Wet Seal Pays the Price for Fall Fashion Misstep

Unable to recover from a fashion faux pas during the back-to-school shopping season, specialty retailer Wet Seal Inc. warned Tuesday that it expects a slump in fiscal third-quarter earnings due to slow sales.

After the warning, the company’s stock sagged to a 52-week low of $12.75 before rebounding a bit to $13.50, down $2.31, or nearly 15%, in Nasdaq trading. The Foothill Ranch-based retailer expects to earn 21 cents to 23 cents a share for the three months ending Oct. 30, down from 41 cents a share a year earlier. Analysts had predicted earnings of 36 cents a share.

The company also said sales at stores open at least a year, a key industry indicator, are down 12.5% so far this quarter.

Already aware that Wet Seal had misjudged its back-to-school merchandise by stocking too much fancy apparel and too few basics such as denim and khaki pants, analysts were not expecting a rosy earnings report.

“As it turns out, it was worse than we expected,” said Dennis Van Zelfden, with Robinson-Humphrey in Atlanta. “They missed the season in the sense that what they had in the stores was not really what the customer wanted.”

Chief Executive Kathy Bronstein, who also has been general merchandise manager for the company’s Wet Seal and Contempo Casual stores, concentrated in the summer on the company’s newest concept, Arden B stores, which cater to a slightly older and more affluent customer than the 13- to 18-year-old market sought by the other stores, Van Zelfden said.

“Unfortunately, when she took her eye off the ball in Wet Seal, that’s when they had their problems,” he said. “They were stretched a little thin managerially.”

Wet Seal executives could not be reached for comment.

Analysts applauded the company for recently hiring more people to help select merchandise. And they said they were encouraged by Wet Seal’s announcement Tuesday that it had snagged former Quiksilver Inc. executive Adrienne Ernst to become its senior vice president of design and product development, a new position. Ernst was previously vice president and director of merchandise and design of Roxy, the Huntington Beach-based Quiksilver’s red-hot junior division.

Wet Seal, which caters mostly to young women with notoriously fickle fashion impulses, has been struggling. In the second quarter, the retailer issued two earnings warnings before posting a 24% drop in earnings and announcing it would curtail next year’s expansion plans.