Wet Seal Hires Team to Explore Sale

Beleaguered retailer The Wet Seal Inc. announced Nov. 24 that it has hired a team to help the Foothill Ranch, Calif.–based retailer to look for “strategic and financial alternatives,” which is industry lingo for considering an array of new directions for the business, including a sale.

Wet Seal hired Houlihan Lokey, a global investment bank with a Los Angeles office, to help chart its next steps. It also hired William Langsdorf, a former chief financial officer for Tilly’s Inc., to be an adviser.

Ed Thomas, who joined Wet Seal as its chief executive officer on Sept. 3, declined to give a schedule for a sale. A company statement noted that the exploration of alternatives may not result in a sale. However, Thomas noted that tough times demand hard choices.

“I’m proud of the progress we have made to date in light of the ongoing difficult macro environment and state of affairs at the company when I joined in September. Given our struggles and challenges, it is prudent for us to continue the review of alternatives. We welcome the addition of these advisers to our team,” Thomas said.

The announcement comes on the heels of activist investors Clinton Group going public with its frustration with the Wet Seal turnaround. On Nov. 19, it distributed a letter to Wet Seal’s board of directors through PRNewswire. The letter, signed by Joseph A. De Perio, a senior portfolio manager, demonstrated frustration with Thomas, because it claimed that the stock price had dropped 80 percent since Thomas started helming the retailer. It also requested that the company seek different debt financing rather than Bank of America, its current lender. It also requested changes in the retailer’s equity financing situation and that it make real estate concessions.

On Nov. 17, B. Riley & Co., a financial-services firm, downgraded Wet Seal’s stock from buy to neutral. Jeff Van Sinderen, a B. Riley analyst, wrote that Thomas is making the right calls for a turnaround but that it may not be enough.

“Although every possible effort is being made by the much improved WTSL leadership, those critical elements of the turnaround have not yet materialized,” Van Sinderen wrote. “While we have believed that Ed Thomas is one of the few people on the planet with a shot at turning around WTSL, with less than $20 million remaining on the balance sheet, time is of the essence.”

Van Sinderen called for landlords to work with Wet Seal to help the company. Wet Seal continues to run a fleet of 528 Wet Seal stores across the United States offering juniors fashions. However, the last few years have been filled with turmoil, seeing declining sales, proxy battles, and, on April 25, the shuttering of its contemporary Arden B division.