Wet Seal Stock Plunges on Profit Warning

Wet Seal Inc. stock lost 20% of its value as the specialty clothing retailer warned that its fiscal second-quarter earnings will fall below analysts’ expectations. Analysts blamed the problem partly on “a fashion misstep” by the Foothill Ranch-based retailer. Wet Seal said earnings should range between $3.05 million, or 28 cents a share, and $3.27 million, or 30 cents, for the three months ended July 31. Analysts had predicted earnings of about 36 cents a share, or $3.92 million. For the quarter a year ago, the company earned $3.81 million, or 35 cents. Wet Seal stock closed at $18.56, down $4.56 a share, in Nasdaq trading. The stock has lost more than 60% of its value since hitting a 52-week high of $47 on May 10. “Their stuff wasn’t as attractive as anybody thought it would be,” said Richard E. Jaffee, a PaineWebber analyst. “They turn their inventory very quickly, about 10 times a year. It’s remarkably fast. It means they’re making lots of little bets on fashion.” Since Wet Seal goes after a young customer, it is particularly susceptible to the whims of fashion, analysts said. “I believe they can manage through this,” Jaffee added. “You can’t sell to this customer and expect to be right every time.” Sales at stores open at least a year, a key industry measure of performance, dropped 8.5% for the quarter, contrasted with an increase of 4.3% for the ’98 period. Wet Seal also said it did not mail catalogs until the third quarter this year. Last year, catalogs were mailed in the first and second quarters.