Wet Seal CEO fired amid racial discrimination lawsuit against company

FOOTHILL RANCH, Calif. (AP) — As sales declines deepen, teen retailer Wet Seal Inc. is firing CEO Susan McGalla without a replacement for her.

McGalla had been Wet Seal’s CEO since January 2011, and had signed an employment contract with the company through August 2014. Her departure is effective immediately, and the company said Monday that it is starting a search for a new CEO. In the meantime, the company’s chairman, president and chief financial officer are overseeing Wet Seal.

The retailer’s stock fell 21 cents, or 7.1 percent, to $2.75 in premarket trading.

Teen retail is highly competitive, with fickle shoppers. Wet Seal, which has about 550 stores in the U.S., has struggled to find the right product lineup to resonate with young women, and its stock has lost half its value over the past 12 months. It said in May that it planned to close Arden B stores and open fewer Wet Seal stores to control costs as sales deteriorate.

That decline has worsened this summer, and the Foothill Ranch, Calif., company on Monday cut its outlook for the quarter ending in July.

Revenue in established stores dropped 8.8 percent in May and 9 percent in June, and the company said Monday that revenue at stores open at least a year have fallen 13 percent to 14 percent through the third week of July.

This figure is a key gauge of a retailer’s health because it counts only established stores, excluding results from stores recently opened or closed that can skew normal operations.

The accelerating sales slide led the company to cut its outlook for the quarter ending in July. It expects a loss of 6 cents to 7 cents per share, excluding a charge for the declining value of its stores and CEO severance costs. It previously predicted a loss of 3 cents to 6 cents per share, while analysts polled by FactSet forecast a loss of 5 cents per share.

Wet Seal also expects revenue at stores open at least a year to drop 10 to 11 percent in the period. It had previously predicted a 7 to 11 percent decline, while analysts expect an 8.5 percent drop.

The Foothill Ranch, Calif., company doesn’t just have problems with merchandise and attracting shoppers. It is also contending with a federal racial discrimination lawsuit filed earlier this month by three former employees. The former workers claimed in the lawsuit that Wet Seal’s management set out to fire African-American employees because they didn’t fit the retailer’s “brand image.”

Wet Seal has denied the allegations.

Before coming to Wet Seal, McGalla was president and chief merchandising officer of teen retailer American Eagle Outfitters Inc.

With McGalla no longer in the CEO post, Wet Seal has created an Office of the Chairman led by Chairman Hal Kahn. The group also includes President and Chief Operating Officer Ken Seipel and CFO Steve Benrubi. They will run the company until Wet Seal finds a new CEO.

A representative for the company could not be immediately reached for further comment.