Wet Seal shares plunge on concerns over prolonged turnaround

Shares of Wet Seal Inc (WTSLA.O) fell as much as 14 percent after the women's apparel retailer forecast a weak third quarter, saying benefits from its turnaround efforts would only begin to materialize in the fourth quarter.

Wet Seal, which last month fired its Chief Executive Susan McGalla, adopted a shareholder rights plan on Tuesday after activist-investor Clinton Group called for a sale of the company.

Shares of Wet Seal touched a three-week low of $2.63 on Wednesday. The stock was one of the top percentage losers on the Nasdaq.

The Foothill Ranch, California-based retailer, which reported 12 straight months of declining same-store sales, is trying to return to fast-fashion retailing by maintaining light inventories to respond faster to new styles and trends.

"We do not share management's confidence that the business will turn by the fourth quarter," Paul Lejuez of Nomura Equity Research said, adding that the business trends will deteriorate further for the company.

"The competitive landscape remains challenging and we believe Wet Seal is suffering from an identity crisis that will be difficult to overcome," Lejuez said.

The company hired Guggenheim Securities and Peter J. Solomon Co as advisers to assess its capital needs and strategic options.

Piper Jaffray & Co analyst Stephanie Wissink noted the company's evaluation of strategic alternatives could overshadow its turnaround activities.

"Investors will focus on the board's evaluation of strategic alternatives and shares will trade on prospects, or lack thereof, of a potential sale," Wissink wrote in a client report.

The company's stock has lost more than a quarter of its value in the past year.

The poison pill, scheduled to expire on June 30, 2013, will trigger if a person or group acquires 10 percent or more of the outstanding Class A common stock or announces a tender offer for 10 percent or more of the Class A common stock.

Clinton Group has a 3.92 percent holding in the company, according to Thomson Reuters data.

(Reporting by Ranjita Ganesan in Bangalore; Editing by Maju Samuel)