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Shares of Wet Seal Drop 27%

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From Bloomberg News

Shares of teen apparel retailer Wet Seal Inc. lost 27% of their value Thursday after the Foothill Ranch company reported lower-than-expected sales last month and reduced its projected second-quarter earnings.

The stock, which plunged $8 to close at $21.75 a share on Nasdaq, was one of the drags on what seemed like a good day for retail stocks in general.

Sales at retail stores open at least a year rose 2.8% in June from a year earlier, according to data tracked by Bank of Tokyo-Mitsubishi Ltd. That beat the firm’s forecast for a gain of 2% to 2.5%.

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But the difference was Wal-Mart Stores, which saw sales jump 6.9%, well ahead of analysts’ 5% estimate, Bank of Tokyo economist Mike Niemira said. Excluding Wal-Mart, the industry’s sales gain was only 0.7%, as the weak economy apparently reduced consumer spending.

Though overall sales were anemic, discount chains and warehouse clubs such as Costco Wholesale kept consumers coming into their stores by advertising low prices and a wider selection of groceries. Costco’s same-store sales rose 5%, while Kmart’s rose 1.1% and Dollar General’s jumped 8.4%.

But sales at department stores were disappointing, and the apparel segment was weak in general, analysts said.

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“The consumer still needs products, but there’s not a lot of discretionary spending happening,” said Holly Guthrie, an analyst at brokerage Janney Montgomery Scott.

Wet Seal said in a news release that it expects to report earnings of 20 cents to 23 cents a share for the second quarter, which ends Aug. 4. Analysts polled by First Call had expected 27 cents a share.

Overall sales dropped 1.3% to $49.9 million for the five-week period ended Saturday from a comparable year-earlier period. Sales at stores open at least a year, a major barometer of sales growth, dipped 0.6% for the period.

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Also, Wet Seal was downgraded to “neutral” from “buy” by analyst Dennis C. Van Zelfden at Robinson-Humphrey Co. Inc.

Other chains also had trouble luring consumers last month. Women’s clothing-store company AnnTaylor Stores reported a 12% same-store sales drop and lowered its fiscal second-quarter profit estimates. Gap Inc. said sales fell 7%, and Limited Inc. had a 3% decline.

Among department stores, same-store sales fell 6.4% at Macy’s parent, Federated Department Stores, and 4% at Dillard’s Inc.

The June retail sales gain compares with a 1.5% increase in May. Same-store sales are a key measurement because they exclude results from stores that opened or closed within the year.

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