Body Central Corp (BODY): A New Hope – Rue21, Inc. (RUE), The Wet Seal, Inc. (WTSL)

Apparel retailer Body Central Corp (NASDAQ:BODY) struggled throughout 2012. Same store sales and net income fell 8.1% and 40% respectively. Operating margins declined 44 basis points to 6.2% during the year. February 2013 saw the beginnings of new hope with the appointment of a new CEO, the ousting of merchandising Vice President Beth Angelo, and the installation of a new merchandising team. Body Central may serve as an interesting turn around play.

On an interesting note, the stock compensation of Body Central’s new CEO, 40 year retail veteran Brian Woolf, incentivizes stock price expansion. The exercise price equals the closing price on the day of his hiring (Feb. 5) and will vest at 25% per year over a four year period starting on Feb. 5, 2014. If his new strategies succeed and the stock price expands it will enhance his compensation while at the same time keeping him committed for the long term. Brian Woolf comes equipped with experience and skills to pull off a turnaround; he recently served as group president of Lane Bryant where he was in charge of merchandising, supply chain, and store operations.

Body Central Corp (NASDAQ:BODY) acted proactively compared to its competition The Wet Seal, Inc. (NASDAQ:WTSL). Outside investing company, Clinton Group intervened and forced the resignation of a large number of Wet Seal’s senior management and board of directors after reporting month after month of declining store sales in 2012. Wet Seal increased revenue and operating cash flow 11% and 53% respectively in the three years leading up to 2012 and then everything fell apart. Its stock price declined 16% in 2012 though not as much as Body Central’s 58% (see chart below).

BODY Total Return Price data by YCharts

Rue21, Inc. (NASDAQ:RUE)’s 32% return in 2012 stems from successful merchandising, successful store layouts and staying on top of fashion trends. This company also caters to a wider demographic than Body Central and The Wet Seal, Inc. (NASDAQ:WTSL): men and women. Body Central’s new CEO realizes the key to success resides in an effective merchandising strategy.

On that note, Body Central Corp (NASDAQ:BODY) finally appointed a new merchandising team ready to focus and execute on new ideas most notably, Debbie Martin, the new Senior Vice President of Trend and Design. She also came from Lane Bryant with experience in trends and fashion. Mrs. Martin will work out of New York where she will advise Body Central on the latest fashion trends. Body Central desperately needs someone with a finger on changes in the fashion dynamic. A person with an office in New York City, a place that sets the stage for fashion, will contribute greatly to Body Central’s merchandising strategy.