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 board members with Clinton Group nominees, putting the activist investor in a stronger position to push for a sale of the struggling clothing retailer.

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

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

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

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

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

Kathy Bronstein, who was the company's CEO from 1992 to 2003, and retail industry veteran John Goodman were appointed to the board in September.

Under the new team, Wet Seal has been trying to return to a fast-fashion model by maintaining light inventories to respond faster to new styles and trends.

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

The company also announced late Friday that its merchandising chief Harriet Sustarsic will be leaving the company 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's merchandising operations, a post they previously shared on an interim basis from November 2009 through November 2011.

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


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

"This means that the shareholders have not only been frustrated with executive management and the existing board, but also the composition of the board," said Piper Jaffray analyst Stephanie Wissink, who expects the company to be sold.

Wet Seal had adopted a shareholder rights plan in response to Clinton Group's demands for board seats and a sale. The company later withdrew the "poison pill" and offered to nominate two of Clinton's nominees to the board.

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

Clinton nominees Dorrit Bern, Lynda Davey, Mindy Meads and John Mills will join Bronstein, Goodman and Ken Reiss on the board.

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

Revenue fell 9 percent to $135 million in the second quarter.

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

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

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