Wet Seal Swings into Q2 Profit on Better Margins, Lower Expenses

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The launch of Wet Seal + Plus in 36 stores and online was reportedly a success.

The launch of Wet Seal + Plus in 36 stores and online was reportedly a success.

Foothills Ranch, CA—Wet Seal Inc., which had initiated cost-cutting measure earlier this year, reported Tuesday that its swung into second quarter earnings thanks to improved margins and lower expenses.

For the quarter ended August 3, Wet Seal reported an adjusted profit of $958,000, or 1 cent a share, compared with a loss of $12.4 million, or 14 cents a share a year ago. (Excluding impairment charges and chief executive severance costs, the second quarter 2012’s adjusted loss was 7 cents a share.) That was in line with analysts’ average estimate, which typically excludes special items, for 1 cent a share.

Net sales were up 1.5% to $137.5 million compared with analysts’ estimate for $137.88 million in sales. Total comparable store sales increased 3.7%, including an increase of 3.9% at Wet Seal and an increase of 2.0% at Arden B. E-commerce sales, however, were flat.

New Marketing Programs in 2nd Half

Merchandise categories including leggings, graphic T-shirts, dresses and accessories posted decent sales during the quarter, the company said. Online Junior Plus business also performed well.

Gross margin widened to 29.6% from 22.8%, which was attributed to improved merchandise margins due to reduced markdown levels. Overhead expenses fell 4.7%, while asset impairment charges declined 97% to $262,000.

“As we look at the second half of the year, we’re encouraged by how the business is positioned from both a financial and operational perspective,” said CEO John Goodman. “Our product and merchandising initiatives are resonating with customers, and we believe these core strategies, along with new marketing programs and partnerships planned for back-to-school and holiday, will enable us to drive continued growth at both Wet Seal and Arden B.”

Goodman became chief executive in January following a proxy battle by hedge fund Clinton Group that resulted in Clinton getting four seats on the board of directors. The cost-cutting measure Goodman installed are expected to help in future quarters.

Wet Seal forecast its third quarter loss to be in the range of 2 cents to 3 cents a share with net sales between $135 million to $138 million. Comparable store sales are expected to rise in the mid-single digits compared with a 13.5% decrease in third quarter 2012.

Analysts’ consensus expects a break even per share on sales of $137.04 million in the third quarter.

In the second quarter, the company opened one and closed one Wet Seal store bringing the total store count in 47 states and in Puerto Rico to 525. These include 464 Wet Seal stores and 61 Arden B stores.



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