George E. Hall‘s Clinton Group, has picked up its position in The Wet Seal, Inc. (NASDAQ:WTSL), as a new filing with the Securities and Exchange Commission showed. Clinton currently owns some 5.89 million class A shares of the company, which represent 7% of class. Previously, the investor held 5.04 million shares, which represented 6% of class A common stock. The new stake also contains options to acquire 137,900 shares of class A common stock.
Clinton Group is an activist hedge fund that was founded by George E. Hall and was previously managed by Greg Taxin, who earlier this month left the fund to start a new venture. The fund has gained fame being engaged in several proxy fights with companies such as The Wet Seal, ValueVision Media Inc (NASDAQ:VVTV) and NutriSystem Inc. (NASDAQ:NTRI). ValueVision Media was the largest stake in terms of value at the end of the second quarter and the fund has been trying to pursue the company for some changes. Earlier this year, Clinton issued a press release urging shareholders to vote for its nominees to be elected to the Board of Directors. The investor formed an activist Group, together with J. Carlo Cannell’s Cannell Capital and last year the group demanded the management and the board to call for a special meeting of shareholder to elect new members, but the request was declined. Also, a couple of days ago, Clinton sent a letter to the CEO of NutriSystem Dawn Zier asking him to explore a potential sale of the company, but also to increase the stock buyback program and raise the dividend.
The history of Clinton Group’s investment in The Wet Seal, Inc. (NASDAQ:WTSL) can be traced back to 2012 when the fund first disclosed ownership of shares of the Wet Seal, holding initially some 3.54 million class A shares. The stock lost around 87% of its value since then, and has been constantly declining. Clinton went activist and appointed several directors to the board in 2012. At the end of last year, the fund proposed to acquire the company and take it private. Even though the deal did not fall through, the investor kept holding shares of the company, even though it has been decreasing its stake since the beginning of the year. In March, Clinton Group cut its position to 6.4 million shares, from 6.6 million shares and said that it supported the appointment of three new directors to the company’s board. Later the same month Clinton Group sent a letter to the CEO of the company at that time, Mr. John Goodman, in which it expressed its support for the company, despite its weak results and said that the company has taken some positive measures to improve its situation in order to stay ahead of competition. However, the stock kept losing ground and at the beginning of October, Clinton further cut its stake by 17% to 5.04 million class A shares.
This time, however, Clinton picked up its stake again. The move comes over a week after the company said that it had started to undertake some steps to cut its costs. The women’s clothing retailer said that it would reduce the workforce by eliminating 78 positions, includng 66 positions at the corporate office. The cuts will allow The Wet Seal, Inc. (NASDAQ:WTSL) to save around $5.7 million per year before taxes and will add to another $1.3 million in cost savings per year from improving its operating efficiency.
Nevertheless, The Wet Seal, Inc. (NASDAQ:WTSL)’s stock is trading close to its 52-week low of $0.37 and keeps losing ground. However, some investors remain bullish, such as Michael Zimmerman’s Prentice Capital Management, which owns around 2.85 million shares as of the end of June, raising the position by more than a tenfold during the second quarter; the stake amasses over 2% of Prentice Capital’s equity portfolio, according to the latest 13F filing. Chuck Royce’s Royce & Associates upped its stake by around 58% on the quarter to 1.43 million shares as of the end of June, while Jim Simons’ Renaissance Technologies boosted its exposure by over 190% to 2.44 million shares. However, both Royce and Renaissance are funds with huge equity portfolios and their stakes in The Wet Seal represent tiny portions of the portfolios.
With this in mind, The Wet Seal, Inc. (NASDAQ:WTSL), which has fallen to the level of a penny stock, is worth some further research. Since Clinton Group has been actively involved in the company’s activity and owns a significant position, the stock might be attractive for smaller investors as well. However, taking into account the significant decline of the stock on the back of the falling revenues and net incomes should raise some question marks regarding the future potential of the stock.
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