Posted on: Wednesday, December 29, 2004
Wet Seal to slash 150 stores, 2,000 jobs
By Leslie Earnest
Los Angeles Times
Wet Seal Inc. said yesterday that it would close about 150 "underperforming" stores and eliminate 2,000 jobs.
The ailing retailer, based in Foothill Ranch, Calif., was "finalizing the details" and not prepared to disclose which of its 463 Wet Seal stores would be shuttered, spokeswoman Helen Rotherham said. Wet Seal lists five O'ahu stores and two Maui stores on its Web site.
The company has hired a liquidator to manage inventory as stores are closed, a process that should be completed by the end of February. The company employs 6,656 people nationwide.
Interim Chief Executive Joseph Deckop said in a statement that the decision was difficult but necessary to reduce costs and allow Wet Seal to focus on its strongest stores as it implements a "new merchandise strategy."
Analysts had been waiting to learn how many stores and jobs Wet Seal — which has posted nine consecutive quarters of losses — would shed.
"They're obviously closing stores that they don't need from a sales perspective, so it's positive," said Kevin Starke, an analyst with Imperial Capital. He added that the number of stores was "fewer than one might have expected" because Wet Seal had written off the assets of 259 stores in July.
Starke estimated the retailer would save at least $20 million annually on salaries as a result of the job cuts.
But it won't be inexpensive to trim stores or jobs. Terminating leases and distributing severance pay will probably cost "many millions of dollars," said Jeffrey Van Sinderen, an analyst with B. Riley & Co.
Robert Buchanan, an analyst with A.G. Edwards & Sons, said that "generally, outside of bankruptcy, it's very, very hard to get out of leases, so I guess I'll believe it when I see it."
Aiming to avoid a bankruptcy filing, Wet Seal agreed in early November to sell $55.8 million in secured convertible notes to a group of investors and a hedge fund, S.A.C. Capital Associates. Shareholders are scheduled to vote on the financing plan at a meeting Jan. 10.
The company's stock has fallen 79 percent this year. Yesterday, it closed at $2.09, up 4 cents, on Nasdaq. The announcement about the store and job cuts was made after the market closed.
Analysts said they were eager for details about how Wet Seal would alter its merchandise and pricing to woo back the teenage patrons who began shunning the chain more than two years ago.
"They really haven't revealed much at all," Van Sinderen said. "They've been changing the merchandise supposedly for a number of years, and so far that hasn't worked."
When it arranged the financing deal in November, Wet Seal said it had hired Michael Gold, the CEO of a Canadian teen retail chain, as a consultant to "guide merchandising initiatives" and help streamline operations.
Earlier this month, Wet Seal said that Deckop would be replaced Feb. 1 by Joel Waller, the chairman and former chief executive of Wilsons the Leather Experts Inc. Waller will be the fifth CEO in less than two years.
