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Wet Seal Swings into Profit in Q1, Guidance for Q2 Upbeat (WTSL)

Shares of the Wet Seal Inc. (NASDAQ: WTSL) rallied in afterhours trading on Tuesday after the female specialty apparel and accessories maker reported that it swung into a profit in its fiscal first quarter, driven by wider margin and lower expenses.

The Company also provided an upbeat guidance for the fiscal second quarter.

For the current quarter, the Foothill Ranch, California-based Company expects earnings between breakeven to 2 cents a share, assuming revenue of $138 million to $141 million.  Analysts’ consensus estimate was for a loss of 2 cents a share on revenue of $132 million. Comparable-store-sales are expected to climb by mid-single digit percentage in the current quarter.

Wet Seal, which owns namesake brand along with Arden B stores, revamped its merchandising in the recent past in order to regain traction in women clothing market. Moreover, in January, the Company appointed John D. Goodman as its new chief executive and a month after it initiated a series of cost-cutting measures. Prior to the fiscal first quarter, the Company posted four successive quarterly losses.

For the fiscal first quarter ended May 4, the Company reported a net income of $3.1 million or 3 cents a share compared to a loss of $273,000 or breakeven a share. After adjusting for onetime items, non-GAAP earnings stood at penny a share down from 2 cents a share, in the same quarter of last year.

Earlier in May, the Company projected earnings to be in the range of breakeven a share to penny a share which was higher than its earlier guidance.

Sales fell 5.1% to $140.4 million but edged past analysts’ consensus estimate. Comparable-store-sales fell 2.9%.

Gross margin improved to 30.1% from 29.5%. Overhead expenses declined 7.4% while asset impairment charges contracted 56% to $1.6 million.

By the end of the first quarter, inventory per square foot dropped 7.7% from the same quarter of last year. Inventory per square foot fell 7.6% at its namesake stores while inventory at Arden B fell 6.3%.

Shares leaped 7.56% in extended trading hours to $4.84.  By the close on Tuesday, the stock has soared 63% year-to-date.

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