Wet Seal Drops Suit Against Bebe

Wet Seal Inc., which sells trendy clothes to teens and young women, said Tuesday that it had dropped a lawsuit alleging that rival Bebe Stores Inc. improperly hired a former Wet Seal executive.

The suit, filed by Wet Seal in Orange County Superior Court in February, alleged that Greg Scott, who had resigned as president of Wet Seal’s Arden B. unit the previous month, violated his employment agreement when he joined Bebe as chief executive and that Bebe may have garnered confidential information.

“As we have said all along, our actions have been lawful,” Bebe Chairman Manny Mashouf said in a statement.

Brisbane, Calif.-based Bebe said that it would seek to recover court costs and that it was considering taking legal action against Wet Seal.

Last month, a judge denied Wet Seal’s request for a preliminary injunction that it said was needed to protect its trade secrets and stem the flow of workers to Bebe.

Still, Foothill Ranch-based Wet Seal said it was pursuing, through arbitration, breach-of-contract issues arising from Scott’s departure. The company, which operates 474 Wet Seal, 99 Arden B. and 31 Zutopia stores, declined to comment further.

Although Wet Seal’s fortunes are tied largely to its struggling namesake chain for teenagers, the more successful Arden B. division -- which caters to young women with its more sophisticated clothing -- accounts for about 20% of the retailer’s annual revenue of $500 million.

Scott’s exit was seen as a blow to Wet Seal, which has been struggling for two years to improve sales. Last week, the retailer reported its seventh straight quarterly loss.

Wet Seal shares rose 3 cents to $5.88. They have lost 40% in the last year. Shares of Bebe, which has 195 Bebe and Bebe Sport women’s apparel stores, rose 56 cents to $19.90. The shares have nearly doubled in the last year. Both stocks trade on Nasdaq.