Orange County Business Journal

Wet Seal Sees Tough Quarter Ahead

Kari Hamanaka Wednesday, August 22, 2012

Shares of Foothill Ranch-based retailer Wet Seal Inc. fell 10% in midday trading Wednesday, a day after the company said it expects weak sales in the current quarter as it plows ahead on a strategy that calls for a shift back to fast-fashion offerings.

Wet Seal had a recent market value of $250 million.

“We are returning to merchandising to a broader demographic, including the young teen customer, sourcing a wider variety of product more directly from fast-fashion vendors, committing to merchandise purchases closer to time of need, and focusing our price points on our core customer, which long supported success at the company,” said Wet Seal Chair Hal Kahn in a statement.

Wet Seal operates a chain of 468 Wet Seal stores for teen girls and 82 Arden B stores for young women.

Kahn said the company expects “continued weak performance through the third quarter,” with business beginning to stabilize by the holiday selling season.

Wet Seal expects a loss of $11.52 million to $14.17 million for the quarter. Analysts on average had expected a loss of $885,850.

The company said it expects revenue of $128 million to $133 million for the period.

Wall Street analysts expected revenue of $144.41 million.

Same-store sales are expected to be down 14% to 18% for the October quarter.

Wet Seal has been working at a turnaround for the past few years, with the most recent strategy under former Chief Executive Susan McGalla focused on less discounting.

McGalla was fired in July and replaced with an interim Office of the Chairman led by Kahn while the company searches for a new chief executive. Wet Seal did not provide a time frame for the search.

The company’s recent performance has led New York-based asset management firm and major shareholder Clinton Group Inc. to call for the sale of Wet Seal.

Wet Seal’s board approved a shareholder rights plan that will become effective when a single entity buys 10% or more of the company’s Class A common stock.

“While the board will continue to have a dialogue with all of our investors and remains open to considering all strategic opportunities available to the business, we are confident that we have the team, resources and strong balance sheet required to successfully implement our strategy,” Kahn said.

Wet Seal store openings have been scaled back for the rest of the year, with the division expected to finish with a net reduction of two to four stores.

That compares with original plans of 20 to 22 net openings.

Arden B is on track to shed 15 to 20 stores from its lineup by year’s end.

The current-quarter guidance followed Wet Seal’s results for the July quarter, which were announced after the market’s close.

Wet Seal saw a loss of $12.4 million. That compares with a $2.2 million profit in the year-ago period. Analysts had expected a loss of $6.2 million.

The company saw revenue for the July quarter down 9% from a year earlier to $135.3 million. Analysts expected revenue of $136.6 million.

Same-store sales fell 11% during the July quarter.