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Wet Seal to Buy Contempo in Bid to Bolster Sales : Retail: Analysts think Irvine company will have hands full trying to turn around two clothing operations.

April 04, 1995|HOPE HAMASHIGE | SPECIAL TO THE TIMES

IRVINE — Wet Seal, a young women's apparel store, said Monday that it has agreed to purchase the Contempo Casuals women's clothing chain for $1 million in stock, nearly tripling the number of stores it owns nationwide.

The company is buying Contempo's chain of 239 women's apparel stores from Neiman Marcus Group in Chestnut Hill, Mass., which had closed 50 Contempo sites last year because of poor sales. The transaction is expected to be completed at the end of May.

"We think this is a phenomenal opportunity for us," Ed Thomas, Wet Seal's president, said. "Women's apparel has been soft and the junior market has been softer than the rest of the industry, but we think it has bottomed out."

But industry analysts figure that the Irvine chain, which operates 133 stores, will have its hands full trying to turn around two operations.

Contempo lost $3 million on revenue of $158 million for the eight months that ended Saturday and has been the weakest division in the Neiman Marcus organization. Wet Seal lost $1.5 million on revenue of $133 million for its fiscal year, which ended Jan. 28.

In addition, department stores like Sears Roebuck & Co. and JC Penney have introduced new low-priced lines for younger women to compete against such specialty retailers as Wet Seal and Contempo.

The factors that damaged sales of moderately priced women's wear are long-term trends that will not be reversed any time soon, said Kurt Barnard, president of Barnard's Retail Marketing Report in Scotch Plains, N.J.

"Whatever clothing dollars are being spent are being taken to stores like Sears, JC Penney and Wal-Mart," he said. "Add that to the fact that young women don't have the discretionary income that women their age had 10 years ago and you can understand the problem.

"All they can do is hope to save money through the consolidation," Barnard said about Wet Seal's prospects. "Maybe then they can reduce prices to regain part of the market."

Wall Street appeared nonplussed by the news. Wet Seal stock fell 6.25 cents a share to close Monday at $3.875 on Nasdaq market trading.

Wet Seal will use existing stock to acquire Contempo Casuals. At Monday's closing price, Neiman Marcus would pick up 258,000 shares of Wet Seal stock, about 2% of the shares outstanding.

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