Orange County Business Journal

Wet Seal Shares Slide on Rugged Q3

Jerry Sullivan Thursday, November 3, 2011

A budding turnaround at Wet Seal Inc. took a turn today when the Foothill Ranch-based apparel retailer reported disappointing third-quarter results dragged down by a particularly weak October.

Investors sent shares of the mall-based retailer down by as much as 18% to a market value of about $320 million in the hours after it reported.

Wet Seal Inc. operates its namesake chain for teens and young women as well as Arden B., which caters to slightly older customers. Overall sales fell 5% in October compared with a year earlier, to $40.5 million. Same-store sales, a key measure for retailers, fell 9.7% for the month.

The company saw a 3.9% increase in overall sales for the third quarter compared with a year earlier, reaching $152.1 million. Same-store sales dipped 0.9% for the period.

The Wet Seal chain had a gain of 4.6% on overall sales for the quarter, while Arden B. was flat.

Wet Seal was nearly flat on same-store sales for the quarter, with a dip of 0.1%. Same-store sales at Arden B. fell 6.3% for the period.

Chief Executive Susan McGalla said that a move to eliminate Halloween costumes and related merchandise led to the rough October for Wet Seal stores. She called the decision part of a strategy to “maintain a cohesive fashion assortment better aligned with our brand direction.”

McGalla said that sportswear that took the place of Halloween costumes on the chain’s shelves “did not perform to our expectations.”

Moves away from discounting for online sales also trimmed revenue. E-commerce sales fell 24% for October and 23% for the quarter, according to the company.

McGalla concluded, “We estimate we ended the quarter with inventory per square foot up 2% to the prior year, with Wet Seal up 2% and Arden B. up 1%. We are comfortable with our inventory levels in both divisions as we begin the holiday season.”