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Wet Seal Reports Loss of $2.5 Million in Quarter

The clothing retailer's shares rise almost 17% after it says sales have improved this month.

November 22, 2002|Leslie Earnest | Times Staff Writer

Retailer Wet Seal Inc., which sells trendy clothes to girls and young women, reported a third-quarter loss Thursday but said sales have improved this month, prompting investors to boost its share price by almost 17%.

The Orange County company said it lost $2.5 million, or 8 cents a share, contrasted with a profit of $6.8 million, or 23 cents, in the third quarter of 2001. Analysts surveyed by Thomson First Call were expecting a loss of 7 cents a share on average.

Sales for the quarter ended Nov. 2 declined to $144.5 million from $146.9 million in the comparable period last year, a 1.6% drop. Sales at stores open at least a year, a key indicator, fell 9.6%.

Sales were weak across all divisions, prompting greater-than-expected markdowns in October to clear out fall inventory and make way for new products, said Kathy Bronstein, chief executive of the Foothill Ranch-based company, which operates 619 stores under the Wet Seal, Contempo Casuals, Arden B. and Zutopia brands.

Wet Seal, which prides itself on stocking the latest fashions, has struggled to spark sales since the demise of the so-called bohemian look, which attracted young shoppers last year.

"I believe a shift from a very strong fashion trend in the first and second quarter to an unclear fashion direction in the third quarter has made for a difficult retail environment for all our brands," Bronstein said during a conference call.

In the first half of November, sales were weaker than last year, but were an improvement compared with the just-concluded quarter, the company said. That was good enough news to jolt investors. The shares gained $1.67 to close at $11.75 in Nasdaq trading. The price of the stock is still down 25% for the year.

"This is a stock that can turn on a dime because their business can turn on a dime," said Elizabeth Pierce, an analyst with Wedbush Morgan Securities.

Still, due to the lack of a well-defined fashion trend to drive sales, retail analyst Christopher Krueger with Dougherty & Co. remained cautious about the significance of the improved sales.

"I think it's too early to tell right now," he said.

The company said fourth-quarter earnings probably would be 31 cents to 39 cents a share. Analysts were expecting 34 cents a share.

The third-quarter earnings-per-share numbers are adjusted for the 3-for-2 stock split that became effective May 9.

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