By MATT TOWNSEND
Wet Seal Inc. (WTSLA:US) investor Clinton Group Inc., which is calling for a sale of the women's apparel chain, is seeking to replace board members with a slate of its own nominees.
Candidates for the board include former retail executives Raphael Benaroya, Dorrit Bern, Mindy Meads, and John Mills, as well as investment banker Lynda Davey, according to a statement today from Clinton Group. The New York-based firm, which owns more than 5 percent of Wet Seal, has been pushing for a sale of the retailer amid losses and declining sales.
Wet Seal's board, led by Chairman Harold Kahn, adopted an anti-takeover defense, or poison pill, yesterday as it announced a quarterly loss and a turnaround plan. It also hired Guggenheim Securities LLC and Peter J. Solomon Co. to perform a strategic review of the company to maximize shareholder value.
"This board has failed shareholders," Joseph De Perio, senior portfolio manager at the Clinton Group, said in today's 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."
Shares of the Foothill Ranch, California-based retailer declined (WTSLA:US) 8.8 percent to $2.79 at the close in New York. The stock has declined 14 percent this year.
Steven Goldberg, a spokesman for Wet Seal, didn't immediately respond to a phone call and e-mail seeking comment.
The retailer fired CEO Susan McGalla July 23, after a year and a half in the role, amid declining sales. On the same day, Clinton called for a sale after sending a letter to the board in June criticizing the performance of McGalla and the company.
Among Clinton's proposed candidates, Meads was previously co-CEO of Aeropostale Inc. (ARO:US) and Mills was chief operating officer of the teen retailer. Bern served as chairman and CEO of Charming Shoppes Inc.
The action will be by written consent, which needs shareholder approval for its slate of candidates by submitting votes. Today's proposed measure doesn't require a shareholder meeting.
Current board members include Kahn, the former CEO of apparel retailer Steve and Barry's, lawyer Sidney Horn, Henry Winterstern, a managing director at investment firm Fortress Investment Group, Jonathan Duskin, CEO of hedge fund Macellum Capital Partners LLC, and Kenneth Reiss, a former partner at accounting firm Ernst & Young.
"In the wake of the recent fundamental disaster, shareholders should support the call for a new board," Jeff Van Sinderen, an analyst for B Riley & Co. in Los Angeles, wrote in a note to clients before the statement. This is one of the few ways to "salvage shareholder value." Van Sinderen has a buy rating on the shares.
Wet Seal, which operates 550 stores in the U.S. and Puerto Rico, has posted four straight quarterly declines (WTSLA:US) in same-store sales, a key measure of a retailer's growth, as it loses ground to larger rivals such as Hennes & Mauritz AB (HMB)'s H&M and Forever 21 in the so-called 'fast fashion' category.
The retailer had a net loss, its second consecutive, of $12.4 million in the quarter ended July 28. That marked the biggest loss since 2007. Same-store sales sank 11 percent and may fall as much as 18 percent this quarter.
After receiving Clinton's first letter, the board in early July began a review of its capital plan, including the use of cash and operating performance. It then fired McGalla a few weeks later.
That plan will improve results by returning to its fast fashion roots by identifying trends and buying from suppliers as quickly as possible to speed up time to market, Kahn said yesterday on a conference call with analysts. Under McGalla, the company began designing its own apparel, which slowed the time it took products to reach stores and alienated customers, he said.
The retailer expects results to start improving in November when most of its new merchandise will be in stores. Until then, it will be clearing old clothes with discounts that will continue to hurt profit margins, Kahn said.