Fresh off its victory to replace board members at teen-apparel retailer Wet Seal Inc. (WTSLA), activist investor Clinton Group Inc. still wants the company to consider selling itself.
The Wet Seal board needs to hire a new chief executive officer, show signs of improving results and then contemplate a sale, Greg Taxin, a director at Clinton, said in a telephone interview.
Wet Seal said its chairman and three directors left the board today to be replaced by four nominees from Clinton, ending a proxy contest. The New York-based investment firm, which owns 6.9 percent of the stock, had called for a sale earlier this year after revenue fell and the company fired its CEO after less than two years. Clinton then proposed replacing board members after Wet Seal adopted an anti-takeover defense.
“The level of shareholder dissatisfaction was particularly high,” Taxin said. Votes supporting the removal of the board members accounted for more than 60 percent of outstanding shares, he said.
The board changes were made by consent solicitation, a proxy that doesn’t require a shareholder meeting.
A sale after a new CEO has time to improve results is a “plausible scenario,” Jeff Van Sinderen, an analyst for B. Riley & Co. in Los Angeles, said in a telephone interview. “It’s a business that can be turned around.”
B. Riley recommends buying Wet Seal shares, based in part on the potential for the business to improve and a sale, Van Sinderen said.
David Millar, a Wet Seal spokesman who works for RLM Finsbury, declined to comment when reached by e-mail.
Wet Seal was unchanged at $3.14 at the close in New York. The shares have dropped 3.7 percent this year.
The resignations are the final twist of a back-and-forth this week. On Oct. 3, Clinton said in a public filing that Wet Seal had indicated that four directors were ready to resign, a proposal that was retracted a few hours later.
Today, the Foothill Ranch, California-based chain announced Chairman Hal Kahn, Jonathan Duskin, Sidney Horn, and Henry Winterstern had stepped down from the board. Kahn agreed to stay as a consultant.
Four nominees from Clinton Group joined the board. They are Dorrit Bern, who was chairman and CEO of Charming Shoppes Inc.; Lynda Davey; Mindy Meads, a former co-CEO of Aeropostale Inc. (ARO); and John Mills, former chief operating officer of Aeropostale.
Following Clinton’s criticism in June, Wet Seal fired CEO Susan McGalla in July. That prompted Clinton to call for a sale to a buyer that can revive the chain.
Wet Seal responded in August by adopting a poison pill and announcing a turnaround plan that would return to its fast- fashion roots after so-called same-store sales had declined for four straight quarters. The next day, Clinton announced its plan to replace board members.
Same-store sales, a key measure of a retailer’s growth because only established stores are counted, fell 13 percent in September, the company said Oct. 2. Revenue by the same measure sank 18 percent in August.
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