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Analyst sees early signs of recovery for Wet Seal

The Associated Press

A KeyBanc Capital Markets analyst says teen retailer Wet Seal Inc. may be showing some early signs of recovery.

THE BACKGROUND: Wet Seal's sales have dropped this year as the company struggles to find products that line up with what teenagers want. The retailer is closing stores, fired its CEO in July and has many new board members.

On Thursday, Wet Seal reported a loss in the August-October quarter on still weaker revenue, but declines in sales trends slowed in November.

THE OPINION: Analyst Jane Thorn Leeson praised the month's improvement in a research note Friday but said Wet Seal is still in the early stages of gaining back the teen customer. The company spent the better part of its third quarter clearing out the inventory that built up under its prior CEO, she said, but has now lined up new products at lower prices.

That could put it in good shape for "Black Friday, the day after Thanksgiving, which is the traditional start to the holiday shopping season. The period can bring in as much as 40 percent of a retailer's annual revenue.

Still, the retailer has a lot of work ahead.

"We recognize that there are a lot of moving pieces to this turnaround," Leeson said in her note, including the company's search for a new CEO and possibly other executives.

Leeson lowered her estimates for this fiscal year, which ends in January, and next year. She kept a "Hold" rating.

THE STOCK: Wet Seal's shares fell 7 cents, or 2.4 percent to $2.85 by midafternoon. Its stock has been on roller-coaster ride over the past 52 weeks, and is down about 7 percent from a year ago.