Wet Seal Chain Reports Big Increase in Third-Quarter Sales, Earnings

Wet Seal Inc., the women’s clothing chain, reported Friday that its third-quarter earnings rose 38.7%. Sales were up 24.8%.

The company struck an ominous note, however, when it reported that sales started sliding by the latter part of the quarter, particularly in its Southern California base market. It cautioned that the fourth quarter might be weak unless sales pick up.

Profit for the three months that ended Oct. 31 was $1.7 million, or 14 cents a share, compared with earnings of $1.2 million, or 10 cents a share, for the same period last year. Sales were $41.6 million, up from $33.4 million for the third quarter of 1991. Comparable-store sales--those at locations open for more than a year--rose 1.4% for the quarter.

“We have seen positive comparable-store results in our non-California markets, but these have been more than offset by the negative results in California, where we have the majority of our stores,” said Kathy Bronstein, Wet Seal’s president.

Besides California, Wet Seal operates stores in Arizona, Nevada, Hawaii, Florida, Texas and Washington.

Chief Financial Officer Alan Weinstein said that the increases in earnings and sales look particularly good when measured against a weak third quarter last year. He said the company tried to enhance its sales during the latest quarter by lowering prices storewide by an average of 18% from what the same merchandise would have cost 12 months earlier.

Tom Tashjian, an analyst at the brokerage First Manhattan Co. in New York, said that Wet Seal’s pricing strategy and diversity in areas outside California allowed it to post the increase for the quarter. He also noted that the company has been tightening its inventory in anticipation of a difficult fourth quarter.

Steve Schneider, research director for the brokerage Stifel Nicolaus & Co. in New York, noted that, with 55 of its 122 stores in the Southland, Wet Seal is particularly susceptible to a downturn. But he credited the chain with “doing some things right at the store level.”

For the first three quarters of the year, Wet Seal posted a profit of $4 million, or 33 cents a share, up 34% from earnings of $3 million, or 25 cents a share, for the same period last year. Nine-month sales were $114.3 million, up 35% from $84.6 million.

Wet Seal’s Gains

Wet Seal Inc. reported increases in both earnings and revenue for its third fiscal quarter. The company said that sales of its women’s fashion merchandise picked up at the beginning of the quarter but began to taper off at its close. Figures in millions of dollars, except per-share data:

3rd qtr 3rd qtr 9 months 9 months 1991 1992 1991 1992 Revenue $33.351 $41.615 $84.644 $114.263 Net income 1.207 1.674 2.951 3.974 Per share 0.10 0.14 0.25 0.33

Source: Wet Seal Inc.