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Wet Seal Posts $17.8-Million Loss

The retailer's sales fall 8%. Analysts are surprised by the first-quarter forecast.

March 19, 2004|Leslie Earnest | Times Staff Writer

Hurt by fashion missteps, wimpy sales and hefty merchandise markdowns, Wet Seal Inc. tripled its loss in the fourth quarter and offered a disappointing projection for the start of its new fiscal year.

The retailer of clothes and accessories for teens and young women reported a net loss of $17.8 million, or 60 cents a share, for the three months that ended Jan. 31, compared with a loss of $5.6 million, or 20 cents, in the fourth quarter a year earlier.

It was the sixth straight quarterly loss for the parent of the Wet Seal, Arden B. and Zutopia clothing chains, which is headquartered in Foothill Ranch. The company has been struggling since mid-2002, when it seemed to lose touch with fickle teenage girls who shop in its namesake chain.

Wet Seal said its fourth-quarter results included a 15-cent-a-share loss attributable in part to a write-down of assets from Zutopia, which it plans to close by the end of next month. The company hasn't been able to find a buyer for the 31-store chain, which caters to preteen girls known as "tweens."

Excluding Zutopia's results, the company reported a loss of $13.4 million from continuing operations, or 45 cents a share, compared with a loss of $4.3 million, or 15 cents, in the same period last year. That was better than the 48-cent loss from continuing operations forecast by analysts polled by Thomson First Call.

But it was Wet Seal's estimate that it would lose 54 cents to 59 cents a share from continuing operations in the current quarter that surprised analysts, who were expecting a much smaller loss.

"Oh my goodness, they disappointed again," Adrienne Tennant, an analyst with Wedbush Morgan Securities, said in response to the company's initial guidance on first-quarter results. "That's significantly lower than the consensus of negative 21 cents."

In a conference call with analysts, Chief Executive Peter Whitford called the company's performance "unacceptable." He asked for Wall Street's patience as the company seeks to return itself to profitability. Customers are responding positively to new spring merchandise, Whitford said, and he predicted that the financial picture would brighten as Wet Seal offers more unique merchandise and launches a new marketing plan.

Total sales for the quarter fell 8% to $148.3 million from $161.2 million a year earlier. Sales at stores open at least a year -- a key measure of performance for retailers -- dropped 9.9%, compared with an 18.1% decline in the year-earlier period.

The earnings were announced after the market closed. The stock slid in after-hours trading, falling almost 4% from its close of $8.65, down 51 cents, during regular Nasdaq trading.

Analysts have said signs that a turnaround is taking hold could begin appearing this year, perhaps as the back-to-school buying season gets underway.

Tennant, who has a "hold" rating on the stock, issued a report this week saying that Wet Seal has been price cutting more aggressively than most other mall-based fashion retailers.

"At this stage of the turnaround we simply cannot pinpoint the impact of the company's year-to-date changes in merchandise and operations," Tennant wrote.

Wet Seal said it planned to close about a dozen of its 475 Wet Seal stores this year and four of its 99 Arden B. shops at sites where leases will be expiring.

For the full year, the company reported a net loss of $47.3 million, or $1.59 a share, contrasted with a profit of $4.2 million, or 14 cents, in the prior year.

Sales for the year fell to $534 million, a 12% decline from $608.5 million a year earlier. Comparable store sales for the year slid 16.4%, compared with a 5.5% decline the year before.

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