Foothill Ranch, CA—After an apparent brief victory whereby Wet Seal board members agreed to resign and be replaced by recommendations of the Clinton Group, an activist shareholder, the board retracted the resignations on Tuesday.
According to filings with the Securities & Exchange Commission, Clinton Group, which holds a 6.9% stake in the retailer, was ready to settle and send out a press release. Wet Seal revealed no explanation for the sudden reversal.
Since June, Clinton Group has been urging Wet Seal to sell itself to get a cash return. Then it nominated a slate of board members who it said could better improve operations and strategic directions. But Wet Seal’s board rejected those nominations and countered with independent proxy analysts who supported its plans. The board also appointed former Chief Executive Kathy Bronstein and John Goodman, a former ceo at Charlotte Russe Holding Inc. to its board.
Commenting upon the abrupt resignations of the board members, Greg Taxin, director at Clinton Group, called the news “one more example of this board taking an important decision and then reversing themselves in short order. It further demonstrates their inability to make decisive moves as fiduciaries for the shareholders.”
Wet Seal: Clinton Group’s Board Proposals “One Dimensional”
Previously, Wet Seal called Clinton Group’s proposals “short sighted. We do not believe that a board comprised of Clinton Group’s nominees, with no female teen fast fashion expertise and no experience at Wet Seal, is capable of implementing a strategy quickly to improve the business or executing our proven fast fashion strategy.”
Moreover, Clinton’s board recommendations would result in “a one-dimensional board that is overloaded with one skill set because it is likely to miss the larger picture.” Wet Seal said the proposed directors don’t have teen fast fashion retail experience and “one is a bankruptcy adviser.”
But Clinton Group is still seeking to replace the board with a “new, independent board.” Clinton Group is seeking the consent of its fellow stockholders. To be effective, Clinton Group would have to gather the consent of a majority of the outstanding stock.
“We believe change is needed in the Wet Seal boardroom,” said Joseph De Perio, senior portfolio manager of Clinton Group, Inc. “In our view, the best way to protect stockholder capital and execute a turnaround is to recruit and hire an excellent chief executive officer. The current Board has not proven capable of hiring effective senior executives or determining or overseeing the optimal strategic direction for the Company. The time for change is now.”
Clinton Group also urged stockholders who support their proposals to contact their brokers to ask for voting instructions.
Meanwhile, Wet Seal reported Tuesday that its September comparable store sales dropped 12.7% compared to a 0.3% decline in September 2011. Total sales slipped 9.9% to $48.3 million.
The company blamed the declines on “the slower pace of economic recovery and lower spending by domestic customers. However, e-commerce performed well, with sales increase of 15% as the company is putting in efforts to expand its online business.”