Shares Fall as Wet Seal Forecasts Lower Net

By PATRICE APODACA

Aug. 8, 1997 12 AM PT

TIMES STAFF WRITER

IRVINE — Shares of Wet Seal Inc., the nation’s largest operator of mall-based stores catering to the bubble-gum set, plunged 29% Thursday after the company said earnings for its fiscal second quarter would fall short of estimates.

The junior women’s apparel retailer, which operates 368 Wet Seal and Contempo Casuals shops in 35 states, said it expects to report a profit of 25 cents a share for the three months ended Aug. 2, unchanged from a year earlier, on lower revenue.

Analysts had projected earnings of about 29 cents a share for the Irvine company.

Wet Seal’s stock sank $7.69 a share Thursday to close at $19 a share, making it the second-biggest percentage loser in U.S. markets. A total of 6.55 million shares changed hands on the Nasdaq market, 33 times the average daily volume of about 198,400 for the last three months.

The company’s sales were $94.3 million in the second quarter, down slightly from $94.4 million a year before. Sales for stores open more than a year--a common benchmark of a retailer’s fiscal health--fell 1.6%.

“Our sales performance specifically in the month of July was below our expectations,” Wet Seal Chief Executive Kathy Bronstein said.

Sales of dresses, normally a big item for the company during the spring and summer, were particularly weak, she said.

Los Angeles-based retail buyer Marshall Kline said Wet Seal might have guessed wrong and stocked up on dresses at the expense of faster-selling items such as shorts, T-shirts and tank tops.

Many other chains have struggled with sales of dresses, he said--particularly the slip dresses that are popular now--because discount retailers such as J.C. Penney Co. and Ross Stores often sell similar merchandise at lower prices.

Wet Seal becomes the latest company, including a number of other retailers, to be punished by Wall Street for failing to meet investors’ expectations.

Indeed, Wet Seal’s stock was buffeted in January after an analyst issued a report saying same-store sales for the previous two months had been soft.

The company went on to report major gains in profits for its fiscal fourth quarter and year ended Feb. 1.

On Thursday, analysts warned against making too much of Wet Seal’s second-quarter results.

“I wouldn’t classify it as a serious problem,” said analyst Jamie England at Seidler Cos. in Los Angeles. “If you look at the market they’re in, it tends to be really volatile. They’ve managed through this downturn really well.”

Alan Milstein, publisher of the Fashion Network Report newsletter in New York, called Wet Seal’s second quarter “a hiccup.”

Many apparel chains had a disappointing second quarter, and Wet Seal did no worse than its competitors, Milstein said.

Gadzooks Inc., for instance, cut its earnings estimates two weeks ago after markdowns failed to move its trendy clothes for young women off store shelves.

Wet Seal’s strong results in the year-earlier quarter also made for a tough comparison, England noted. He said Wet Seal should bounce back as it transitions to back-to-school merchandise.

Despite the lull in sales, Wet Seal continues to expand aggressively. It opened six stores in the second quarter. It plans to open a total of 30 new stores in 1997, and another 75 next year.

The company has offered to acquire 21 stores from Rampage Retailing Inc., a bankrupt apparel chain. It also recently announced plans to start a catalog business.

Wet Seal said it will release its final results for the second quarter Aug. 19.

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Wet Seal at a Glance

* Headquarters: Irvine

* CEO: Kathy Bronstein

* Business: Wet Seal and Contempo Casuals clothing stores

* Stores: 368

* Employees: 1,560

* Fiscal 1997 sales: $374.9 million, up 40.5% from 1996

* Fiscal 1997 net income: $15.3 million, up 164% from 1996

* Status: Public

* Exchange: Nasdaq