Waiting on Wet Seal

The tough times continue for Wet Seal (Nasdaq: WTSLA  ) . After the close yesterday, the teen and women's retailer reported another quarter of losses. For the first quarter ended May 1, the company reported a loss of $0.53 per share (excluding the closed Zutopia stores). Unfortunately, the Zutopia closings still count, and that brings the loss to $20.3 million, or $0.68 per share.

This is more bad news for a company that is trying to turn things around. Just two weeks ago, Wet Seal management was standing by its projected loss of $0.54 to $0.59 per share, and the company maintains that the first-quarter results are in line with its expectations (and it did narrowly beat those projections when the Zutopia losses are excluded).

Wet Seal continues to emphasize that positive momentum will begin in the third quarter when its overhauled marketing campaign is launched. Now, I've never run a company, but doesn't this transition seem to be taking a pretty long time? J.C. Penney (NYSE: JCP  ) seems to be performing well after selling its Eckerd chain. And shouldn't the company's performance be showing some signs of strength, rather than failing to meet the already low expectations?

Wet Seal was also unable to continue making strides toward better managing its inventory levels, which increased 28.4%. Same-store sales also disappointed, falling 17.2%, which is particularly disappointing considering they had already fallen 25.6% last year. Gross margins also plummeted from 20.9% to 14.1%.

The pivotal third quarter is rapidly approaching, and there can be no more excuses after that. But, in such a highly competitive market -- with bebe stores (Nasdaq: BEBE  ) , Abercrombie & Fitch (NYSE: ANF  ) , and so on -- I just don't see how waiting for Wet Seal to move can be justified.

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Fool contributor Mike Cianciolo welcomes feedback and doesn't own any of the companies in this article.


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