Ailing Wet Seal Shows Early Signs of Recovery

Flat sales aren’t normally cause for celebration, but it’s better than a downhill slide.

That’s why analysts were a little cheerier about Wet Seal Inc. last week, despite a dismal earnings report.

The Foothill Ranch-based company said earnings dropped 72% in the quarter ended Jan. 30, and sales at stores open at least a year were down 17%. This was not news to Wall Street, since the company had already issued two warnings that its earnings would not meet analysts’ expectations.

It was news to analysts that, since the beginning of fiscal year 2000, sales have “steadily improved” and that in recent weeks same-store sales have been running about the same as a year ago.

“I came away from the call thinking it’s going in the right direction,” said Dennis Van Zelfden, with Robinson-Humphrey. “At least the trend is going in the right direction. I believe the company is in the very early stages of a turn.”

Not all who listened in on the conference call Friday were equally stirred.

“I think it’s a little premature to go out on a limb and say things are turning around,” said Michael Prospero, with Blackford Securities. Still, Prospero said he’s looking at Wet Seal “in a more positive way.”

In general, Wet Seal had trouble last year hitting the mark with its merchandise. Its back-to-school outfits were a tad dressy and its holiday clothes were a little too casual. A rash of fourth-quarter markdowns left analyst Kelly Armstrong wary, since such promotions can cheapen a brand.

“We . . . remain a little cautious,” she said.

Leslie Earnest covers retail businesses for The Times. She can be reached at (714) 966-7832 and at leslie.earnest@latimes.com.