Street.Com – Wet Seal’s (WTSLA:Nasdaq – news – research – Cramer’s Take) bottom-line gains are being gobbled up by its hedge fund financiers. With the retailer’s first drop inmonthly same-store sales since December 2004 coming this month, minority shareholders might be wondering if there will be anything left for them when the feast is over.
The hedge funds that financed Wet Seal’s dramatic turnaround, Prentice Capital Management and SAC Capital, exercised a slew of convertible preferred stock holdings in the retailer during the first quarter. That, combined with the expensing of options for the company’s management, its board and its high-priced merchandise consultant, mired an otherwise good quarter in red ink.
When the maze of charges on Wet Seal’s books finally goes away, the mall-based teen-apparel chain could be an engine of profit growth if it can keep up its impressive sales. But the company warned analysts on its Monday conference call that it will post a same-store sales decline for May. If that’s a sign that its impressive string of double-digit increases in monthly comps is over, this stock could lose its sizzle and leave minority shareholders burned.
Wet Seal said late Monday that its first-quarter loss widened to $13.7 million, or 22 cents a share, from $8.6 million, or 23 cents a share, a year earlier. Minus the interest and debt-related charges, the retailer earned $8 million, or 9 cents a share. The company’s sales rose 20.5% for the quarter to $125.1 million, while its comps, or sales at stores open at least a year, jumped 20%.
