The Wet Seal, Inc. (Nasdaq: WTSLA), a leading specialty retailer
to young women, announced today that it has issued a letter to the
company’s shareholders, updating them on recent positive
developments at the company and urging them to reject Clinton
Group’s efforts to replace experienced members of the Board. A copy
of the letter is attached.
Today the company also filed its definitive revocation statement
with the SEC. A copy of the statement is available at
www.wetsealinc.com.
The shareholder letter highlights the Board’s recent steps to
address shareholder concerns, including the addition of new Board
members with successful fast fashion expertise, changes in Board
structure and compensation, the termination of the temporary
shareholder rights plan, and the advancement of the date of the
annual shareholder meeting.
The letter also discusses the Board’s ongoing efforts to engage
Clinton Group in a constructive dialogue to achieve a compromise
that is in the best interests of all shareholders. Clinton Group’s
unwillingness to compromise and their record of short-term activism
suggest that it is not acting in the best interest of all
shareholders. Moreover, the current Board has extensive teen retail
and fast fashion experience and a clear strategy already in place.
In stark contrast, Clinton Group simply does not have any semblance
of a business strategy, let alone one that will help improve
business performance and enhance the company’s long-term value for
shareholders. Finally, their nominees do not appear to have any
direct teen or fast fashion expertise.
The Board strongly urges shareholders to reject Clinton Group’s
proposal to replace experienced members of the Board with Clinton’s
slate of hand-picked nominees by refusing to sign the white proxy
or, alternatively, voting the BLUE proxy and ensuring that it is
received by The Wet Seal as soon as possible.
If shareholders have any questions or need assistance in voting
their shares, they should contact The Wet Seal’s proxy solicitor,
MacKenzie Partners, Inc., at 212-929-5500.
About The Wet Seal, Inc.
Headquartered in Foothill Ranch, California, The Wet Seal, Inc.
is a leading specialty retailer of fashionable and contemporary
apparel and accessory items. As of August 25, 2012, the Company
operated a total of 551 stores in 47 states and Puerto Rico,
including 469 Wet Seal stores and 82 Arden B stores. The Company's
products can also be purchased online at www.wetseal.com or
www.ardenb.com.
For more company information, visit www.wetsealinc.com.
# # #
Letter to Shareholders
September 24, 2012
Dear Shareholder,
During the last several weeks, we have engaged with many of you
to hear your concerns, and we continue to do so. And we have taken
expedient action to address those concerns. As we discuss in more
detail below:
- We continue to implement a fast fashion
merchandising strategy, and we are seeing positive results from
those efforts
- We have added two new, independent
Directors who have experience with fast fashion and targeting our
core demographic
- We have made changes to Board structure
and compensation
- We terminated the temporary shareholder
rights plan
- We moved up the date of the annual
meeting
At the same time, we have tried to engage in a constructive
dialogue with Clinton Group to achieve a compromise that is in the
best interests of Wet Seal and all shareholders. After speaking
with many of you, we believe a prolonged proxy battle with Clinton
Group is not in the best interests of the company or our
shareholders. In our discussions with Clinton Group, the Board
proposed to:
- Expand the Board to include two new
independent Clinton Group nominees and two new independent Wet Seal
nominees, all with significant retail expertise
- Reorganize the CEO Search Committee to
include a Clinton Group nominee, a new Wet Seal nominee and a
current Board member
- Reconstruct the Nominating Committee to
include a Clinton Group nominee
- Disband the Strategic Oversight
Committee and transfer the responsibilities to the entire Board,
including new members
We believe that for a 7% shareholder such as Clinton Group, a
compromise of this nature is fair and reasonable. However, Clinton
Group rejected the proposal and indicated it was not open to
compromise. Their unwillingness to compromise, when it is clear
that a long, expensive proxy battle is not in the interests of all
shareholders, demonstrates that, consistent with its track record,
Clinton Group is focused solely on short-term activism and its own
interests. We remain open to finding a compromise with the Clinton
Group. The events of recent weeks demonstrate that your Board is
acting in the best interests of all shareholders. Moreover, your
Board has extensive experience with this company, teen retail and
fast fashion. On the other hand, while the Clinton Group nominees
all have retail experience, none of them appear to have any
expertise in the specific teen girls’ retail niche in which The Wet
Seal competes nor in any other kind of fast fashion merchandising.
Your company should not be in the hands of a group of directors
that lacks that critical experience.
Return to Fast Fashion and Change in Leadership
We believe it is important for our shareholders to be aware of
the recent history of leadership and the transition underway at Wet
Seal. In 2010, after a thorough search process, the Board hired
Susan McGalla as CEO because the Board believed she had the deep
merchandising experience to be able to expand our fashion content
and life-style appeal, as well as to build our brand. When she
joined full time in August 2011, Ms. McGalla implemented certain
initiatives designed to capture more sales from our core customers
and additional sales from a broader customer base. However, by
mid-2012, our weak sales results made it clear that the new
initiatives were producing negative results and we were losing our
core customers at an increasing rate.
In July 2012, the Board acted promptly to address the company’s
worsening performance by making the difficult decision to terminate
Ms. McGalla and return immediately to the fast fashion
merchandising strategy that had long supported success prior to Ms.
McGalla’s tenure. We took this action when we did because we felt
it was critical to the long-term viability of the company that we
return to a known and proven strategy in time for the 2012 holiday
season. Returning to our fast fashion strategy means that we
are:
- Merchandising to our core young teen
customers
- Increasing the portion of our
merchandise bought from quick-source vendors by 50%
- Committing to merchandise purchases
closer to time of need
- Expanding our inventory style breadth
by 20-25%
- Focusing our price points on our core
customers
These changes are already taking effect,
and we anticipate visible and meaningful improvements in our
results by mid-November.
The Market’s Reaction to Our Change in Strategy
Since we made the decision to alter our strategy in July, our
stock price has increased by more than 20%. In addition, this week
Roth Capital Research upgraded their rating on The Wet Seal from
“Neutral” to “Buy”. In doing so, Roth Capital cited the Board’s
recent actions as the main reason for the increased confidence in
the company and stated, “we believe the appropriate steps are
in-place to drive the turnaround.” While we believe the stock price
is still not at an acceptable level, we are pleased that the market
is recognizing the positive steps we are taking.
Your Board’s Track Record
During the three-year period from November 2008 (the approximate
start of the recession) to November 2011 (which marked the end of
Ms. McGalla’s first full quarter), Wet Seal’s stock price increased
43.5% versus 39.7% for an indexed average of eight other teen
specialty retailers.1 During that period, Wet Seal’s average
quarterly comparable store sales performance of -2.5% exceeded that
of six of the ten2 comparable companies. Furthermore, Wet Seal’s
average operating margin of 5.3% exceeded the average operating
margin of four of the ten2 other teen specialty companies, and the
company improved its rolling average operating margin by 0.1% from
Q3 2009 to Q3 2011 while most other companies in the group
experienced margin declines over that period. This data
demonstrates the Board’s successful strategic oversight during a
challenging economic environment and a period of transition.
In addition, your Board has always acted in good faith, been a
strong steward of the Company’s capital and been diligent in its
responsibilities to shareholders. In August, your Board hired
advisors to evaluate the company’s balance sheet and use of cash,
assist us in engaging with our investors and explore all strategic
opportunities to enhance shareholder value.
Your Board Has Engaged Proactively With You, Listened, and
Made Changes
In recent months we have actively pursued meetings with our
shareholders to listen to your concerns and explain our strategy.
The Board has acted swiftly to address the concerns we heard:
New Experienced
Directors
As announced earlier this week, the Board has
elected two new independent Board members with significant and
successful fast fashion retail experience targeting our core
demographic: Kathy Bronstein, retail consultant and former CEO of
Wet Seal and John Goodman, most recently Executive Vice President
of Apparel and Home at Sears and former CEO of Charlotte Russe.
We believe that Ms. Bronstein and Mr. Goodman
have excellent backgrounds and will be additive to the Board
immediately. Ms. Bronstein has significant retail experience,
including 18 years at Wet Seal, where she was instrumental in
developing the merchandising strategy for our core teen customer
and served as CEO from 1992 to 2003. Under her leadership, Wet Seal
increased its number of stores from less than 25 in 1985, to over
100 in 1992, and to over 600 in 2003. The company also grew
revenues from approximately $14 million in 1985, to approximately
$150 million in 1992, and to over $600 million in 2003. Most
recently, Ms. Bronstein has advised numerous large public and
venture capital-backed retail businesses, including Guess, Inc.,
Charlotte Russe Holdings, Seven for All Mankind Jeans and
Brighton.
Mr. Goodman has direct junior apparel and
fast fashion experience as the CEO of Charlotte Russe from 2008 to
2009 when the company was acquired at a premium of 26.9% over the
last trading price prior to signing a merger agreement, resulting
in a more than doubling of its share price during his tenure. His
additional experience includes numerous senior leadership positions
at various large retail companies, including Sears, Kmart, Levi
Strauss and Gap. Most recently, he served as Executive Vice
President of Apparel and Home at Sears Holdings Corporation from
2009 to 2012.
Changes to Board
Committee Structure and Compensation
We disbanded the Board’s Strategic Oversight
Committee and rescinded previously announced additional
compensation for the Committee’s members. In addition, the Board
determined it was appropriate to reduce Mr. Kahn’s recently awarded
additional compensation to reflect an expected reduction in the
level of his direct oversight during the last 90 days of this
fiscal year. Finally, each Board member’s annual retainer will be
reduced by $25,000 beginning in Fiscal 2013.
Shareholder Rights Plan
Terminated
Your Board has terminated the temporary
shareholder rights plan, reflecting feedback from shareholders and
the Board’s confidence in the company’s stabilizing share price and
its ability to return to strong performance under the fast fashion
strategy beginning in the fourth quarter.
Advanced Timetable for
Annual Meeting
The Board has decided to move up the next
shareholder meeting, which will be held no later than April 19,
2013. All Board members are elected annually to one year terms.
Active Search for
CEO
Your Board is working actively with leading
recruiter Korn/Ferry to find a new CEO for The Wet Seal. We already
have been approached by a number of qualified candidates and are
confident we can successfully fill the role in the near-term.
Clinton Group Short-Term, Self-Interested Goals
Clinton Group’s actions in recent months have demonstrated that
they only care about their interests and their focus is on
short-term and short-sighted gain. Consistent with their track
record of short-term activism, they have made a series of
inconsistent demands to Wet Seal. In June 2012, Clinton Group
initially requested that the company return cash at a significant
premium to market and voiced support for CEO Susan McGalla in
conversations with our directors. Then, they supported the Board’s
decision to terminate Ms. McGalla and urged the Board to sell the
company immediately, despite poor operating results. Now, Clinton
Group is engaged in a misguided effort to replace four experienced
members of your Board with five new directors, none of whom know
our business model nor have meaningful experience in our fast
fashion business. Clinton Group simply does not have any semblance
of a business strategy, let alone one that will help improve
business performance and enhance the company’s long-term value for
shareholders.
This should not be surprising. According to www.13Dmonitor.com,
which maintains a database that tracks activist investors and their
investments, Clinton Group has a history of trading in and out of
positions while pursuing an activist strategy, and their average
13D holding period for Consumer Services companies is just over
five months, never holding one of these positions for even a
year.
During the period that they are a 13D holder, the share price of
companies in which Clinton Group has an interest has dropped on
average 11.5% versus an average drop of 2.3% for the S&P 500
during the same time periods. The share prices of Clinton Group’s
seven previous targets in the Consumer Services Sector decreased an
average of 20.2% versus a comparable 2.2% decrease for the S&P
500.3
Clinton’s Board Candidates Don’t Stack Up to Our
Board
As mentioned above, neither Clinton Group nor any of its
proposed Board nominees appear to have any specific strategy for
the Wet Seal business, nor do they appear to have any direct teen,
fast fashion experience. We believe the
current Board, with the new additions and the additional candidates
prepared to join in the near term is a stronger group than what
Clinton has proposed and is better suited to lead the company as it
returns to a fast fashion strategy.
Accordingly, we strongly urge you to
reject the Clinton Group’s efforts to replace experienced members
of your Board with a hand-picked slate of
candidates.
Sincerely yours,
The Board of DirectorsThe Wet Seal, Inc.
Safe Harbor
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995: This news release contains forward-looking
statements as that term is defined in the Private Securities
Litigation Reform Act of 1995. These forward-looking statements
include, but are not limited to, statements that relate to the
intent, belief, plans or expectations of the The Wet Seal, Inc.
(the “Company”) or its management. All forward-looking statements
made by the Company involve material risks and uncertainties and
are subject to change based on factors beyond the Company's
control. Accordingly, the Company's future performance and
financial results may differ materially from those expressed or
implied in any such forward-looking statements. Such factors
include, but are not limited to, those described in the Company's
filings with the Securities and Exchange Commission (the “SEC”).
The Company will not undertake to publicly update or revise its
forward-looking statements even if experience or future changes
make it clear that any projected results expressed or implied
therein will not be realized.
Other Disclosures
The Company and certain of its directors and executive officers
may be deemed to be participants in a solicitation of consent
revocations from stockholders in connection with the consent
solicitation by Clinton Group, Inc. The Company has filed a
definitive consent revocation statement with the Securities and
Exchange Commission (the “SEC”) in connection with such consent
solicitation (the “Consent Revocation Statement”). Information
regarding the names of the Company’s Directors and executive
officers and their respective interests in the Company by security
holdings or otherwise is set forth in the Consent Revocation
Statement filed with the SEC. This document is available free of
charge at the SEC’s website at www.sec.gov.
The Company is commencing the mailing of the definitive Consent
Revocation Statement and a form of consent revocation to each
stockholder entitled to deliver a written consent in connection
with the consent solicitation. WE URGE INVESTORS TO READ THE
CONSENT REVOCATION STATEMENT (INCLUDING ANY SUPPLEMENTS THERETO)
AND ANY OTHER RELEVANT DOCUMENTS THAT THE COMPANY FILES WITH THE
SEC WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT
INFORMATION. Stockholders will be able to obtain, free of charge,
copies of the definitive Consent Revocation Statement and any other
documents filed by the Company with the SEC in connection with the
consent solicitation at the SEC’s website at www.sec.gov.
1 These companies include American Eagle Outfitters, Inc.,
Abercrombie & Fitch Co., Aeropostale, Inc., Bebe Stores, Inc.,
dElia*s, Inc., Hot Topic Inc., Pacific Sunwear of California Inc.,
and Urban Outfitters Inc. Body Central Corp., which began trading
in October 2010, and rue21, Inc., which began trading in November
2009, have been excluded.
2 Includes Body Central Inc. and rue21, Inc.
3 www.13Dmonitor.com
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