Wednesday, November 28, 2007

Wet Seal Update

I would be lying if I said that I'm not sitting on pins and needles right now regarding Wet Seal (WTSLA). I think what comes out of the company over the next two days will be significant. Tomorrow, the company announces its earnings, and the following day, they are hosting an Analyst and Investor's Day event.

A few weeks ago, the company said that they expected to lose 4-5 cents in the quarter (2-3 cents if you exclude one-time items). I hope to hear positive things come out of the new CEO regarding their inventory and their view of the holiday shopping season that is now upon us. It will also be nice to see what they have to say about their Arden B stores that are struggling even more than the Wet Seal stores. Maybe he will be able to instill some semblance of confidence in the minds of those that judge him and his management team.

And, it is not all that comforting to know that the shorts have upped their bets against the company. Here are the latest short interest figures from September up to now.

November Mid Month 2007 --- 8,777,091 / +12.85%
October End Month 2007 --- 7,777,405 / -1.64%
October Mid Month 2007 --- 7,906,827 / +0.32%
September End Month 2007 --- 7,881,500 / +2.05%
September Mid Month 2007 --- 7,723,125 / -5.29%

Average volume as of late is around 1.6MM shares, so we're looking at around a 5.5 short ratio.

On a positive note, however, Brean Murray came out with a research note today reiterating their Buy rating on shares. Their covering analyst believes that earnings should come in stronger than what others expect, and he gives the shares target of $4.50. When I ran my own numbers, I figured that $4 would be a rather conservative estimate of fair value. And, I really though loading up at the sub-$3 mark was a good idea. So far, it's been a really bad one.

In any case, there's nothing to be done now... it's simply time to just wait and see how the next two days unfold. It's a damn shame I'm going to be really busy working during the call, but I guess checking the stock price every so often should hopefully give me an idea of how the call is going. Tomorrow could really get bloody for me if the sky really does fall.


gaamblor said...

I think you are the only person i know who can pick worse stocks than me.

I wonder if they would take a buyout at 3, almost a freeroll for some other retailer looking to buy a little growth

Brute Force said...

Ya, it sure looks that way.

Severe markdowns causing revs to come in low... forecasted revs coming in low. Slowing expansion. Not pretty.

Not sure what to do at this point with the position. Hold and hope like a moron, or maybe lighten up. Stock price still seems really low to me despite all of the negative news.

I doubt they'd take a buyout at $3, but what do I know? Apparently, nothing.

Brute Force said...

Also, just saw that S&P downgraded the shares to Hold from Buy. But, Credit Suisse came out with a new research note maintaining their Outperform rating.

Shares down a nice 8% right now. Still higher than the low, but this might be just the start of more pain... not sure.

Clubbing is no fun when you're a seal.

11/29/2007 11:25 AM