An activist investment group is seeking a sale of The Wet Seal Inc. after the retailer’s board on Monday parted ways with chief executive officer Susan McGalla.
This story first appeared in the July 24, 2012 issue of WWD. Subscribe Today.
McGalla departed Monday. While the company did not provide a reason for her exit, Wet Seal posted 11 consecutive months of comparable-store sales declines under her tenure. She succeeded Ed Thomas in January 2011. McGalla was president and chief merchandising officer at American Eagle Outfitters Inc. until January 2009, when her employment contract expired.
Following the announcement of McGalla’s departure, senior portfolio manager Joseph A. De Perio of The Clinton Group sent a letter to the Wet Seal board pushing for a sale of the company. The Clinton Group owns slightly more than 4 percent of the shares of Wet Seal.
“The action you took over the weekend in terminating the employment contract of Ms. McGalla, the company’s (now former) chief executive officer, is a good first step in creating value for shareholders,” De Perio wrote in the letter, which was made public. “In our June letter, and in our discussions since then, we have noted that Ms. McGalla’s record of underperformance was stark and unacceptable to us and other shareholders….
“We simply cannot wait for the board to hire yet another chief executive — the next one will be the fourth in five years — to embark on yet another change in strategy with the aim of turning around the company. That path is simply too uncertain.
“Instead, the right next step is for the company to be sold.”
He also took issue with the company’s hold of $148 million in cash on its balance sheet, which De Perio called “shareholder capital” that should be returned to investors.
The Clinton Group, along with Barrington Capital Group, is credited with lobbying Dillard’s Inc. in 2008 to refine its operations and put four outside directors on the Dillard’s board.
A call to chief financial officer Steve Benrubi’s office at Wet Seal seeking comment regarding the Clinton Group letter was not returned at press time.
De Perio believes that a sale of the firm could get shareholders between $5 and $8 a share. Shares of Wet Seal on Monday fell 10.1 percent to close at $2.66 in over-the-counter trading.
In a memo obtained by WWD that McGalla sent to her senior management team at Wet Seal, she wrote: “While we all understand the company has been dealing with longer term challenges, I am confident that we have made significant progress and believe that the fundamentals are in place for the company to fulfill the turn-around plan that has been developed. As you all are aware, when we developed the plan, we anticipated a 2-3 year process to fully transition the company. Because of your dedication, The Wet Seal is strong creatively and operationally and I wish each and every one of you success as you move forward.”
Wet Seal said it formed an office of the chairman, led by non-executive chairman Hal Kahn, while a search is ongoing for a new ceo.
In the meantime, president and chief operating officer Ken Seipal and Benrubi will serve as interim co-principal executive officers.
The teen specialty chain said comps for fiscal July have declined between 13 and 14 percent, and that second-quarter comps are expected to decrease between 10 and 11 percent.
The company said the second-quarter loss before noncash asset impairment and ceo severance costs will be between 6 and 7 cents a diluted share versus prior guidance of a loss of between 3 and 6 cents a diluted share. Asset impairment and ceo severance costs were not included in the prior forecast.