Wet Seal Posts Quarterly Dip in Profits of 53% : * Poor sales in its 80 California stores are cited, but analysts are unfazed, saying the chain is poised to take off once the recession lifts.

IRVINE —  Wet Seal Inc., which operates one of the nation’s most acclaimed chains of mid-priced women’s apparel stores, reported Thursday that its second-quarter earnings dropped 53% compared to the same period last year.

Sales for the period were off by 1% overall. The average sales in stores that have been open more than a year dropped by nearly 18% in the second quarter ended Aug. 3, compared to the same period in the previous year.

As troubling as the results appear, it hardly caused a ripple on Wall Street. Analysts said that the results were in line with expectations and that sales for the Irvine-based company are poised to soar once California is released from the grip of recession. On Thursday, the company’s stock gained $1.625, closing at $11.75.

Wet Seal President Ken Chilvers said that poor results in California dragged down the performance of the 101-store chain.

“Like other retailers, the nation’s slow economic recovery during the second quarter has had a significant impact on sales, particularly in California where we have 80 stores,” Chilvers said in a statement.

“While we are disappointed with our results, we are very encouraged by recent back-to-school sales, as well as the extremely successful opening of our new stores in Dallas, Houston and Florida,” he added. The performance of stores outside California exceeded the company’s expectations, validating its out-of-state expansion plans for next year, officials said..

Net earnings for the quarter were $1.1 million, or 9 cents a share, compared to $2.3 million, or 22 cents a share, for the same period last year. Sales were $27.5 million, off 1% over last year’s $27.7 million.

Chief Financial Officer Alan Weinstein said the disparity between the 53% earnings drop compared to the minuscule 1% sales drop was because of costs associated with the company’s addition of 17 stores since last year’s second quarter.

For the first six months, the company earned $1.7 million, or 15 cents a share, a 48% drop from $3.4 million, or 34 cents a share, in last year’s first half. Sales were $51.3 million, a 6% boost over last year’s $48.5 million.

Weinstein said he believes the company’s stock price increased Thursday because the company delivered per-share earnings that were a penny or two higher than analysts had expected and because it had kept its expenses under control despite the rapid expansion.

Retail analysts agreed. James L. Thayer of Bear Stearns & Co. in New York said that he believes the company is right on track to take advantage of a rejuvenated economy.

“With the economy recovering and the opening of more new stores, the third and fourth (quarters) look quite good,” he said.

Jonathon Ziegler, an analyst for Sutro & Co. in San Francisco, said that Wet Seal still has a formidable retailing formula. “I was in their Glendale Galleria store on Saturday. The service was great, the store looked great. They are doing a lot of things right.”

Wet Seal’s Second Quarter

In the second quarter ended Aug. 3, Wet Seal Inc. reported a 53% plunge in net income as its revenue dipped slightly to $27.5 million. The company attributed the results to the country’s slow economic recovery.

Figures are in thousands, except per-share data.

2nd Qtr 2nd Qtr 6 Months 6 Months 1991 1990 1991 1990 Revenue $27,468 $27,721 $51,293 $48,509 Net income (loss) 1,071 2,271 1,744 3,391 Per share (loss) $.09 $.22 $.15 $.34

Source: Wet Seal Inc.