FOOTHILL RANCH, CA-Improving results at teen girls clothing retailer Wet Seal have prompted Cowen and Co. to initiate coverage of the publicly held company’s stock and to issue a report that calls Wet Seal a “compelling turnaround story.” Cowen has assigned Wet Seal an “outperform” rating, saying the company represents “a highly attractive opportunity for investors to participate in a compelling turnaround story.”

The Cowen and Co. report follows recent news from the Wet Seal Inc. that the company’s comparable store sales climbed 10.9% for the five-week period ended April 7, compared with the five-week period ended April 8 last year, when Wet Seal reported a 16.2% increase in comparable store sales. Net sales for the five-week period increased to $57.6 million from $47.3 million the year before.

Cowen and Co.’s analysis says that significant appreciation of Wet Seal’s stock “could hinge on indications of improving profitability contribution from the Arden B. division.” The research firm believes that the company faces a long-term “opportunity to grow square footage and expand operating margins under the completely reconstituted management team.” It also believes that other factors, including changes to pricing strategies at the core Wet Seal brand and improving traffic trends “should drive further operating profitability gains and modest comp store sales growth.”

Cohen and Co.’s bottom line is that it expects Wet Seal shares to “outperform the market by at least 20% in the next 12 months.” It also says that the company “is well positioned for several years of at least double-digit annual square footage growth.”

Wet Seal still posted a loss for its most recent financial reporting period, the fourth quarter and fiscal year ended Feb. 3. However, it attributed much of the $5.7 million fourth-quarter loss to a non-cash interest charge of $11.0 million associated with the conversion of the company’s convertible notes as well as other one-time charges.

Before the effect of these items, net income was $9.2 million, or nine cents per per diluted share. For the full year, the company reported a loss of $12.8 million, but once again, the loss was primarily the result of one-time non-cash charges. Before the effect of these items, net income was $27.1 million for the year.

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