WET SEAL INKS DEAL TO AQUIRE ZUTOPIA

Byline: Melanie Kletter

NEW YORK — Wet Seal Inc. is taking some dramatic moves to freshen up its business.
The junior and contemporary retailer said Thursday it has signed an agreement to purchase Zutopia, a 19-store tween retailer, from Gymboree Corp., while at the same time it will discontinue the operations of its underperforming Limbo Lounge concept.
In addition, Wet Seal said it will convert the majority of its Contempo Casuals stores to the Wet Seal banner over the next year, and also reported same-store sales jumped 10.2 percent for the five-week period ended Dec. 30.
Financial terms of the Zutopia purchase were not disclosed. The deal is expected to close April 7 and the stores will continue to operate under the Zutopia name, with a majority of its store employees retained, Wet Seal said.
Shares of Wet Seal surged 15.4 percent to $24.81 Thursday in over-the-counter trading, just shy of its 52-week high of $25.
“We believe that the strategic acquisition of Zutopia and the discontinuation of the Limbo Lounge division will solidify our company as a dominant retailer for girls and women of all ages under our three banners of Wet Seal, Arden B. and Zutopia,” Kathy Bronstein, chief executive officer, said in a statement. “The synergies available between Wet Seal and Zutopia give us the advantage of a significant upside as we enter the pre-teen market. Zutopia is an excellent fashion segue into our core junior business.”
Zutopia, which carries only its own label and is vertically integrated, launched in 1999 and carries apparel and accessories aimed at girls and tweens aged 5 to 12. Most of its stores are located in the Midwest and West, in places such as Chicago, Los Angeles, San Francisco and Denver.
Meanwhile, the 26 Limbo Lounge store locations will be turned into Wet Seal stores and Wet Seal said it intends to keep all employees for this division. Arden B., launched in 1998, carries contemporary fashions for a slightly older crowd.
Wet Seal has struggled for the last two years to find the right fashion mix and has had a spotty performance, with dramatic ups and downs in earnings and sales results, but it seems to have recently turned a corner.
In its recent fiscal quarter ended Oct. 28, the company’s earnings gained 44 percent, beating Wall Street estimates. Profits rose to $4 million, or 31 cents a share, from $2.7 million, or 22 cents, a year earlier, and sales jumped 10.2 percent.
“Overall, we were pleased with our holiday performance. Our margins remained strong throughout the quarter and our inventory is well positioned for continued strong sales momentum,” Bronstein said. “We are especially pleased with the continued build in momentum of the Arden B. division.”
Some of its recent success comes in conjunction with key changes in management. Recent hires include: Greg Scott as president of Arden B., Stephen Cox as senior vice president and general merchandise manager of Wet Seal and Contempo Casual, and Steven Strickland as vice president of creative and marketing, a new post.

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