Wet Seal Beats Forecasts, Then Takes Beating

Specialty retailer Wet Seal Inc. said Wednesday that fiscal fourth-quarter earnings more than tripled to $12.9 million from the year-earlier quarter, beating the already boosted expectations of analysts.

Then the Foothill Ranch apparel company watched as investors whacked 17% off the value of its stock in heavy Nasdaq trading.

Analysts say the sell-off likely was a reaction to the company’s comments during a conference call that sales were off in the first two weeks this month. Investors apparently weren’t soothed by Wet Seal’s assertion that it still expects to meet analysts’ first-quarter expectations.

“You know how Wall Street reacts,” said Dennis Van Zelfden, an analyst with Robinson-Humphrey. “The month is not even over yet, but when some people on Wall Street hear that, they sell first and ask questions later.”

The company said it didn’t know why the stock took a tumble, dropping $4.94 to close at $23.94 a share. The market in general sank again as both the Dow Jones Industrial Average and the Nasdaq fell.

The number of Wet Seal shares changing hands was nearly four times the average daily amount traded over the past three months. A big block was sold in the last hour, said Elizabeth Pierce, a Wedbush Morgan Securities analyst.

Wet Seal, which sells clothes for girls and young women, said net income for the quarter ended Feb. 3 amounted to 98 cents a share, a penny more than the average amount analysts had expected. The company earned $3.4 million, or 27 cents a share, in last year’s final three months.

Quarterly sales grew 23% to $176.5 million. Sales at stores open at least a year--a key industry indicator--rose 14.6%, compared to the previous year’s fourth-quarter decline of 17.1%.

For the year, the company’s net income jumped 37% to $19.5 million, or $1.54 a share, from $14.2 million, or $1.11 a share. Sales increased 11% to $580.2 million. Same-store sales for the year rose 3.9%

Analysts were encouraged by the results from a company that was struggling a year ago.

“I think it provided continuing evidence that this company has its act back together with respect to the merchandise at both the Wet Seal and Arden B divisions,” Van Zelfden said. “I think that turnaround is going to continue throughout this current year.”

Wet Seal operates 552 stores in 42 states, the District of Columbia and Puerto Rico. It also operates Contempo Casuals stores, many of which it plans to convert to the Wet Seal banner.

Wet Seal also is buying the 18-store Zutopia chain for younger girls, a deal it expects to conclude on Sunday.