Wet Seal Inc.of Foothill Ranch is offering to buy hundreds of shops from a bankrupt retailer in a proposed deal that would double Wet Seal’s store count.
The company said it agreed to pay $15.2 million for the New York-based G+G Retail Inc.– which filed for bankruptcy protection this week after disappointing 2005 holiday sales. The acquisition signals that Wet Seal is ready to expand again after years of financial turmoil.
Privately held G+G sells pre-teen, teen and women’s clothing at 566 stores in the U.S. under the names Rave, Rave Girl and G+G, including Rave stores at Westfield MainPlace in Santa Ana and Westminster Mall. In a statement released Wednesday night, Wet Seal said it expects to initially operate about 450 stores under these names.
Wet Seal, Inc. sells teen and women’s clothing at 402 Wet Seal and Arden B. stores nationwide. Wet Seal and Rave stores are similar in pricing and merchandise.
“It’s a bold move” for Wet Seal, said Eric Beder, an analyst for Brean Murray Carret & Co. in New York. “It shows that management is going to be aggressive in expanding the chain and they believe they have fixed the problem.”
For 2-½ years, Wet Seal Inc. posted shrinking sales at stores open for a year or longer, or what the industry dubs same-store sales. The company reversed that trend last January and has since increased sales for the past 12 months. For much of that time, same-store sales skyrocketed by one-third or more.
Wet Seal was able to turn the company around by closing 150 stores, lowering prices and offering the right fashions quickly.
But the company is still losing money. For the quarter ended Oct. 29, Wet Seal Inc. lost $6.5 million compared with a loss of $24.2 million the same period the year before.
Still, Wall Street likes the latest move. The local retailer’s stock rose 20 percent Thursday to close at $5.21.
However, one analyst thinks the deal may be too aggressive. “I would prefer for them to continue the focus on Wet Seal and Arden B. stores,” said Pamela Quintiliano of WR Hambrecht. “They’ve come a very long way, but they’re still in the process of fixing what’s broken. I’m concerned that this (deal) will get them a little off track.”
The G+G acquisition may not go through if G+G receives a higher bid than the one offered by Wet Seal.
Because of that uncertainty, Wet Seal Chief Executive Joel Waller declined to comment Thursday on the proposed purchase.
Former Wet Seal CEO Kathy Bronstein likes that the chain wants to buy G+G.
“Strategically, it makes a lot of sense for them now that (Wet Seal) is in the price-competitive business,” she said.
Wet Seal said in the statement that it will run the stores under the original names initially.
In that case, analyst Quintiliano worries Rave could eat into sales at Wet Seal stores.
However, other analysts think Wet Seal will take another approach.
Beder thinks the company will turn a lot of G+G Retail Inc. shops into Wet Seal and Arden B. stores. Wet Seal management has said in the past that it wants to expand both chains.
“This would be a very easy way to do that,” Beder said.
He thinks Wet Seal will likely close G+G stores because they’re less of a fashion retailer. Analysts say G+G has similar pricing to Wet Seal but targets the same types of customers as Arden B.: women in their 20s to early 30s.
Beder thinks thecompanywould retain Rave Girl, which sells to girls from about ages 7 to 12, known as the “tween” niche. It’s a market Wet Seal is not currently serving.
There’s another plus to getting into the tween market, which includes retailers such as Limited Too and Delia’s, said Jeff Van Sinderen, an analyst for B. Riley & Co. in Los Angeles.
“That’s not a market that has a lot of players,” he said.
This G+G deal is similar to Wet Seal’s 1995 purchase of Contempo Casuals, a struggling 240-store chain, for just $1 million in stock. Then, Wet Seal had been losing money for two years in a row. While Wet Seal initially said it would keep the Contempo name, it eventually converted most of those stores into Wet Seal shops. The deal transformed Wet Seal from a predominantly California chain into a full-fledged national retailer.
And G+G also may remind Wet Seal of its former self, said Liz Pierce, an analyst for Sanders Morris Harris in Los Angeles. Wet Seal was able to stave off bankruptcy in late 2004 with a cash infusion from outside investors.
“They see an opportunity here. (Where G+G is today) was where Wet Seal was a year ago, and look what they’ve done,” she said.
Contact the writer: (714) 796-7083 or htnguyen@ocregister.com
