to its roots.”
• Headquarters: Foothill Ranch
• Business: Apparel retailer
• Founded: 1962
• Ticker symbol: WTSLA (Nasdaq)
• 2011 revenue: About $620 million
• Recent earnings: ($12.9 million) for July quarter
• Market value: About $260 million
• Notable: Major shareholder aims to replace board
Kahn is leading an interim Office of the Chairman, established after McGalla’s departure. Other members include President and Chief Operating officer Ken Seipel and Chief Financial Officer Steve Benrubi.
Changes to Wet Seal’s merchandise mix are expected as early as next month, with a full rollout of the new merchandise set to be in stores by mid-November.
A previous focus on creating outfits for customers is being scrapped for key pieces and a broader assortment of merchandise options.
The strategic plan for Arden B appears to be longer term, with Kahn telling analysts the business could “take a bit longer to fix, because it’s not in the fast-fashion business.”
Arden B merchandising that had shifted away from club-wear and casual knits will be reversed and rebranding initiatives for Wet Seal and Arden B shelved.
The board recently hired a recruiting agency to search for a new chief executive. A strategic oversight committee of three board members was formed and Guggenheim Securities LLC and Peter J. Solomon Company LP were hired as financial advisors.
Wet Seal implemented a $1.2 million employee retention plan and boosted the pay in restricted stock for Kahn and strategic oversight committee members.
The board also approved a “shareholder-rights plan” in an anti-takeover provision that would take effect if anyone were to acquire 10% or more of the company’s Class A common stock.
“The board’s recent actions to increase director pay and establish a poison pill further entrench this underperforming board,” Clinton Group’s DePerio said.
Wet Seal said it expects a loss of $11.5 million-$14.2 million in the current quarter, with sales of $128 million to $133 million. Same-store sales are expected to fall 14% to 18%.
