Joel Waller, chief executive of Foothill Ranch-based Wet Seal Inc., is thanking fashionistas.
You know the type: gals who want to wear hip, trendy clothes they see on musicians and movie stars.
And they want it now, not three months from now, Waller said in a recent conference call.
Wet Seal struck a chord with fashionistas when it overhauled its business nearly two years ago and brought in trendy clothes at cheaper prices.
“This is a merchandising strategy that’s going to build this company well into the future,” Waller said on the conference call.
The executive behind Wet Seal’s turnaround declined to be interviewed for this story, as he has in the past.
His work not only helped the teen clothing retailer avoid bankruptcy, it also spurred gains.
Wet Seal’s same-stores sales were up 5.5% in November from a year earlier, following a 7.5% rise in October.
The company posted a profit of $2.4 million in the quarter ended Oct. 28, including stock expenses and interest costs, versus a loss of $6.5 million a year ago.
(Last week, Wet Seal said it could see expenses of $4.2 million in accounting for past stock options.)
As for December, Wet Seal expects same-store sales to be up in the low to mid single digits.
“They’re very much out of the woods,” said one analyst.
Chain Changes
The company brought in merchandising teams for its Wet Seal and Arden B. chains. Both have been overhauling collections and rolling out fresh garb.
The retailer has 425 shops, the bulk of which are Wet Seals. They cater to teens and twentysomethings with trendy, “fast fashion” clothes.
The stores now carry everything from skinny jeans to leggings paired with oversized sweaters and tops with high empire waists.
Eric Beder, analyst at Brean Murray Carret & Co., said in a recent report he expects Wet Seal to continue to make strides next year, particularly at its smaller Arden B. chain, which targets young women.
Arden B. is slated to see big changes for spring, the first time Greg Gernette, president of Arden B. merchandise, and his team will unveil a full collection.
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Wet Seal model: company a “low-price leader,” analyst says |
After a period of “dormancy,” Arden B. is “once again emerging as a key fashion resource,” Beder said.
Gernette and a “revitalized team of buyers and designers” have so far brought in hot sellers, such as dresses, large necklaces, wide waste belts and small handbags, he said.
“Given what we have seen of the fall and holiday lines, we believe the division is rapidly rebuilding its presence as a key resource for the fashionista,” Beder said.
More Stores
Wet Seal also is poised to ramp up expansion plans.
The company said it expects to open 55 to 65 stores in 2007, double what it opened this year.
Most of them are set to be Wet Seals, according to Waller.
“We’re just going to be opportunistic,” he said. “It’s much harder to expand Arden B. rapidly because there’s only certain centers we want to be in.”
Enter a new phase.
During its initial turnaround, the company scaled back its stores, going from some 600 shops to around 425. It now has 333 Wet Seals and 92 Arden B. stores.
During the next five years, the company said it plans to double the number of Wet Seals to 600 to 700 and triple Arden B. to some 250 to 300 locations.
Wet Seal rebuilt its real estate and construction department “with experienced professionals” in the past year to help guide the expansion, Waller said. The team already has leases for 26 stores next year, he said.
The company now has a “stringent lease approval process,” Waller said.
That will be key as Wet Seal looks to go wider.
Liz Pierce, analyst at Roth Capital Partners LLC, said Wet Seal’s ability to increase sales and profitability partly depends on its “ability to open new stores and operate them profitably.”
That means it has to hire, train and retain “qualified management and store personnel” and get the right mall space.
There’s a lot of competition.
Other bidders could include young women clothing retailers Los Angeles-based Forever 21 Inc. and San Diego-based Charlotte Russe Holding Inc.
‘Sourcing’
Wet Seal also is expected to continue to improve its “sourcing”,where it finds its fabrics and has clothes made, Brean Murray’s Beder said.
The company still is in the early stages of research. But by going with more suppliers overseas Wet Seal could see higher profits on clothes, he said.
The goal: in 2007 get Arden B. to be 50% sourced abroad with a longer-term goal of about 80%, and Wet Seal to be 15%, with 30% as the long-term goal, Beder said.
It’s unclear where the company stands now.
With big changes to management and merchandising, Beder said Wet Seal “has returned to prominence as the low-price leader.”
Still, there’s work to do.
In the long term, Beder said management wants to “take the next step and create a cohesive brand image as a fashion source offering the right fashion at the right price.”
“As the store presentation improves and Wet Seal continues to offer products that ‘fit in and stand out,’ we believe that the division has the potential to create an enduring business model that can register consistent growth in the highly desirable junior’s category,” Beder said.
