Wet Seal Takes Aim at Young Girls’ Apparel

Apparel maker Wet Seal Inc., moving to capitalize on the growing fashion savvy of young girls, said Thursday it plans to buy Zutopia, a chain that caters to girls from about 5 to 12 years old.

Foothill Ranch-based Wet Seal agreed to acquire the 19-store chain from Gymboree Corp., which operates apparel stores for infants and young children. Financial terms were not disclosed.

The move to buy Zutopia would give Wet Seal a chance to lasso a growing retail segment. Young girls are increasingly tuned to fashion partly because of watching such pop teen singers as Christina Aguilera and Britney Spears.

“I think that’s definitely exposing girls to more fashion,” said Erma Zandl, with the Zandl Group in New York.

“They’ve got a lot of money and no place to shop,” added analyst Richard E. Jaffe at UBS Warburg. “A number of people are trying to establish a presence in this sector, the demographics being so compelling.”

The transaction is scheduled to close April 7.

Wet Seal also announced, however, that it will discontinue operations of its underperforming Limbo Lounge division, a chain of 26 unisex stores. Most of the locations will be converted to Wet Seal stores.

In addition, the company said it intends to convert the majority of its Contempo Casual stores to the Wet Seal banner over the next 12 months.

The retailer of young women’s clothing said sales at stores open at least a year climbed 10.2% for the five weeks ended Dec. 30, bucking the weak results reported by many retailers.

As a result, Wet Seal predicted that fourth-quarter net income will exceed analysts’ estimates of 65 cents a share.

“Not bad in a tough environment,” analyst Jaffe said.

Wet Seal also said it expects to post a charge of 4 cents a share in the fourth quarter, including a write-off related to Limbo Lounge.

While Wet Seal has struggled in recent years, analysts say the company has revived itself by adding new management and by getting the right mix of merchandise.

“Where they missed certain fashion shifts last year, they’re hitting them this year,” Jaffe said. “They’re getting a lot more right than wrong now.”

Pacific Sunwear of California Inc., another Orange County retailer that targets fickle teenage consumers, also showed higher same-store sales for December--an increase of 5.7%.

Dow Jones Newswires contributed to this report.