IRVINE — Wet Seal Inc., which specializes in apparel for young women, 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 Wet Seal owns nationwide.
The company is buying the 239-store chain from Neiman Marcus Group Inc. of 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," said Ed Thomas, Wet Seal's president. "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."
Industry analysts, however, figure that the Irvine-based chain, which already operates 133 stores, will have its hands full trying to turn around two operations.
Contempo, a waning power in women's apparel, 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 $133 million in revenue for its last fiscal year, which ended Jan. 28.
Part of the problem has been that department stores have introduced low-priced lines for younger women to compete against specialty retailers such as Wet Seal and Contempo.
"Whatever clothing dollars are being spent are being taken to stores like Sears, J.C. Penney and Wal-Mart," said Kurt Barnard, president of Barnard's Retail Marketing Report in Scotch Plains, N.J. "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.
Of Wet Seal's plans, Barnard said: "All they can do is hope to save money through the consolidation. Maybe then they can reduce prices to regain part of the market."
Wet Seal stock fell 6.25 cents a share to close Monday at $3.875 on Nasdaq.
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.