Joel Waller

Weighed down by charges, Wet Seal Inc. posted a wider loss in the first quarter, but said operating income came in higher than expected.

NEW YORK — Weighed down by several big charges, Wet Seal Inc. posted a wider loss in the first quarter, although the company said operating income came in higher than expected.

The Foothill Ranch, Calif.-based teen retailer said its loss in the quarter ended April 29 was $13.7 million, or 22 cents a diluted share, which compares with a loss of $8.6 million, or 23 cents, in the previous year on sales that grew 21 percent to $125.1 million from $103.8 million. Excluding debt-related charges of $18.1 million, as well as several other charges and gains related to severance pay, stock compensation and other items, net income was $8 million, or 9 cents a share, while operating income came in at $8.1 million, the company said in a statement. Analysts’ consensus estimate called for earnings per share of 5 cents.

Joel Waller, chief executive officer, said in a statement that the retailer’s operating income rate “substantially exceeded our expectations and resulted from growth in merchandise margins, leverage from additional sales, and improvements in almost every component of our selling and general and administrative expenses. Our operation is running smoothly and we are continually finding ways to improve our efficiency and reduce costs.”

The retailer said the sales gain in the quarter was driven by a 20 percent same-store sales increase. “The growth in comparable-store sales was driven by increased transaction counts and the number of items purchased per customer, partially offset by a decrease in the average retail price per item sold,” the retailer said in a statement. “The company also modified the terms of its Arden B. customer loyalty program, resulting in recognition of sales previously deferred of $2.3 million. The amount of the sales increase associated with the credit was not included in determining comparable-store sales for the quarter.”

Wet Seal’s gross profit margin rose to 37.4 from 36.2 (which includes the impact of the loyalty program modification). “A number of factors contributed to this improvement, including the positive effect of higher merchandise margins and higher average store sales on occupancy, buying and distribution costs,” the company said.

Regarding store openings, Waller said the company is “on track” to open 20 to 25 stores this year. During the quarter, the company opened two Wet Seal stores and closed one. At the end of the quarter, the retailer operated 309 Wet Seal units and 92 Arden B. stores.

This story first appeared in the May 23, 2006 issue of WWD. Subscribe Today.