Foothill Ranch-based Wet Seal Inc. has been sliding down a slippery slope lately, but the company has made several changes it hopes will get it some traction and turn things around.
Some analysts are encouraged by the moves, but investors remain wary, waiting to see how the back-to-school season shapes up for the 564-unit specialty retailer of young women’s and men’s apparel.
The company, which operates stores under the names Wet Seal, Contempo Casuals, Arden B. and Limbo Lounge, has seen profits slide 67% for the first six months this year compared with the 1999 period. At stores open at least a year, sales have declined 8.5% year-to-date, adding to the pain of last year’s overall 9.8% decline in same-store sales.
Wet Seal’s overall sales inched up 3.6%, to $258.7 million, for the first two quarters ended July 31, but the company’s costs continue to rise at a faster pace than its sales, according to its financial reports.
The company recently reported earnings of less than $500,000 on sales of $128.1 million for the second quarter ended July 29, compared with earnings of $3.7 million on sales of $126.9 million for the prior second quarter. The recent earnings figure also was off 90.5% from the second quarter two years ago.
First-quarter earnings were $2.2 million on sales of $130.6 million, compared with earnings of $4.3 million on sales of $122.8 million the year before.
The downslide began last year, when Wet Seal reported profits down 54% to $14.2 million for the 12 months ended Jan. 29. The earnings drop occurred despite a 9.2% rise in sales in the fiscal year to $524.4 million.
Wet Seal lost its key merchandiser, Adrienne Ernst, in May as she left to launch a new line called Ruby Kiss for girls 7 to 16 for R & S; Trading Inc. in Irvine.
Ernst had been vice president, director of merchandise and design for Quiksilver Roxy’s juniors’ division for three years before she joined Wet Seal as its senior vice president of design and product development in October.
The company’s rapid expansion of its unisex Limbo Lounge and its launch of the new young women’s line Arden B. took the focus off its core juniors business at Wet Seal and Contempo Casuals, explains analyst Dennis Van Zelfden of Atlanta-based Robinson-Humphrey Co. Inc.
“They took their eye off the ball of Wet Seal,” Van Zelfden said. “They didn’t have enough merchandising management to go around all three divisions and as a result they had some fashion misses in the Wet Seal division.”
Wet Seal CEO Kathy Bronstein has since hired more merchandise staff, including Greg Scott to help define what the new Arden B. concept wants to be when it grows up, Van Zelfden said.
“They have already done some minor changes such as increasing quality, adding more basics into the line, fine-tuning the image and bringing the average age up a bit from the high teens and low 20s to more of a 24- to 26-year-old woman,” he added.
Wet Seal has not replaced Ernst yet, but it recently hired Stephen Cox as senior vice president and general merchandise manager for the Wet Seal and Contempo Casuals chains and Steven Strickland as senior vice president of creative marketing. Cox has worked for Limited Express, I. Magnin, The Gap, Robinson’s and Bullocks; Strickland’s resume includes Brookstone Inc., Women’s Specialty Retail and The Limited.
The company also has pulled its national marketing campaign, scaled back its planned expansion this year from 75 new stores to 36 and stopped publishing its magazine-cum-catalog, which went out free to 2 million customers urging them to buy products at Wet Seal’s stores or via the Internet.
Also, Wet Seal has no long-term debt and it ended the recent quarter with $78 million in cash and investments.
“They have the staying power while they work through their merchandising issues,” Van Zelfden said.
Wall Street remains cautious, though. The company’s stock price, which reached its all-time high of 45 in May 1999, its 52-week low of roughly 9 7/8 in March and its 52-week high of 20 1/4 in April, was at the 15 level last week.
“Wall Street will come quickly back once there’s evidence that these things they are doing are in fact working,” Van Zelfden said. “I haven’t seen it yet, but the second half of this year, including back-to-school, could be better than last year, although it may trail other retailers.” n
