FOOL PLATE SPECIAL
An Investment Opinion
by Dale Wettlaufer

Wet Seal Slides

Wet Seal Inc. (Nasdaq: WTSLA) a specialty retailer of junior casual apparel slid $5 13/16 to $13 15/16 after warning that weak demand for back-to-school merchandise is going to bring down earnings in the third quarter. The retailer announced after the bell yesterday that it expects to earn $0.35-$0.40 per share in its third quarter ending in October, which is less than the $0.48 anticipated by four analysts at First Call. After digesting the acquisition of Contempo Casuals in July of 1995, Wet Seal became the largest specialty apparel retailer devoted exclusively to the junior customer, and the buzz surrounding the segment as a whole has definitely attracted capital to the company.

Wet Seal's same-store sales dipped 2.5% compared with the same period last year, partially on lower sweater and accessories sales. Over the last two and a half weeks the company reported lower back-to-school sales, especially in the Northeast and Mid-Atlantic regions, where Wet Seal has about 20% of its locations. Trailing six-month sales for the firm, as of August 1st, were $217.8 million -- an increase of 14.8% year over year. The company attributed the dollar increase in sales to steadily increasing retail capacity as the firm saw a net increase of 45 stores during the year-over-year period. The increase was also due to sales related to three catalog mailings in the first and second quarters of fiscal 1998. However, same-store sales rose a meager 0.8% for the period.

Despite the fact that Kathy Bronstein, vice chairman and chief executive officer of Wet Seal, assured investors that the firm does "not believe there are any fundamental issues with our business" and that management remains "dedicated to the growth plans" previously outlined, investors are adopting a wait-and-see attitude. With Wet Seal's short lead times and inventory turns among the fastest in the industry (12 times trailing), it can make adjustments to its product assortment quickly. With the company set to open another 40 stores before Christmas (a quarter in which it has beat earnings estimates for the past three years), including an upscale "Arden B." store, investors might want to take a closer look at the firm's prospects. Wet Seal has roughly $5.75 in cash per share on its balance sheet and plans to use some of this to repurchase up to 10% of its Class A shares, stating that "[t]here is not a better buy for us at this time than Wet Seal stock."

UPS

Desktop publishing software developer Adobe Systems (Nasdaq: ADBE) gained $1 7/8 to $30 3/8 after privately held rival Quark Inc. gave up its attempt to take over its much larger competitor, saying that a hostile bid for the maker of PageMaker and Acrobat will not be "beneficial" for either company. According to Quark, Adobe hasn't returned its phone calls since spurning Quark's initial advances last month.

Credit card lender Providian Financial Corp. (NYSE: PVN) charged up $8 15/16 to $70 3/8 after saying that its fiscal 1998 and 1999 earnings growth "will far exceed" the company's long-term goal of 22% to 25% and could even achieve 50%. The company cited positive trends such as lower-than-expected credit losses and strong account and revenue growth in some business areas. Providian also said it will split its stock three-for-two effective December 15.

Some banks continued their recovery this morning. Chase Manhattan (NYSE: CMB), which advanced $1 1/16 to $47 5/16, said its mortgage subsidiary will acquire Mellon Bank's (NYSE: MEL) mortgage company's 26 branches in Washington, Oregon, Idaho, Nevada, Arizona and New Mexico, as well as its regional operations center in Portland, Oregon. Citicorp (NYSE: CCI) added $1 to $102, Merrill Lynch (NYSE: MER) tacked on $1 5/16 to $58 15/16, Morgan Stanley Dean Witter (NYSE: MWD) was lifted $2 1/8 to $55 1/4, and Lehman Brothers (NYSE: LEH) was up $1 11/16 to $40 13/16.

Studies presented yesterday at a conference in Berlin underscoring the power of drugs made by Eli Lilly & Co. (NYSE: LLY) and Merck (NYSE: MRK) to fight osteoporosis continued to boost the shares of the drugmakers. Merck gained $3 1/8 to $135 1/8, while Eli Lilly moved up $1 to $77 3/16.

Voice and data transport and access systems company Tellabs (Nasdaq: TLAB) bounced back $1 3/4 to $39 7/16 after plunging yesterday following its announcement that it had called off a proposed merger with dense wavelength division multiplexing (DWDM) systems maker Ciena (Nasdaq: CIEN).

Fiber optic network operator Qwest Communications International (Nasdaq: QWST) moved up another $9/16 to $29 3/8 following yesterday's announcement that it will acquire business Internet infrastructure provider and consultant Icon CMT Corp. (Nasdaq: ICMT) in a stock deal valued at about $185 million. Icon added another $3/8 to $10 7/8.

A number of retailers advanced this morning after Prudential Securities upgraded 11 retail stocks. Department store chain operator Nordstrom Inc. (Nasdaq: NOBE) was marked up $1 1/4 to $30 3/16. It also announced the appointment of Michael Stein, CFO of Marriott International (NYSE: MAR), as its new executive vice president and CFO. Sears, Roebuck & Co. (NYSE: S), now with a "strong buy" rating instead of "accumulate," added $7/16 to $47 5/8. Federated Department Stores (NYSE: FD), which was raised to "strong buy" from "accumulate," climbed $15/16 to $45 5/16. May Department Stores (NYSE: MAY), upgraded to "strong buy" from "hold,"added $15/16 to $58 11/16.

Dravo Corp. (NYSE: DRV) soared $5 3/8 to $12 5/16 after announcing it will be acquired by Carmeuse Lime Inc. for $13 a share in cold hard cash -- nearly double Dravo's closing price yesterday. Provided that at least a majority of Dravo shares are tendered, the largest publicly owned U.S. lime company will become part of the recently announced joint venture between the Carmeuse North American group and Lafarge Lime, a division of Lafarge S.A.

Less invasive medical devices maker Perclose Inc. (Nasdaq: PERC) picked up $1 1/8 to $15 1/2 after announcing plans to buy back up to 500,000 shares.

Electronics manufacturing technology company Solectron (NYSE: SLR) jumped $4 1/4 to $47 3/4 after reporting fiscal Q4 EPS of $0.46, up from $0.40 a year ago and a penny ahead of estimates.

DOWNS

Eatertainment company Rainforest Cafe (Nasdaq: RAIN) was soaked for a $2 loss to $6 1/8 after warning that its fiscal Q3 EPS will come in around $0.15, below the First Call mean estimate of $0.20. The company blamed the shortfall on declining same-store sales figures and lower-than-expected total sales numbers, particularly from its four restaurants in Florida.

3D graphics chipset maker 3Dfx Interactive (Nasdaq: TDFX) slid $2 3/8 to $8 7/16 after saying that a greater-than-expected seasonal slowdown in the retail channel has caused higher inventories of its Voodoo2 product at retailers, which will result in lower-than-expected sales and a pre-tax operating loss of "several million dollars" in fiscal Q3. The Street had been expecting earnings of $0.47 per share in the period.

Information technology training software developer CBT Group PLC (Nasdaq: CBTSY) slipped another $4 to $36 1/8 despite reportedly telling analysts in a conference call last night that it expects its fiscal Q3 earnings to be in line with the First Call mean estimate of $0.23 per share. BT Alex. Brown downgraded the company anyway to "buy" from "strong buy."

Cephalon (Nasdaq: CEPH), which develops treatments for cancer and neurological disorders, dropped $1 1/4 to $5 3/16 after the company decided to withdraw the European regulatory application for clearance of its Myotrophin drug for amyotrophic lateral sclerosis, commonly known as Lou Gehrig's disease. The regulators had concerns about "the differences in response seen in... two pivotal studies" of the drug, the company said.

Network information security products developer Cylink Corp. (Nasdaq: CYLK) fell $2 15/16 to $4 15/16 after forecasting breakeven results for fiscal Q3, missing the Street's estimate for earnings of $0.09 per share in the quarter. Revenues are also expected to be lower than the $18 million posted in Q2. CS First Boston lowered its rating on the company to "hold" from "strong buy."

Shares of dairy products and packaged ice distributor Suiza Foods Corp. (NYSE: SZA) soured $10 9/16 this morning to $29 3/16 after the company said higher butterfat prices will result in fiscal Q3 EPS between $0.75 and $0.78, missing the Street's mean estimate of $0.83. The company added that its Q4 results will be similar to those in Q3 if butterfat prices remain at current levels through the rest of the year. Separately, the firm also announced a $100 million share repurchase plan.

Electronic capacitors maker AVX Corp. (NYSE: AVX) was zapped for a $7/8 loss to $13 15/16 after saying that the Asian financial crisis and staff reduction and acquisition costs will result in fiscal Q2 EPS below the First Call mean estimate of $0.19. The company said it is looking forward to better results in Q3.

Linear and mixed signal chip maker Burr-Brown Corp. (Nasdaq: BBRC) slid $1 1/2 to $12 after saying its fiscal Q3 EPS may come in $0.03 to $0.05 below the $0.25 posted in Q2 due to "seasonally weak demand" in the summer and the Asian financial crisis. The company, which had been expected to earn $0.25 per share in the quarter, also said it will buy back up to 1 million shares of its outstanding stock.

Diesel engine manufacturer Cummins Engine Co. (NYSE: CUM) stalled $5 7/8 to $36 7/8 after saying weakness in Asia and in the worldwide agricultural equipment market will result in fiscal Q3 revenues 7% to 10% below the $1.64 billion posted in Q2. The company also said it will take a $110 million charge in the quarter for a previously announced restructuring and add $35 million to its reserves to account for a change in its extended warranty programs.

Women's apparel retailer Dress Barn (Nasdaq: DBRN) was burned down this morning, falling $2 1/2 to $15 1/8 after Bear Stearns lowered its rating to "neutral" from "attractive."

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Contributing Writers Yi-Hsin Chang (TMF Puck), a Fool Brian Graney (TMF Panic), Fool Two Alex Schay (TMF Nexus6), Fool, too Dale Wettlaufer (TMF Ralegh), Final Fool Editing Brian Bauer (TMF Hoops), another Fool Bob Bobala (TMF Bobala), a Fool's Fool Jennifer Silber (TMF Amused), Fool at last