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Wet Seal Swings to a Loss Amid Turnaround

The specialty retailer posted a third-quarter loss Thursday, but said it would return to its fast-fashion roots.

The Wet Seal Inc. swung to a third-quarter loss as it continues to struggle to turn the business around and back to profitability.

On Thursday, the retailer posted a loss of $14.8 million, or 17 cents a diluted share, for the quarter ended Oct. 27, versus a year-ago profit of $3.7 million, or 4 cents a share. Excluding charges, Wet Seal said the loss totaled 11 cents, which was better than the 13-cent loss estimated by analysts. Net sales for the period fell 10.9 percent to $135.5 million from $152.1 million a year earlier.


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Over the past year, Wet Seal has experienced some turbulent times. In July, chief executive officer Susan McGalla departed — that post remains open — and the company became embroiled in a well-publicized tussle with activist investor The Clinton Group that began in the spring.

Concerned over Wet Seal’s direction, Clinton, which owns a 6.9 percent stake in the retailer, recently managed to get the firm to change its leadership. Indeed, last month, Wet Seal added a slate of directors handpicked by Clinton, after four of its board members resigned.

But Ken Seipel, president and chief operating officer, told analysts and investors on the company call that despite the “disappointing” quarterly results, Wet Seal is “making solid progress” toward a turnaround. This included clearing out tone-deaf fashions from its prior design team during the third quarter.

According to Seipel, the company veered down the wrong path over the last two years. No longer a true fast-fashion player, Wet Seal lost its teen consumer. The executive vowed to regain that consumer, while also continuing to focus on female shoppers in their early 20s.

 

Wet Seal said in order to accomplish that task it will lower prices on key items and focus on returning to a fast-fashion model. Marketing, e-commerce and revamped in-store merchandising will also be key in the turnaround.

In the fourth quarter, Wet Seal said it expects a loss of between 3 cents and 6 cents a share on net sales of between $163 million and $168 million. Wall Street is looking for a loss of 3 cents on sales of $151.2 million.

The retailer, which operates 472 Wet Seal stores and 81 Arden B. stores, anticipates closing four Wet Seal stores and 20 Arden B. doors this year.