A Year After Dismissal, Former Chief Tried to Make a Comeback at Retailer Wet Seal

As Wet Seal Inc.’s fortunes dimmed over the summer, ousted Chief Executive Kathy Bronstein unsuccessfully sought financial backing for a plan that she hoped would give her a second chance to run the faltering teen retailer.

Bronstein, who was fired in early 2003 after 11 years at the helm of Wet Seal, said she met with potential investors, attorneys and others in an attempt to secure financing for her gambit. The effort failed, although she didn’t rule out making another run at it.

“Am I interested in taking over the company? Yes, because it still holds a place very close to my heart,” Bronstein said in an interview this week. “I’m not pursuing it at the moment. That’s not to say I wouldn’t pursue it again.”

Bronstein’s potential reemergence is the latest twist for troubled Wet Seal, which declined to comment on the actions of its former CEO.

The Foothill Ranch-based company, which operates 560 Wet Seal and Arden B. stores, lost $102.8 million in its fiscal second quarter while burning through about $35 million in cash. More losses are predicted for the current quarter.

Analysts say a Chapter 11 bankruptcy filing is a possibility, in part because it would make it easier for the company to close unprofitable stores.

Bronstein, who worked 18 years for the company and even named the Arden B. division after her daughter, said her goal was to keep Wet Seal afloat without dismantling it.

“I know I could save the company,” she said.

Bronstein said she was prodded by a group of former and current Wet Seal employees who would like to be part of a new management team there. She declined to name any of them.

According to Bronstein, she began meeting with potential investors about six weeks ago in hopes of securing at least $50 million to help keep Wet Seal afloat while she tried to persuade shareholders to back a plan intended to keep the company out of bankruptcy protection and reinstall her as CEO. The current chief executive is Peter Whitford, who took over about 15 months ago.

But Bronstein said she couldn’t round up the money. Investors considered it wiser to see whether the company files for bankruptcy protection, although Bronstein said she hoped to sidestep such drastic action and thought it was too soon to consider widespread store closures.

In its most recent quarterly report, Wet Seal acknowledged that a reorganization under Chapter 11 bankruptcy protection is an option. The company, which has been hit with shareholders’ lawsuits, also said it was in the process of securing a loan of $7 million to $9 million.

Further, the retailer said vendors and others were tightening credit, making it harder to keep new merchandise flowing into its stores during the holidays -- a period that, combined with the back-to-school selling season, accounted for almost 30% of Wet Seal’s annual sales over the last three years.

Last week, the company said it had hired Rothschild Inc. to analyze its financial alternatives. But Wet Seal disputes speculation that it could run out of cash before Christmas.

“We’re not expecting to burn through more cash in the fourth quarter,” spokeswoman Helen Rotherham said.

Wet Seal’s stock closed Wednesday at $1.44, down 5 cents, on Nasdaq. It has plunged 85% this year.

Adrienne Tennant, an analyst with Wedbush Morgan Securities, said in a recent report that investors “may be assessing the potential for a buyout scenario.” Among the Wet Seal assets they are trying to value, Tennant wrote, is the 95-store Arden B. division, which has continued to perform well while the namesake chain has struggled.

Brian Tunick, an analyst with J.P. Morgan Securities, estimates that Arden B. is worth $70 million to $90 million, considerably more than Wet Seal’s current market capitalization of about $50 million.

Offering an alternative prospect, Tunick said another retailer launching a chain might want to pick up some of Wet Seal’s leases at bargain prices.

Wet Seal declined to comment on these scenarios.

Analysts voiced varying opinions about what might happen if Bronstein tried to engineer a takeover of her former employer.

Elizabeth Pierce, an analyst with Sanders Morris Harris, said it wasn’t far-fetched to imagine that Bronstein could revive the company because she understood its core audience: female teenage shoppers.

“No one that I’m aware of ever disputed her talent,” Pierce said. “She’s a good merchant, a good visionary.”

But by the time she was fired, Wet Seal already was “spiraling downward,” said Jeffrey Van Sinderen, an analyst with B. Riley & Co. “My take on her is she does have talent as a merchant, but I think the results speak for themselves,” he added. “She was either hot or she was cold.”

Tunick acknowledged that Wet Seal was Bronstein’s “baby,” but he maintains that the brand has lost its luster.

“She still feels that Wet Seal as a brand, as a store, has a lot of appeal. And with the right merchandise and the right marketing, this could really rise from the ashes and get back to what it was in the 1990s,” he said. “But the reality is, when you lose a customer it’s very hard to get them back.”