Wet Seal Launches New Campaign
Wet Seal Inc., its losses widening as it struggles to reconnect with teenage girls, said Thursday that it was launching a new marketing campaign that includes using fashion-savvy teens to keep it clued in to hot trends.
The Foothill Ranch-based retailer also announced that it has hired Anne Zehren, former publisher of Teen People magazine, as a “teen culture consultant” to help develop marketing plans to pull customers into stores.
The parent of 570 Wet Seal and Arden B stores said its fiscal first-quarter loss more than doubled, to $20.3 million, or 68 cents a share, in the quarter ended May 1, from a deficit of $8.5 million, or 29 cents, in the comparable period last year.
The discontinued Zutopia chain accounted for a loss of 15 cents a share as the company closed 27 of those stores.
It was the seventh straight quarterly loss for Wet Seal, which has been struggling to win back shoppers who began bypassing its namesake chain in mid-2002.
From continuing operations, the company’s loss doubled to $15.9 million, or 53 cents a share, from a $7.4-million loss, or 25 cents, a year earlier. A consensus of analysts polled by Thomson First Call expected a loss of 56 cents a share.
Sales fell 17% to $99.8 million. Same-store sales, a key indicator of a retailer’s health, fell 17.2% after plunging 25.6% in the 2003 first quarter.
The Arden B division continued to outperform the company’s expectations in the quarter.
In the current quarter, Wet Seal anticipates it will lose 47 cents to 51 cents a share from continuing operations. It projects same-store sales to be in the negative mid-teens.
The retailer characterized the first quarter as “a transition period,” adding -- as it has in the past -- that it does not expect to see significant improvement in its business until the third quarter. Wet Seal is hoping the back-to-school shopping season will be a pivotal point in its turnaround efforts. The fall line will reveal the skill of new creative director Victor Alfaro.
With analysts clamoring to see Alfaro’s first line, the company will preview it next month in New York. Although it’s not unusual for a merchant to give investors a sneak peek at its new clothes, analysts say this unveiling is especially important because Wet Seal has been struggling for so long.
“The new management team has told us for the last nine months, ‘Just wait, just wait. It’s going to be great, it’s going to be great,’ ” said Dennis Van Zelfden, an analyst with SunTrust Robinson Humphrey. “There are a lot of investment opinions riding on this back-to-school rebound.”
Wet Seal’s stock, which has lost 34% of its value over the last year, closed Thursday at $5.93, down 5 cents, on Nasdaq. The quarterly results were released after the market closed.
The retailer’s new marketing strategy will revolve around a group of customers that the company is calling “Wet Seal Stylizers,” women between the ages of 17 and 23 who will help the company navigate the choppy seas of teen fashion. The recruits are expected to hone in on the most “fashion forward” young women at their high schools or colleges, and funnel trend tips back to Wet Seal. They will then “spread the word about the new Wet Seal” as the new back-to-school clothes arrive in stores in mid-July, Chief Executive Peter Whitford said in a statement.
“Who better to guide the company’s efforts than teenagers themselves?” Whitford asked analysts during a conference call.
The company said it also had selected 11 of its “most stylish” customers to model Wet Seal clothes in teen magazines. The retailer is currently recruiting 30 to 40 young women from 10 key markets. By the year’s end, it expects to have up to 500 people in the program.
Analysts generally gave the program a lukewarm reception, showing more interest in how much cash the company expects to burn through in the current quarter and when it expects more positive financial results.
“It’s an interesting idea,” said Howard Tubin, an analyst at Cathay Financial. “Is it going to pay off in terms of helping to improve results? We’ll have to wait and see.”
