Wet Seal’s Earnings Predicted to Decline

Wet Seal Inc. said Thursday that first-quarter earnings may be hurt by slow clothing sales caused by “difficult” weather conditions in California.

Traders quickly began selling off the stock, at one point sending it down $7.25 a share, a 20% drop. But it regained some ground later in the day, closing at $32.25, down $3.50, almost 10%.

Nearly 2 million shares changed hands in Nasdaq trading, eight times the average daily volume.

Analysts were expecting the young women’s apparel retailer to earn 28 cents a share, or about $3 million.

Thomas Tashjian of NationsBanc Montgomery Securities said Thursday he cut his estimate to 24 cents a share, from 27 cents. During the same period last year, the 404-store chain earned 25 cents a share, or $2.7 million.

Sales at stores open at least one year will decline about 2% to 3% in the quarter ending next month, analysts said. A year ago, same-store sales surged almost 15%.

Tashjian, who still rates the Foothill Ranch-based company as a “buy,” said earnings for the current quarter should be considered in the context of the company’s overall growth. A year ago, Wet Seal’s first-quarter profits were quadruple the year-earlier numbers.

Since then, the company has launched a new catalog and added 20 stores. The chain also is testing two new retail formats: Arden B, which targets a slightly older and more affluent customer, and Limbo Lounge, which features unisex clothes, accessories and household goods.

“It’s very difficult to grow more this year on top of having done so much last year,” Tashjian said. “We’re very positive in our view that we’ll continue to see 20% to 25% annual earnings growth for the next several years.”

This year, however, cooler weather has chilled sales in California, where many of Wet Seal’s stores are located, the company said.

Wet Seal delivered its gloomy update after the market closed Wednesday, saying March sales were below forecasts and may result in “a slight decline” for the quarter. Sales picked up in April, the company said, but it didn’t specify by how much.