What a difference a year and a half can make.
In the fall of 2004, teen retailer Wet Seal (NASDAQ:WTSLA) was flat on its back, briefly trading for less than a buck a share. The company had badly misjudged trends and tastes for several periods in a row, had turbulence within its management ranks, and had been all but abandoned by the "fashion forward" young ladies that its two concepts target.
Since then, the company has hired a well-regarded merchandising consultant, closed numerous stores, and managed to pull itself back from the brink of bankruptcy.
That's not to say that things are going swimmingly for this seal just yet. True, net sales for the fourth quarter were up almost 19%, atop a more-than-44% boost in same-store sales, but that was compared to a very low base indeed. And while the company is now profitable at the operating income line -- as well as the net income line, if you subtract out a sea of charges -- I wouldn't say that business is necessarily booming again.
Management has some interesting ideas about how to continue to right the ship. First, it's looking to boost imports as a percentage of its total merchandise. This is a good idea, since it will improve margins, but the company can probably only take it so far. Being "fashion forward" requires a level of responsiveness that isn't always compatible with relying upon imports.
The company is also focusing future store growth on what it calls type "B" and "C" malls. Intuitively, you'd think that you'd want to locate stores in the better malls (the "type As"), but management says it's had better success with the second- and third-tier locations. Given that the namesake Wet Seal chain is value-oriented (as opposed to Arden B, which competes more with the likes of bebestores (NASDAQ:BEBE) and Guess? (NYSE:GES)), I suppose that makes a certain amount of sense. It can be relatively more difficult to do well with bargain merchandise in high-class shopping centers.
If you had the guts to buy this when it was circling the drain, I congratulate you. That said, while Wet Seal has made progress, it's still not even close to the level of Abercrombie & Fitch (NYSE:ANF), Aeropostale (NYSE:ARO), and the other teen-scene kings. It'll be interesting to see how Wet Seal performs this year when faced with tougher year-ago comps. It's never too late to turn yourself around in retail, but just remember that success is still far from a sure thing.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
