Shares of teen retailer Wet Seal (Nasdaq: WTSLA) lost half their value today after the company posted a much-deeper-than-anticipated loss. It's hard to keep any faith here, given the mess the company has found itself in.
Wet Seal's second-quarter loss was $102.8 million, or a whopping $3.20 per share. That included a charge of $75.5 million, or $2.35 per share. Analysts had expected a loss of $0.55 per share. Meanwhile, overall sales tumbled 14%, and same-store sales lost 11%. Deteriorating gross margins were connected to the lower sales volume at Wet Seal.
A perusal of Wet Seal's conference call (transcript courtesy of Thomson StreetEvents) revealed a barrage of questions, such as why the company apparently had no warning of the magnitude of its problems a mere two weeks ago. (At that time, it indicated it was on track to perform toward the high end of its guidance.)
The reason, supposedly, was a lukewarm response to Wet Seal merchandise during the first four weeks of the crucial back-to-school season -- not only is that a hot time for teen-related retailers but also the company was using it as a gauge of whether its turnaround is working. Ouch.
Just days ago, Fool contributor Dave Marino-Nachison described the writing on the wall at Wet Seal, including the cash burn that is slated to continue over coming months and some management defections.
However, even in that short time, the outlook seems to have degraded. Today's conference call included rumbles of possible Chapter 11 bankruptcy, as well as shuttering Wet Seal stores or converting them to the company's upscale Arden B concept, which is suggested to be performing better than the Wet Seal chain. But the company wouldn't comment on much, given that it has formed a committee to discuss new strategies.
Granted, this summer's been a bit of a retail roller coaster ride, with companies such as Abercrombie & Fitch (NYSE: ANF) and Gap (NYSE: GPS) still trying to get it right while other retailers such as Aeropostale (NYSE: ARO) bask in the rays of popularity.
However, unpleasant surprises of the magnitude described here certainly give investors no reason for optimism, nor does the company's management's lack of immediate answers. For now, Wet Seal seems to be all wet.
Alyce Lomax does not own shares of any of the companies mentioned.
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