Foothill Ranch-based Wet Seal Inc. is in a turnaround that’s not above some fits and starts.
In July, the operator of mall stores selling clothes for girls and young women saw a disappointing 8.2% drop in sales at stores open at least a year.
Wall Street analysts had been expecting a 2.5% drop in same-store sales for the month.
The poor showing, driven by Wet Seal’s struggling Arden B chain for young women, put a dent in the company’s soaring stock last week. But not enough to erase a surge this year on investor hopes of a rebound.
Shares of the company were up nearly 90% for the year last week with a market value of about $400 million.
Wet Seal sells trendy, inexpensive clothes and accessories for teens and young women at 404 Wet Seal and 93 Arden B stores. It has yearly sales of about $625 million.
The company has been on a mission to restructure in the past year after a long battle with Arden B’s dwindling sales and fashion missteps at Wet Seal.
Chief Executive Edmond Thomas has cut costs, added jeans and other pants to stores, switched out clothing styles faster and used focus groups to better get a handle on the tastes of fickle shoppers.
The company’s rebound on Wall Street has a lot to do with Thomas, who’s leading Wet Seal on its second turnaround this decade.
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“New management has been diligently cutting excess costs and realigning the corporate infrastructure,” Piper Jaffray & Co. analyst Jeffrey Klinefelter said in a recent report.
Thomas took the reins from former chief executive Joel Waller, who spent more than two and a half years reworking the company by trimming losses and spurring sales in the earlier part of the decade. Waller left last year as gains from earlier in his tenure had faded.
Thomas became chief executive in October. He knew Wet Seal well after riding its ups and downs as president and chief operating officer from 1992 to 2000, before leaving to run Irvine-based Tilly’s Inc. as chief executive.
“Since Edmond joined the company, Wet Seal has taken a hard look at its business divisions, whether it’s merchandising, sourcing or real estate,” said Elizabeth Pierce, an analyst with Newport Beach-based Roth Capital Partners LLC. “What’s impressive about Edmond’s return is that he’s been able to make decisions quickly when they matter the most.”
Even with the gains Thomas has made, he’s swimming against a tough retail market where shoppers have pulled back amid the slowing economy and higher prices for everyday expenses.
“Perhaps some of the progress doesn’t show through because it’s being masked by the current economic climate,” Pierce said.
Wet Seal’s revival in a tough economy depends on whether the company can continue to offer stylish clothes at affordable prices, according to Pierce.
The company’s dominant Wet Seal store chain, which competes with chains such as Los Angeles-based Forever 21 Inc., “has to make sure it has the right clothes,” Pierce said.
“Young girls like disposable fashion,” she said. “They’re not into investment dressing.”
It’s a different story at Arden B., which faces stiff competition from rivals including Sweden’s H & M; Hennes & Mauritz AB’s H & M; stores.
Arden B. could boost slumping sales by moving away from ultra trendy clothes that look like they’ve been snatched off the runway, Pierce said.
The chain is trying to get back to its roots in clothes that can be worn to work or to casual and dressy events, she said.
“There’s a better mix at Arden B.,” Pierce said. “The balance is much better now between casual and loosely career clothes. You have pants, jackets and woven tops that you could wear to work or when you go out.”
As with himself, Thomas has brought in fresh yet familiar faces.
In February, he appointed Sharon Hughes to serve as chief merchandise officer for Arden B. after Greg Gemette resigned from the post.
Hughes worked for Wet Seal from 1990 through 2002 and was involved with the start of the Arden B. chain under formative former chief executive Kathy Bronstein.
Late last month, Thomas brought in retail veteran Maria Comfort as president and chief merchandise officer for Wet Seal stores.
Comfort most recently was chief merchandising officer for City of Industry-based Hot Topic Inc. and held leadership posts at 9 & Co., part of New York’s Nine West Group Inc., and Giorgio Armani SPA.
Comfort also knows Wet Seal.
She was merchandising vice president for Contempo Casuals prior to its acquisition by Wet Seal in 1995.
“Both women have experience in young women’s contemporary fashion,” Pierce said.
Wet Seal has made headway, according to Pierce. But, as July’s poor sales showed, it’s unclear whether the company will fully recover any time soon, she said.
“Only time will tell,” Pierce said.
