Orange County Business Journal

Wet Seal Q3 Mixed

Kari Hamanaka Friday, November 16, 2012

Foothill Ranch-based Wet Seal Inc. reported a higher-than-expected loss but beat revenue expectations for the third quarter, as the chain stuck with its fast-fashion merchandising strategy in a bid for a turnaround.

Wet Seal shares were down about 2% in midday trading Friday to a market value of $255 million.

The teen and contemporary retailer operates 472 Wet Seal stores for teen girls and 81 Arden B stores for young women.

Wet Seal reported a net loss of $14.8 million in the third-quarter ended Oct. 27, widened from a profit of $3.7 million a year earlier.

The company had a net loss of $9.7 million during the quarter, excluding asset impairment charges and costs associated with a recent shareholder proxy solicitation calling for a board overhaul.

Wall Street analysts had expected a loss of $11.6 million.

Wet Seal reported net sales of $135.5 million, down 10.9% from the year-ago period.

Analysts expected sales of $132.7 million.

Companywide same-store sales slid 13.5% during the quarter, led by a 13.8% fall within the Arden B division.

“While business in the third quarter remained challenging, we were encouraged by early signs of progress,” the company said in a statement. “Adjustments made to our merchandise assortment contributed to improved sales trends as we moved through the quarter.”

The company said it believes its switch back to fast fashion will take it “on a path that will lead to improved financial performance.”

The strategy is a change-up from the one rolled out by former Chief Executive Susan McGalla, who was fired in July. The company is currently searching for a new chief executive.

McGalla’s leave from the company was followed by the departure of four board members, including its chair, in October. The shakeup ended a proxy battle that was initiated by a major shareholder, who was calling for the removal and replacement of most of the board.

Wet Seal said it expects a loss of between $2.7 million and $5.3 million and net sales between $163 million and $168 million for the current quarter, which ends in January.

The company expects same-store sales to be down in the mid-single digits for the January quarter.

Wet Seal plans to stop reporting its monthly same-store sales at the end of its fiscal year ended in January.