Wet Seal Profits Slide in Third Quarter

In its first conference call with Wall Street analysts since a proxy battle ousted its chairman and several board members in October, The Wet Seal Inc. reported same-store sales declined 13.5 percent for its third fiscal quarter.

“We’re disappointed in the financial results,” said Steve Benrubi, Wet Seal’s chief financial officer, “but we are pleased with our progress in fast fashion.”

The Foothill Ranch, Calif.–based retailer reported a net loss of $14.8 million on sales of $135.5 million for its third quarter, compared with a profit of $3.7 million on $152.1 million in sales for the same period last year.

Same-store sales for the Wet Seal juniors stores, which now number 472 outlets, declined 13.5 percent. Same-store sales for the company’s contemporary Arden B division, which runs a fleet of 81 stores, declined
13.8 percent.

During the Nov. 15 conference call, the company reaffirmed its commitment to fast-fashion merchandising. Ken Seipel, Wet Seal’s president and chief operating officer, said it will be instrumental in returning the company to profitability.

“We’re in the process of upgrading our assortment and increasing our speed-to-market position quickly in order to respond to strong trends,” Seipel said.  

The company spent $4 million during the quarter to construct new stores and remodel existing stores. Seipel also said the company introduced a new store prototype at its location in the Fashion Fair Mall in Fresno, Calif. The store offers improved design elements and better cash registers.

Problems with Wet Seal’s merchandising strategy were some of the issues sparking a proxy battle that ended Oct. 5, when Wet Seal Chairman Hal Kahn and three board members resigned. Activist hedge fund Clinton Group, which owns 6.9 percent of the company, nominated a new board, and its slate of four new board members joined Wet Seal on Oct. 10. 

Another complaint by the Clinton Group was that the company has not hired a chief executive officer since Susan McGalla was fired in July. During the conference call, Benrubi confirmed that Wet Seal is still searching for a new chief executive and that he and Seipel are directing the company.

Seipel noted that the company will not open any new stores for Arden B, and as leases come up for renewal, some are being closed or renewed for short periods of time, such as two years. He hopes to cut Arden B’s store count to 66 doors.—Andrew Asch