UPDATE 3-Clinton wins Wet Seal board seats, company sale seen likely

* Analysts say company likely to be sold

* Chairman Harold Kahn among those who resigned

* Merchandising chief moves to True Religion Apparel

(Adds departure of chief merchandising officer; updates shares)

By Juhi Arora

Oct 5 (Reuters) - Wet Seal Inc replaced four boardmembers with Clinton Group nominees, putting the activistinvestor in a stronger position to push for a sale of thestruggling clothing retailer.

Chairman Harold Kahn was among those who resigned but hewill stay on as a consultant with the company, whose monthlysame-store sales have been on a relentless decline.

Clinton Group holds about 7 percent of Wet Seal and hascalled for a sale of the company, saying its performance overthe last five years has been unnecessarily poor and that theboard made missteps in hiring and strategy.

"This will be a much more aggressive board in terms ofexploring potential sale of the company," said Eric Beder ofBrean Murray, Carrt & Co.

"They don't have majority (on the board) but they can getmuch more aggressive in making the board move forward."

The retailer, which caters primarily to young women, firedChief Executive Susan McGalla in July as Clinton stepped uppressure on the company to turn around its business. The companyhas set up a search committee to find a new CEO.

Kathy Bronstein, who was the company's CEO from 1992 to2003, and retail industry veteran John Goodman were appointed tothe board in September.

Under the new team, Wet Seal has been trying to return to afast-fashion model by maintaining light inventories to respondfaster to new styles and trends.

Former CEO Susan McGalla's move away from fast fashion wasseen by many as the reason for deteriorating sales at theretailer.

The company also announced late Friday that itsmerchandising chief Harriet Sustarsic will be leaving thecompany to assume a similar role at True Religion Apparel Inc.

Sustarsic had been with Wet Seal for about a year.

Kim Bajrech and Debbie Shinn will lead Wet Seal'smerchandising operations, a post they previously shared on aninterim basis from November 2009 through November 2011.

Wet Seal said the duo oversaw a successful sales period forthe company under its fast-fashion model.


As much as 63 percent of the outstanding shares were votedin favor of the removal of the directors, the New York Postreported, citing a person with knowledge of the proxy vote.

"This means that the shareholders have not only beenfrustrated with executive management and the existing board, butalso the composition of the board," said Piper Jaffray analystStephanie Wissink, who expects the company to be sold.

Wet Seal had adopted a shareholder rights plan in responseto Clinton Group's demands for board seats and a sale. Thecompany later withdrew the "poison pill" and offered to nominatetwo of Clinton's nominees to the board.

The talks between Clinton Group and Wet Seal appeared tocollapse earlier this week when the investor said that theretailer had backtracked on an offer to give it five seats onthe board.

Clinton nominees Dorrit Bern, Lynda Davey, Mindy Meads andJohn Mills will join Bronstein, Goodman and Ken Reiss on theboard.

The company, which operates 554 Wet Seal and Arden B storesin the United States and Puerto Rico, has reported declines inmonthly same-store sales for more than a year.

Revenue fell 9 percent to $135 million in the secondquarter.

Shares of the Foothill Ranch, California-based companyclosed at $3.14 on the Nasdaq on Friday.

(Reporting by Arpita Mukherjee, Juhi Arora & Chris Peters inBangalore; Editing by Saumyadeb Chakrabarty)

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