Wet Seal Stocks Plummet on Weak Earnings

L.A. Times Archives

Sept. 16, 1998 12 AM PT

<i> From Bloomberg News</i>

Wet Seal Inc.’s stock tumbled Tuesday after the retailer of young women’s clothing said unexpectedly weak demand for back-to-school merchandise will push third-quarter earnings below forecasts.

Wet Seal fell 26.3%, or $5.19 a share, to $14.56. The percentage loss was the fourth largest in U.S. markets Tuesday. During the session, the stock hit a 52-week low of $13.63 a share, before rallying. More than 4.6 million shares changed hands, compared with the average daily volume of 185,860 shares over the last three months.

While casual basics and dressy clothing sold well at the beginning of September, demand slowed for Wet Seal’s fashion-oriented styles such as printed T-shirts, the company told analysts during a conference call. Sweater and accessories sales were also lower.

Sales at stores open at least a year--a key indicator of industry performance--fell by about 2.5% for the back-to-school season.

The retailer said late Monday that it will earn 35 cents to 40 cents a share in the quarter ending in October, less than the 48-cent average estimate of four analysts surveyed by First Call Corp. The company earned 39 cents a year ago.

The Foothill Ranch-based company said back-to-school sales were lower over the last 2 1/2 weeks, especially in the Northeast and mid-Atlantic regions, where Wet Seal has 20% of its locations.

Wet Seal also said its results were hurt because fewer shoemakers introduced new styles, which caused a decline in sales. The company also cited a decrease in catalog and cosmetics sales, an area where the retailer has lost some focus, analysts said.

Still, analyst Kelly Armstrong said Wet Seal’s warning is not an indication of an overall disappointing back-to-school season. Each specialty retailer will vary, she said.

“It will be a case-by-case basis; every store is getting a different rhythm,” said Armstrong, of Wheat First Union.

Some retailers hoped September sales would get a boost from a Labor Day weekend that fell later into September than in prior years.

The company also said its board approved the purchase of as much as 10% of the company’s stock. Wet Seal shares traded at a 52-week high of $38.25 late in March.

Wet Seal said it will open about 40 stores before Christmas. It has already opened 35 stores this year. The company operates stores in 42 states and Puerto Rico.

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Wet Seal Soaked

Wet Seal Inc.’s stock price moved below the $15 mark Tuesday on news that earnings are expected to fall short of analysts’ estimates. Shares are down more than 50% from their March level. Weekly closing prices and Tuesday’s close:

March 6: $33.88

March 13: $33.07

March 20: $35.13

March 27: $37.75

April 3: $37.13

April 10: $36.38

April 17: $31.00

April 24: $31.13

May 1: $29.63

May 8: $27.88

May 15: $27.50

May 22: $26.94