Wet Seal Says Its Profit Will Beat Analyst Estimates

Wet Seal Inc., regaining its footing after earlier fashion missteps, said Tuesday it expects to report a fourth-quarter jump in earnings that will easily surpass analysts’ expectations.

The announcement sent the specialty retailer’s stock surging to a 52-week high of $34.94 during the trading session. The shares, which have more than tripled over the last year, pulled back a bit to close at $33.19, up $2.44, in Nasdaq trading.

The Foothill Ranch-based company, which caters to teens and young women, said it expects to earn 96 cents to 98 cents a share for the quarter ended Feb. 3, compared with 27 cents a share for the comparable period a year earlier. Analysts were estimating earnings of 74 cents a share.

For a while, the company was mimicking some of the offerings from other retailers such as Abercrombie & Fitch and American Eagle Outfitters, Chief Executive Kathy Bronstein said Tuesday. But now it has returned to defining its own fashion flair.

“We have our feet back on the ground,” she said. “We know what we’re good at, and we refocused on that.”

In another indication that the company is rebounding, sales at stores open at least a year rose 14.6% for the 13-week period ended Jan. 27. In the prior year’s final quarter, same-store sales had fallen 17.1%. Total quarterly sales rose 23% to $176.5 million.

Bronstein said a variety of factors have helped turn the company around, including a beefed-up management team and a move to refocus on more fashionable clothes after veering off into more casual offerings.

“It was about being too casual and not having enough fashion-forward merchandise,” she said.

Wet Seal also faced a “philosophical turning point” in October, when then-President Edmond Thomas resigned.

“At that point in time, some things really changed,” Bronstein said.

The management team now has a stronger voice in the company’s operations, she said.

“It took quite awhile to recruit the right people we needed to get the business turned around,” Bronstein said.

Thomas had been responsible for the company’s financial management, merchandise distribution, real estate and other matters. The new management team also freed Bronstein to concentrate on leading the company after being spread too thin previously.

Wet Seal hit a snag in the summer of 1999, when it failed to predict what young shoppers wanted during the important back-to-school season. Analysts said at the time that Wet Seal was “on the outs” with teen fashion mavens, offering casual clothes that were too fancy and holiday clothes that weren’t fancy enough.

In a move Bronstein thinks will spur growth, Wet Seal announced last month that it planned to buy Zutopia, a chain that caters to girls ages 5 to 12, so-called ‘tweens. It is buying the 19-store chain from Gymboree Corp., which operates apparel stores for infants and young children. The deal is expected to be finalized next month.

Targeting the ‘Tween Market

It will give Wet Seal a chance to snag a juicy new piece of the retail pie: young girls who are becoming increasingly savvy about fashions, partly because of pop teen singers such as Britney Spears and Christina Aguilera. And it is easier to sell to 9-year-olds, who tend to be fashion followers, than to teens, whose whims are tougher to predict, Bronstein said.

“I think it’s a huge growth opportunity,” she said. “We have a lot less competition in that ‘tween market than we do in the teen market.”

For the year, the company expects to report earnings of between $1.52 and $1.54 per share, compared with $1.11 per share in fiscal 1999.

Comparable-store sales increased 3.9% for the year, compared with a decrease of 9.8% in the previous year. Total sales climbed 10.6% to $580.2 million.

The company also said its cash position is strong, with more than $100 million in cash and investments and no long-term debt.

Wet Seal operates 552 stores in 42 states, the District of Columbia and Puerto Rico.

In addition to its signature brand, it operates Contempo Casuals, which carry the same products as Wet Seal stores, and Arden B. stores, which cater to a slightly older customer.

The company plans to release earnings results March 21.