Orange County Business Journal

Wet Seal Warns of Q2 Profit Shortfall

Kari Hamanaka Thursday, May 19, 2011

Foothill Ranch-based mall retailer Wet Seal Inc. warned of lower profits for its current quarter as it increases spending on marketing initiatives in a bid to boost sales.

The company said it expects a profit of $1 million to $2 million for the three months through July.

That compares to $3 million Wall Street analysts had expected on average.

Wet Seal, which runs clothing stores for teen girls and young women, said it expects revenue of $145 million to $147 million for the current quarter, roughly in line with the $147 million analysts had estimated.

The revenue forecast is up about 11% from what the company reported a year earlier.

Wet Seal operates 536 stores nationally. The company's dominant chain for teen girls, Wet Seal, accounts for 454 of those stores. The rest is comprised of the company's Arden B. division for young women.

The company's “top priority is to continue to increase sales in our existing store base,” Wet Seal Chief Executive Susan McGalla said in a statement.

To boost sales, the company has plans to conduct a market research study, improve customer service and rework in-store displays.

The improvements will mean additional expenses for the company in the short-term but will bode well for the business come the second half of the year, McGalla said.

The company has plans to add six Wet Seal and two Arden B. stores during the current quarter, as a number of new stores will offset closures of others.

The outlook follows Wet Seal’s results for the three months through April.

Wet Seal reported revenue of $156 million, about in line with the $155.8 million analysts expected.

The company met analyst expectations on profit, reporting $8 million for the three months through April.

Wet Seal reported earlier this month another gain in comparable sales for stores open at least a year, a key measure for retailers.

The retailer saw April same-store sales increase 7%.

That was the largest same-store increase for Wet Seal since 2006, which McGalla attributed to “efforts to improve merchandise content across all categories in both brands.”

The Wet Seal division led that first-quarter same-store sales surge with an 8.3% increase.

Arden B. same-store sales fell by slightly less than a percent in April.