Wet Seal ousts CEO McGalla as summer sales worsen

AP News
Posted: Jul 23, 2012 6:02 PM
Wet Seal ousts CEO McGalla as summer sales worsen

NEW YORK (AP) — As sales declines deepen, teen clothing seller Wet Seal Inc. has fired CEO Susan McGalla without a replacement for her.

McGalla had been Wet Seal's CEO since January 2011, and had signed an employment contract with the company through August 2014. Her departure is effective immediately, and the company said Monday that it is starting a search for a new CEO. In the meantime, the company's chairman, president and chief financial officer are overseeing Wet Seal.

The retailer is also contending with a federal racial discrimination lawsuit, but CFO Steven Benrubi said in an interview with The Associated Press that the firing was "strictly due to the financial performance of the company."

McGalla said in a statement that she was proud of what was accomplished during her tenure.

"With the understanding that 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 turnaround plan that we anticipated from the beginning would require a two to three year process to fully transition the company," she said.

While one of Wet Seal's shareholders, The Clinton Group Inc., called McGalla's termination "a good first step," the private equity firm urged the retailer's board to sell the company. The Clinton Group says it believes a sale could give stockholders $5 to $8 per share.

The retailer's stock fell 30 cents, or 10.1 percent, to close at $2.66 Monday. The shares fell as low as $2.42 earlier in the session, the lowest they've been since March 2009. For the year to date, the stock is down over 18 percent.

"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," Clinton Group senior portfolio manager Joseph DePerio said in a statement.

Teen retail is highly competitive, with fickle shoppers. Wet Seal, which has about 550 stores in the U.S., has struggled to find the right product lineup to lure young women, and its stock has lost half its value over the past 12 months. It said in May that it planned to close Arden B stores and open fewer Wet Seal stores to control costs as sales deteriorate.

That decline has worsened this summer, and the Foothill Ranch, Calif., company on Monday cut its outlook for the quarter ending in July.

Revenue in at stores open at least year dropped 8.8 percent in May and 9 percent in June, and the company said Monday that the figure has fallen 13 percent to 14 percent through the third week of July.

This figure is a key gauge of a retailer's health because it counts only established stores, excluding results from stores recently opened or closed.

The accelerating sales slide led the company to cut its outlook for the quarter ending in July. It expects a loss of 6 cents to 7 cents per share, excluding a charge for the declining value of its stores and CEO severance costs. It previously predicted a loss of 3 cents to 6 cents per share, while analysts polled by FactSet had forecast a loss of 5 cents per share.

Wet Seal also expects revenue at stores open at least a year to drop 10 to 11 percent in the period. It had previously predicted a 7 percent to 11 percent decline, while analysts had expected an 8.5 percent drop.

The Foothill Ranch, Calif., company doesn't just have problems with merchandise and attracting shoppers. It must also deal with a lawsuit filed earlier this month by three former employees. The plaintiffs claim that, beginning in 2008 and through the present, Wet Seal discriminated against African-American store management employees. They contend that the company's top executives set out to fire African-American employees because they didn't fit the retailer's "brand image."

Wet Seal has denied the allegations.

Before coming to Wet Seal, McGalla was president and chief merchandising officer of teen retailer American Eagle Outfitters Inc.

With McGalla no longer in the CEO post, Wet Seal has created an Office of the Chairman led by Chairman Hal Kahn. The group also includes President and Chief Operating Officer Ken Seipel and Benrubi. They will run the company until Wet Seal finds a new CEO.