Wet Seal in Finance Deal to Stay Afloat
Wet Seal Inc. said Tuesday that it had struck a deal with investors to keep its troubled operations afloat and had hired the head of a Canadian teen retailer to lead a new turnaround effort.
The Foothill Ranch company said the $55.9-million deal, which analysts said would stave off a bankruptcy filing, was with a group of investors led by S.A.C. Capital Associates. If shareholders approve it, most of the cash will be delivered by early next year.
Peter Whitford, a former Walt Disney Co. executive hired 17 months ago, resigned as chairman and chief executive at a board meeting Monday “to provide the company the flexibility it needs to implement its business plan,” Wet Seal said in a statement. Anne Zehren, the head of a consulting firm and the sole female board member, resigned Tuesday.
Joseph Deckop, Wet Seal’s executive vice president, was named interim chief executive and Henry Winterstern, a Wet Seal director who also sits on the boards of Metro-Goldwyn-Mayer Inc. and Dick Clark Productions Inc., will become chairman.
Michael Gold -- CEO of YM Inc. of Toronto, which owns more than 400 Stiches, Sirens and Urban Planet stores -- was hired as a consultant to “guide merchandising initiatives” and help streamline operations, the Wet Seal statement said.
Wet Seal executives declined to say whether Gold would be a candidate for the CEO post. Gold couldn’t be reached for comment.
“We’ve got an opportunity here that many companies don’t get,” Deckop said in an interview. “We’re very fortunate. We have investors who stepped in and put a bunch of cash into our company, and our duty is to spend it wisely for our shareholders and for ourselves.”
Deckop said the new management team would work with Gold and the investors to plan merchandising and marketing strategies and determine the fates of the company’s 559 Wet Seal and Arden B. stores. Gold will focus on pricing, sourcing and fashions for the Wet Seal chain, Deckop said, with the goal of reviving comparable-store sales, which have plummeted.
The teenage girl who once was a committed Wet Seal shopper is “still there and we want to get her back,” he said. “It’s going to take renewed energy on everyone’s part to refocus and get the business moving forward sooner rather than later.”
Tuesday’s announcements raised questions from analysts who had been watching Wet Seal struggle for more than two years, as its namesake chain has vainly tried to lure the teenagers who have been sidling up to competitors, such as Los Angeles-based Forever 21 Inc.
“Bottom line: what are they going to do with the cash?” asked Elizabeth Pierce at investment bank Sanders Morris Harris. “Is this for closing stores? And what is the merchandising strategy?”
Pierce said it was unclear how the money would help Wet Seal “climb out of this deep, dark hole.”
“It’s almost impossible for me to say this is good or bad,” she said. “I still don’t know what they’re doing.”
The investors have called for the closure of some of the 464 Wet Seal stores, but Deckop said the company had nothing specific to reveal about whether it would shut any stores.
The infusion of money would come at a crucial time for Wet Seal, which had estimated earlier that it would have only $11 million in cash left by the end of its fiscal third quarter.
Wet Seal lost $102.8 million in its second quarter ended July 31 while it burned through about $35 million in cash. Analysts had said a Chapter 11 bankruptcy filing was a possibility, in part because that would make it easier for the company to close unprofitable stores.
Former CEO Kathy Bronstein, who was fired in early 2003 after 11 years at the helm, said in September that she had tried unsuccessfully to win financial backing for a plan that she hoped would give her a second chance to run the company. Bronstein isn’t involved in the investment deal announced Tuesday, the company said.
According to the agreement with the investors, Wet Seal will receive a $10-million bridge loan today. An additional $40 million will be funded upon approval of the transaction by shareholders in December or January, Chief Financial Officer Doug Felderman said. At that point, the $10 million will be paid down. Over the next 12 months, Wet Seal would have the option to sell the investors notes amounting to about $16 million.
The company also is issuing warrants to the investors which, if fully exercised, would over time yield an additional $25 million, Felderman said.
Wet Seal shares rose 32 cents Tuesday to $1.79 on Nasdaq. The announcements were made after the market closed.
