Wet Seal Q3 Profit Rises, but Cautious Ahead

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Holiday promotion at Wet Seal

Foothill Ranch, CA—The Wet Seal reported Thursday that its third quarter profit met expectations but its sales struggled as the teen retailer moved into fall merchandise.

For the quarter ended Oct. 29, Wet Seal posted net income of $3.7 million, from $2.6 million a year ago.

Total sales increased to $152.1 million from $146.4 million. Comparable store sales declined 0.9% as its strong back to school sales were offset by lackluster performance in late September and October when fall merchandise hit floors.

Although Wet Seal’s profit was in line with analysts’ average estimate, its sales were less than the $157.7 million analysts expected.

Holiday: ‘Up Against a Highly Promotional Calender’ from Last Year

Several factors made business more difficult following a high traffic back to school season, said Susan McGalla, Wet Seal’s ceo. Sportswear and outerwear failed to meet expectations and the decision to eliminate Halloween costumes this year and instead add “bright-right” fashion hindered sales, but was the right long-term decision.

“At Arden B, we built upon our strength in the dress and jewelry businesses in the quarter, though were disappointed with our performance in other apparel and accessory areas,” McGalla said. “We will carefully manage inventories in this business as we identify opportunities for improvement.”

Despite difficult sales trends, “we generated merchandise margin improvement over the prior year quarter in both divisions, with better planned promotional cadence and overall assortment quality. We also ended the third quarter comfortable with our inventory levels as we enter the holiday season.”

But the company’s fourth quarter forecast, which includes holiday, was below analysts’ average estimate. Wet Seal now expects a fourth quarter profit of $2.8 million to $4.6 million on sales of $166 million to $168 million. Comparable store sales are expected to rise in the low-single digits. Analysts’ average estimate expects sales of $173.4 million.

McGalla said the company expects that as its holiday assortment go on sales, an improvement in sales will be evident.

“We are mindful, though, that we continue to be up against a highly promotional calendar for ourselves in the prior year. We expect a mid-single digit comparable store sales decline in November followed by improvement in subsequent months of the quarter,” she added.