WTSLA The Wet Seal - Class A (MM)

The fashion apparel retailer Wet Seal Inc.’s (WTSLA) search for a Chief Executive Officer ended with the appointment of John D. Goodman. The company signed an employment contract with Mr. Goodman, under which he will serve as its CEO through January 30, 2016.

Mr. Goodman has 25 years of experience with companies including Gap, Inc. (GPS), Levi Strauss & Co., Mervyn's and Bloomingdale's. The veteran in fashion retailing had recently served as the Executive Vice President, Chief Apparel and Home Officer of Sears Holding Corporation (SHLD).

The newly appointed CEO is expected to drive Wet Seal to newer heights. He has the understanding of fashion retailing for young people, which should help sales at Wet Seal. Moreover, Mr. Goodman is experienced with turnaround initiatives and had proved effective for Charlotte Russe, a publicly traded junior retailer.

Mr. Goodman replaces Susan McGalla, who had been ousted by Wet Seal management amid declining sales and the company’s being charged for racial discrimination against its African American employees. The company had fired McGalla even before finding a replacement.

However, shareholders are not confident about the company’s steps, which we think is because of its having replaced four CEOs in five years without any improvement in its top line.

Meanwhile, the teen fashion chain suffered declining sales, as same store sales plunged 9.7% year over year in the five-week period ended December 29, 2012. This compares unfavorably with the 3.7% decline in same-store sales in the year-ago period.

Total sales in Wet Seal stores slipped 7.2% year over year to $62.9 million and Arden B stores’ total sales declined 14.7% to $10.1 million in December 2012.

The decline in total sales and comparable sales could be attributable to the slower pace of economic recovery and lower spending by domestic customers. The fear of a fiscal cliff and volatile teen fashion also contributed to the lower sales of the company.

Wet Seal faces stiff competition from American Eagle Outfitters Inc. (AEO) and Gap Inc.. Currently, Wet Seal holds a Zacks #3 Rank (short-term Hold rating).

 
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