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Sales at speciality retailer Wet Seal drops
21
Nov '08
The Wet Seal, Inc., a leading specialty retailer to young women, announced results for its fiscal third quarter ended November 1, 2008, and introduced guidance for its fiscal fourth quarter.

For the third quarter:
Net sales for the 13-week period ended November 1, 2008, were $146.6 million compared to net sales of $150.3 million for the 13-week period ended November 3, 2007. Consolidated comparable store sales declined 7.6%. Comparable store sales for Wet Seal declined 3.0% and for Arden B declined 25.0%.

Operating income was $7.1 million, or 4.8% of net sales, compared to an operating loss of $4.4 million, or 3.0% of net sales, in the third quarter of fiscal 2007, an increase of $11.5 million year over year. The current year third quarter included new store pre-opening expenses of $0.1 million versus $1.2 million in the prior year third quarter.

The prior year third quarter included, within SG&A expenses, $0.7 million in separation charges associated with the departure of the Company's former Chief Executive Officer and $0.5 million in recruitment fees for the hiring of Ed Thomas for that role. The current year third quarter included $0.5 million of non-cash asset impairment charges versus $1.6 million of such charges in the prior year third quarter.

The current year third quarter included a provision for income taxes at an effective rate of 8.7% in order to increase the year-to-date provision for income taxes to an effective rate of 3.7%. The increase in effective rate over the previous estimate through the second quarter resulted from a recent State of California tax law change that disallows use of net operating loss carry forwards in 2008 and 2009 to offset state taxable income.

The effect of this increase in effective rate on third quarter results, relative to the effective rate used during the first half of the year, was an increase in the provision for income taxes of approximately $0.5 million. Net income in the current year third quarter was $6.8 million, or $0.07 per diluted share, as compared to a net loss of $3.3 million, or $0.04 per diluted share, in the prior year third quarter.

The third quarter earnings per diluted share of $0.07 were at the high end of the Company's previously announced guidance for the quarter of between $0.05 and $0.07 per diluted share. The Company achieved this result despite the non-cash asset impairment charges and the increase in effective income tax rate noted above, which had a combined negative effect on earnings of $0.01 per diluted share. Neither of these charges was contemplated in the Company's initial earnings guidance.

Ed Thomas, chief executive officer, commented, "Our third quarter financial results, which are significantly improved over the prior year, reflect our continued success in navigating this challenging economic environment. We delivered improved operating results in both our Wet Seal andArden B business segments, despite comparable store sale declines, as a result of focused management efforts across all areas of our organization."

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