Back to top

Analyst Blog

Same-store sales at Wet Seal Inc. , a specialty retailer of fashionable and contemporary apparel and accessory items, plunged 12.7% year over year in the five-week period ended September 29, 2012. This compares unfavorably with the 0.3% decline in same-store sales in the year-ago period. Total sales slipped 9.9% in September 2012 to $48.3 million from the year-ago period.

The company operates through two stores: Wet Seal Stores and Arden B. Comparable sales in the Wet Seal stores (which offer trend-focused and competitively priced apparels for girls aged between 13 to 19 years) declined 12.6% year over year, compared to a breakeven in the year-ago period. Arden B stores (offers dresses of contemporary fashion, sportswear and accessories for women aged between 25 to 39 years) reported a year-over-year decline of 13.6% versus a 2.2% decrease in September 2011.

Total sales in Wet Seal stores slipped 8.7% year over year to $41.3 million while Arden B stores’ total sales declined 16.3% to $7.0 million in September 2012.

The decline in total sales and comparable sales from the previous year period could be due to the slower pace of economic recovery and lower spending by domestic customers. However, e-commerce performed well, with sales increase of 15% in September 2012, as the company is putting in efforts to expand its online business.

Store Update

As of September 29, 2012, Wet Seal operated a total of 554 stores in 47 states and Puerto Rico, including 473 Wet Seal stores and 81 Arden B stores. As of fiscal 2011, the company operated 558 retail stores in 47 states and Puerto Rico.

Outlook

The company forecasts comparable store sales for the third quarter fiscal 2012 to be within or slightly better than the previously forecast range of a decline of 14% to 18%. Wet Seal also expects third quarter fiscal 2012 loss per share to remain within the previously provided range of $0.13 to $0.16. The Zacks Consensus Estimate is pegged at a loss of 15 cents a share for the same period.

Conclusion

Management is geared up to make its women’s tops trendy and increase the variety available in its stores in the coming holiday season. We are also encouraged by the company’s efforts to increase its penetration in the e-commerce business. However, declining operating income in the recent quarters on the back of higher selling, general and administrative (SG&A) expenses and promotion activities, limited infrastructure, highly competitive nature of the women’s apparel industry and seasonal nature of the same are matters of concern.

Headquartered in Foothill Ranch, California, Wet Seal faces stiff competition from American Eagle Outfitters Inc. (AEO - Analyst Report) and Gap Inc. (GPS - Analyst Report). Currently, Wet Seal carries a Zacks #4 Rank (short-term ‘Sell’ rating), with a long term Neutral recommendation.

Please login to Zacks.com or register to post a comment.