All eyes are on Edmond S. Thomas, the new chief executive of teen and young women’s clothing retailer Wet Seal Inc.
The retail veteran and former chief executive of Irvine-based Tilly’s Inc. took the reins at Wet Seal in October at a delicate time.
A few weeks after his arrival, Foothill Ranch-based Wet Seal posted a drop in October and November sales at stores open at least a year as it continued to work on problems and faced a slowing economy.
December shaped up better than the company thought. Same-store sales inched up 0.6%, beating its own and Wall Street’s expectations. The gain made Wet Seal a standout in a dismal December for retailers.
The retailer raised its outlook for the three months through January and now expects a profit of $5.6 million to $7.5 million. Wall Street had been expecting $3.7 million.
“I like (Edmond Thomas) so far,” said Jeff Van Sinderen, an analyst at B. Riley & Co. “But it’s all about execution now. It’s about putting his plans into action.”
Thomas has the charge of leading Wet Seal on a turnaround,the second one for the company this decade.
Wet Seal spent the early part of the decade reorganizing under former chief executive Joel Waller, who stemmed losses and brought robust sales.
But sales gains ground to a halt in the latter part of 2007.
Second Stint
Enter Thomas.
It’s his second stint at Wet Seal, where he spent 1992 to 2000 as president and chief operating officer.
“He is the right fit for the company at this stage in their evolution,” said Eric Beder, analyst at Brean Murray Carret & Co. “He is very store operations focused and knows the history of the chains better than most people there.”
Still, Beder is cautious.
“We believe it is still too early to say we have reached the bottom in terms of the company’s performance,” Beder said in a recent report.
Thomas, who was unavailable for this story, already has taken swift action to reverse Wet Seal’s slump.
In a recent earnings report, he said the retailer remains “cautious in this difficult retail environment.”
The company expects a low- to mid-single digit decline in same-store sales for January.
Thomas has put a slew of changes in place.
They include cutting operating costs, adding more jeans and other pants to stores, switching out styles faster and using focus groups to help better understand the taste of the company’s fickle customers.
There also are plans to slow store openings to a rate of 5% this year from 15% last year. Store fixtures and other displays are being upgraded.
And Wet Seal, the company’s dominant teen chain with 400 stores, is shifting away from national advertising campaigns, which have been “weak,” Beder said.
“In-store (promotions) will drive more traffic than ads in” magazines, such as Cosmopolitan, he said.
The progress “has been subtle” but is expected to “become more evident in the months ahead,” according to Beder.
Wet Seal may even “benefit” from the slowing economy, he said.
There is a “growing demand” to buy fashionable clothes at cheaper prices, which is Wet Seal’s focus, Beder said.
“They offer the fashion alternative at a much more appealing price,” he said.
Helped Others
The move has helped other retailers with similar strategies.
Take Aeropostale Inc., which sells clothes for teens and has lured shoppers from American Eagle Outfitters Inc., according to Beder.
“Kids who used to shop at American Eagle are shopping at Aeropostale, which offers facsimiles of the same looks for a lower price,” he said.
American Eagle’s same-store sales dropped 2% in December. Aeropostale’s grew 12.2%.
It will be key for Wet Seal to “protect” itself during the next few months from a sliding economy and make sure its designers are on their game, B. Riley’s Van Sinderen said.
The company continues to fine-tune the amount of clothes it has on hand. Moves included making “markdowns above and beyond normal clearance” to clear out clothes that didn’t sell, Van Sinderen said.
“Thomas’s merchant team has to be strong,” Van Sinderen said. “Retail has been tough.”
Wet Seal has been taking the “appropriate steps” to change its clothing styles and colors, Van Sinderen said.
“In a better retail environment and assuming strong execution, we continue to believe that the company has the potential ultimately to achieve double-digit operating margins,” Van Sinderen said.
There are other challenges.
The company’s smaller Arden B. division, which caters to women ages 25 to 35, “will be taking longer to turn,” Beder said.
Arden B.’s 96 stores have struggled with fashion misses and operations glitches.
Executives so far say they’re not planning a sale or closure of the division, Beder said.
Instead, more changes are planned. They include swapping trendy clothes with more basic tops and pants, creating a uniform pricing and discounting policy and improving the fit of clothes.
The division isn’t expected to see improvements until the second half of 2008, Beder said.
“While we have no problem with an operations-focused management team, we do realize that the lack of financial sizzle will somewhat limit short-term investor interest,” Beder said. “We believe in the longer run Wet Seal can once again return to prominence.”
