The Wet Seal, Inc. Reports Second Quarter Fiscal 2007 Results and Provides Third Quarter Guidance

The Wet Seal, Inc. (Nasdaq:WTSLA), a leading specialty retailer to young women, announced results for its second fiscal quarter ended August 4, 2007 and provided guidance for its third fiscal quarter. Financial Results Net income for the quarter was $6.8 million, or $0.07 per diluted share. These results compare to prior year second quarter net income of $4.4 million, or $0.04 per diluted share. The prior year results include a benefit to sales and gross margin of $1.4 million associated with a customer loyalty program adjustment and a $1.1 million reduction to expense for a decrease in the fair value of performance shares granted to a consultant formerly used by the Company. As previously announced, net sales for the 13-week period ended August 4, 2007 were $143.3 million compared to net sales of $129.5 million for the 13-week period ended July 29, 2006. Included in net sales for the 13-week period ended July 29, 2006 is $1.4 million in sales recognized as a result of adjustments made for expired program awards under a customer loyalty program. Comparable store sales for the 13-week period ended August 4, 2007 decreased 1.7%. The Company reported a 2.2% comparable sales decrease for the 13-week period ended July 29, 2006. Joel Waller, chief executive officer, commented, "Although sales in the second quarter were somewhat lower than original guidance, we were again able to deliver earnings near the upper end of our original estimate. Increasing product margins, a positive contribution from new stores and tight cost management resulted in an over 50% increase in net income from that achieved in the second quarter last year. "We are planning our third quarter business assuming the recent difficult traffic trends in the specialty retail sector will continue and, accordingly, we will continue to tightly control inventory levels and costs. For August, we anticipate comparable store sales will be between -2% to +2%. For the third quarter, we estimate a -1% to +3% change in comparable store sales. We estimate these sales would result in third quarter earnings per diluted share in the range of $0.07 to $0.10 per share.” Store Openings The Company opened 10 net new stores during the quarter. At August 4, 2007, the Company operated 458 stores in 47 states, the District of Columbia and Puerto Rico, including 366 Wet Seal stores and 92 Arden B stores. Capital Transactions During the second quarter, the Company repurchased 2,593,700 shares under an existing share repurchase program for a total cost of $13.7 million. Year-to-date the Company repurchased 3,593,700 shares for a total cost of $20.1 million. As of August 23, 2007, the Company has authorization to purchase up to 406,300 additional shares under the program. Repurchases are at the option of the Company and can be discontinued at any time. Income Taxes The Company has approximately $66.7 million of federal net operating loss carryforwards available to offset taxable income in fiscal 2007. The Company estimates an effective tax rate of approximately 3% for the year, mainly due to limitations in its ability to offset alternative minimum taxes with net operating loss tax carryforwards. Third Quarter Guidance For the third quarter, earnings are estimated in the range of $0.07 to $0.10 per diluted share. The guidance is based on the following major assumptions: Total net sales between $157 million and $161 million versus $143 million in the prior year third quarter. Comparable store sales between -1% and +3% versus a 7.3% increase in the prior year third quarter. 32 net new store openings, with a net increase of 29 at Wet Seal and a net increase of 3 at Arden B. In the prior year third quarter, the Company opened 10 net new stores. Gross margin rate between 33.8% and 34.9% of net sales versus 33.6% in the prior year. Included in gross margin is $0.2 million in both the current and prior year third quarters in stock compensation expense. SG&A expense between 29.1% and 29.7% of net sales versus 32.2% in the prior year. Included in SG&A expense is $1.0 million and $5.4 million in the respective current and prior year quarters in stock compensation expense. Operating income between $6.5 million and $9.3 million versus $2.0 million in the prior year third quarter. Included in operating income is store pre-opening expense of $1.4 million in this year’s third quarter versus $0.7 million in the prior year third quarter. Interest income of $1.0 million versus $0.4 million in the prior year third quarter. Included in the prior year third quarter is $0.1 million for the write-off of unamortized discounts, deferred financing costs and accrued interest associated with Secured Convertible Notes that were converted into common stock during the prior year third quarter. The guidance for this year’s third quarter does not include an estimate for any such conversions or the related accelerated write-offs that may occur. Income tax expense of $0.2 million to $0.3 million versus no provision for income taxes in the third quarter last year. Weighted average shares outstanding of 100.5 million. A change in the Company’s stock price can cause the weighted average share count to change significantly. The Company will host a conference call and question and answer session at 8:00 a.m. Pacific Daylight Time today. To participate in the conference call, please dial (800) 475-9001 and provide ID#4797397. A broadcast of the call will also be available on our website www.wetsealinc.com. A replay of the call will be available through August 30, 2007. To access the replay, please call (888) 203-1112 or (719) 457-0820 and provide the ID number above. Headquartered in Foothill Ranch, California, The Wet Seal, Inc. is a leading specialty retailer of fashionable and contemporary apparel and accessory items. At August 4, 2007, the Company operated 458 stores in 47 states, the District of Columbia and Puerto Rico, including 366 Wet Seal stores and 92 Arden B stores. The Company's products can also be purchased online at www.wetseal.com or www.ardenb.com. For more company information, visit www.wetsealinc.com. SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995: This news release contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements that relate to the Company's guidance for the month of August 2007 and its third quarter of fiscal 2007, or any other statements that relate to the intent, belief, plans or expectations of the Company or its management. All forward-looking statements made by the Company involve material risks and uncertainties and are subject to change based on factors beyond the Company's control. Accordingly, the Company's future performance and financial results may differ materially from those expressed or implied in any such forward-looking statements. Such factors include, but are not limited to, those described in the Company's filings with the Securities and Exchange Commission. This news release contains results reflecting partial year data and non-fiscal data that may not be indicative of results for similar future periods or for the full year. The Company will not undertake to publicly update or revise its forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized. THE WET SEAL, INC. SUMMARY STATEMENTS OF OPERATIONS (000'S OMITTED, EXCEPT SHARE DATA) (Unaudited)           13 Weeks Ended 26 Weeks Ended August 4, 2007   July 29, 2006   August 4, 2007   July 29, 2006     Net sales $ 143,314 $ 129,502 $ 281,334 $ 254,651 Gross margin 49,782 42,501 98,042 89,380 Selling, general & administrative expenses 43,843 38,732 85,420 81,863 Store closure adjustments - (194 ) - (640 ) Asset impairment   144   -     246   -   Operating income 5,795 3,963 12,376 8,157 Interest income (expense), net   1,179   461     2,411   (17,740 ) Income (loss) before income taxes 6,974 4,424 14,787 (9,583 ) Provision (benefit) for income taxes   210   -     444   (2 ) Net income (loss) $ 6,764 $ 4,424   $ 14,343 $ (9,581 )   Net income (loss) per share, basic $ 0.07 $ 0.05   $ 0.15   ($0.14 )   Net income (loss) per share, diluted $ 0.07 $ 0.04   $ 0.14   ($0.14 )   Weighted average shares outstanding, basic 91,919,740 74,368,909 92,268,700 68,776,037   Weighted average shares outstanding, diluted 103,499,780 100,544,737 104,397,325 68,776,037 THE WET SEAL, INC. SUMMARY CONSOLIDATED BALANCE SHEETS (000'S OMITTED) (Unaudited)     August 4, 2007   February 3, 2007   ASSETS Cash and cash equivalents $ 43,049 $ 105,254 Marketable securities 50,350 - Income taxes receivable 48 56 Merchandise inventories 46,736 34,231 Other current assets   13,786   12,399 Total current assets 153,969 151,940 Equipment and leasehold improvements, net 64,834 50,525 Deferred financing costs 484 555 Other assets 1,665 1,651 Goodwill   3,496   3,496 Total assets $ 224,448 $ 208,167   LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable - merchandise $ 17,892 $ 11,143 Accounts payable - other 15,730 10,078 Income taxes payable 261 128 Accrued liabilities 37,513 37,256 Current portion of deferred rent   4,053   3,381 Total current liabilities   75,449   61,986 Secured convertible notes 3,132 2,739 Deferred rent 25,600 22,501 Other long-term liabilities   1,927   1,977 Total long-term liabilities   30,659   27,217 Convertible preferred stock   2,167   2,167 Total stockholders' equity   116,173   116,797 Total liabilities and stockholders' equity $ 224,448 $ 208,167