Tuesday, June 20, 2006

Interesting Call of The Day: Wet Seal (NASDAQ:WTSLA)

Brean Murray's Eric M. Beder reiterates his Accumulate rating and $7 target price on Wet Seal (NASDAQ:WTSLA) after sponsoring a series of institutional meetings with co's management.

According to the firm, management remains confident Wet Seal turnaround is on track. Although they believe the potential for material upside, especially on the top line, is limited for 2Q06, the firm is even more enthusiastic that there are multiple upside drivers for 2H06 that should refocus investors on the Wet Seal turnaround story and the underlying bottom-line growth potential for the chain.

Company just catching up in key categories this week; management highly focused on creative solutions to eliminate future bottlenecks. Wet Seal believes this week will be the first time it has caught up with the overwhelming demand for dresses, a trend management believes will carry though the rest of the year.

August will be the month for Arden B. to shine. The division is currently clearing out weak spring fashion looks (at 65% discounts) and introducing some tertiary items for fall. Management is highly enthusiastic that the fall 2006 looks. Also, store openings remain on track. Wet Seal will open 25 stores in 2006, 10 of which will be former locations. Operational improvements continue to drive higher productivity. With a materially deeper bench (fully 21 of the company's top 25 managers have been hired in the past year), management has been able to implement a number of key process upgrades to streamline store operations.

Firm's $7 price target translates to 20x fully taxed 2007 EPS estimate.

Notablecalls: Looks like a legitimate call. The stock already reached $7 level (almost!) in April and with things getting better there is no reason it can't reach or even exceed it again.

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