Thursday, August 21, 2008

Wet Seal Earnings

Wet Seal (WTSLA) has fallen sharply in the past month from its peak in the mid-$5's to around $4 a share. It seemed that this was caused by the anticipation of further weakness in the retail environment, which would really hurt the company. Today, the numbers came out, and while they were not blow-your-socks-off amazing, a cursory look at the report tells me that things were quite solid, and so I am not going to be selling any of my shares at the current prices.

In early August, the company announced that their earnings (excluding one-time charges) would come in at the high end of a 0.09-0.11 range. They came in just above the range with an EPS of 0.12. They are also guiding the next quarter a higher than current consensus estimates, providing a range of 0.05-0.07 vs. 0.05.

However, they are forecasting a drop in sales, which puts them 1-4% shy of current analyst estimates. So, this might dampen the mood some. Given all of this, I'd be surprised if we did not move higher on this report. Shares have been taken down a lot already, and the weak revenue forecast isn't enough to spell doom. It looks like the company's margins are continuing to improve, and there seems to be some light at the end of the Arden B tunnel.

From the press release:

In spite of continued comparable store sales challenges at Arden B during its merchandising turnaround, its infrastructure downsizing earlier this year and cautious inventory management efforts during the remerchandising have reversed an operating loss to operating income, prior to corporate cost allocations, in the second quarter and for the first half of fiscal 2008 in that segment.

So, in any case, I'm optimistic about what tomorrow will bring. There isn't enough afterhours trading volume to really get much of a real sense now. While I don't expect shares to fall as a result of this report, if they do, I just might be tempted to buy some of my shares back. I think the turnaround plans are still working out, and Ed Thomas has yet to let me down in any manner thus far.

Been so busy at work that I will have to listen to the call later on tonight.

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