Wet Seal: Earnings Preview

| About: The Wet (WTSL)

Wet Seal Inc. (WTSLA) is scheduled to report its fourth-quarter 2010 financial results on Thursday, March 24, 2011. Currently, the Zacks Consensus Estimate is 4 cents per share and revenue is expected to be $164 million for the quarter to be reported.

Third-Quarter 2011, a Synopsis

Wet Seal’s adjusted earnings were down 25% in the third quarter 2011 to 3 cents a share compared with 4 cents in the year-ago period. The quarterly EPS was in line with the Zacks Consensus Estimate of 3 cents. Despite a difficult retail environment, the company’s disciplined cost management approach helped it generate positive earnings.

Total revenue for the quarter grew 3.4% year over year to $146.4 million. Consolidated comparable store sales decreased 0.1% while comparable store sales for Wet Seal grew 0.4% and for Arden B declined 2.9%.

Management Guided

At its last earnings conference call, management provided guidance for the fourth quarter of fiscal 2010. Earnings are expected in the range of 3 cents to 5 cents a share.

Fourth-Quarter 2010 Zacks Consensus

Analysts covered by Zacks expect Wet Seal to post fourth-quarter 2010 earnings of 4 cents a share. The current Zacks Consensus Estimate represents a year-over-year decline of 55.5% and ranges from a low of 3 cents to a high of 5 cents.

The current estimate did not change over the last 30 days as none of 7 analysts revised their estimates.

Mixed Earnings Surprise History

With respect to earnings surprises, Wet Seal has outpaced the Zacks Consensus Estimate by an average 25.0% over the last four quarters, ranging from 0.0% to 25.0%.

Our Recommendation

Wet Seal is focusing on improving its current stores which should lead to more profitable results in the coming quarters. These improvements include a better product mix at the store level to reflect local demographics; moving stores to off-mall locations; being more aggressive with its markdowns when its fashion choices aren’t popular; and upgrading store designs and fixtures.

In addition, Wet Seal’s balance sheet remains an area of strength. However, the company stiff competitive environment and the seasonal nature of its business remain a concern.

Wet Seal, currently holds a Zacks #4 Rank. On a long-term basis, we maintain a Neutral rating on the stock, with a short-term Sell rating.w