UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended January 29, 201128, 2012

OR

Commission file number 0-18632

THE WET SEAL, INC.

(Exact name of registrant as specified in its charter)

(949) 699-3900

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  þ

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨þ    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a nonaccelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “small reporting company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer:  ¨        Accelerated filer:  þ        Nonaccelerated filer:  ¨        Smaller reporting company:  ¨

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  þ

The aggregate market value of voting stock held by nonaffiliates of the registrant as of July 31, 201030, 2011 was approximately $332,138,000$441,921,000 based on the closing sale price of $3.38$4.89 per share as reported on the NASDAQ Global Market on July 30, 2010.29, 2011.

The number of shares outstanding of the registrant’s Class A common stock, par value $0.10 per share, at March 25, 2011,19, 2012, was 100,784,547.90,598,450. There were no shares outstanding of the registrant’s Class B common stock, par value $0.10 per share, at March 25, 2011.19, 2012.

DOCUMENTS INCORPORATED BY REFERENCE

PART III of this Annual Report incorporates information by reference to the registrant’s definitive Proxy Statement for its Annual Meeting of Stockholders to be filed with the SEC within 120 days of January 29, 2011.28, 2012.

THE WET SEAL, INC.

Annual Report on Form 10-K

For the Fiscal Year Ended January 29, 201128, 2012

TABLE OF CONTENTS

101.INS XBRL Instance Document

101.SCH XBRL Taxonomy Extension Schema Document

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF XBRL Taxonomy Extension Definition Linkbase Document

101.LAB XBRL Taxonomy Extension Label Linkbase Document

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document

PART I

Forward-Looking Statements

Certain sections of this Annual Report on Form 10-K (the “Annual Report”), including “Item 1. Business” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contain various forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), which represent our expectations or beliefs concerning future events.

Forward-looking statements include statements that are predictive in nature, which depend upon or refer to future events or conditions, and/or which include words such as “believes,” “plans,” “intends,” “anticipates,” “estimates,” “expects,” “may,” “will,”“will” or similar expressions. In addition, any statements concerning future financial performance, ongoing strategies or prospects, and possible future actions, which may be provided by our management, are also forward-looking statements. Forward-looking statements are based on current expectations and projections about future events and are subject to risks, uncertainties, and assumptions about our company, economic and market factors, and the industry in which we do business, among other things. These statements are not guarantees of future performance, and we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events, or otherwise.

Actual events and results may differ materially from those expressed or forecasted in forward-looking statements due to a number of factors. Factors that could cause our actual performance, future results and actions to differ materially from any forward-looking statements include, but are not limited to, those discussed in “Item 1A. Risk Factors” below and elsewhere in this Annual Report.

All references to “we,” “our,” “us,”“us” and “our company” in this Annual Report mean The Wet Seal, Inc. and its wholly owned subsidiaries. All references in this Annual Report to “fiscal 2012,” “fiscal 2011,” “fiscal 2010,” “fiscal 2009,” “fiscal 2008,” “fiscal 2007,” “fiscal 2006,”2007” and “fiscal 2005”2006” mean the fiscal year ending January 28, 2012,February 2, 2013, and the fiscal years ended January 28, 2012, January 29, 2011, January 30, 2010, February 31, 2009, February 2, 2008 and February 3, 2007, and January 28, 2006, respectively.

Available Information

Our Annual Report, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports and the proxy statement for our annual meeting of stockholders are made available, free of charge, on our corporate web site,www.wetsealinc.com, as soon as reasonably practicable after such reports have been electronically filed with or furnished to the Securities and Exchange Commission, or the “SEC.” Our Code of Business Ethics and Conduct and our Code of Ethics Policy for our Chief Executive Officer and Chief Financial Officer are also located within the Corporate Information section of our corporate web site. These documents are also available in print to any stockholder who requests a copy from our Investor Relations department. The public may also read and copy any materials that we have filed with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Members of the general public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, these materials may be obtained at the web site maintained by the SEC atwww.sec.gov. The content of our web sites (www.wetsealinc.com,www.wetseal.com, andwww.ardenb.com) is not intended to be incorporated by reference in this Annual Report.

General

Incorporated in the State of Delaware in 1990, we are a national specialty retailer operating stores selling fashionable and contemporary apparel and accessory items designed for female customers aged 1315 to 3539 years old. As of January 29, 2011,28, 2012, we operated 533558 retail stores in 47 states and Puerto Rico. Our products can also be purchased online through our e-commerce web sites.

The names “Wet Seal” and “Arden B” (which are registered in the retail store services and other classes) are trademarks and service marks of our company. Each trademark, trade name, or service mark of any other company appearing in this Annual Report belongs to its respective owner.

Business Segments

We operate two nationwide, primarily mall-based, chains of retail stores under the names “Wet Seal” and “Arden B.” Although the two operating segments have many similarities in their products, production processes, distribution methods, and regulatory environment, there are differences in most of these areas and distinct differences in their economic characteristics. As a result, we consider these segments to be two distinct reportable segments.

Wet Seal. Wet Seal is a junior apparel brand for teenage girls who seek trend-focused and value-competitivefashionable clothing at a value, with a target customer age range of 1315 to 1923 years old. Wet Seal seeks to provide its customer base with a balance of affordably priced, fashionabletrend right and fashion basic apparel and accessories.accessories that are affordably priced.

Arden B. Arden B is a fashion brand at value price points for the feminine contemporary woman. Arden B targets customers aged 25 to 3539 years old and seeks to deliver differentiated contemporary collections of fashion, and basicdresses, sportswear separates and accessories for various aspectsany occasion of the customers’ lifestyles.

We maintain a Web-based store located atwww.wetseal.com, offering Wet Seal merchandise comparable to that carried in our stores, to customers over the Internet. We also maintain a Web-based store located atwww.ardenb.com, offering Arden B merchandise comparable to that carried in our stores, to customers over the Internet. Our onlinee-commerce stores are designed to serve as an extension of the in-store experience and offer a widean expanded selection of merchandise, with the goal of expandinggrowing both e-commerce and in-store sales. Internet operations for both Wet Seal and Arden B are included in their respective operating segments. Since fiscal 2007, we have experienced growth in both visitor traffic and our online sales, and we willWe continue to develop our Wet Seal and Arden B websites to increase their effectiveness in marketing our brands. We do not consider our Web-based business to be a distinct reportable segment, as thesegment. The Wet Seal and Arden B reportable segments include, in addition to data from their respective stores, data from their respective Internete-commerce operations.

See Note 13 to the consolidated financial statements included in this Annual Report for financial information regarding segment reporting.reporting, which information is incorporated herein by reference.

Our Stores

Wet Seal stores average approximately 4,000 square feet in size and in fiscal 20102011 had average sales per square foot of $267.$271. As of January 29, 2011,28, 2012, we operated 450472 Wet Seal stores. Arden B stores average approximately 3,100 square feet in size and in fiscal 20102011 had average sales per square foot of $341.$327. As of January 29, 2011,28, 2012, we operated 8386 Arden B stores.

During fiscal 2010,2011, we opened 3228 and closed six Wet Seal stores and opened ninefour and closed sixone Arden B stores.

We currently plan to open approximately 25 to 30 mall-based Wet Seal stores, net of store closings, in fiscal 2011 in mall and off-mall power center locations.2012. We also currently intend to continue growing themaintain our existing Arden B store base moderately, with a plan of approximately four new stores, net of store closings,count in fiscal 2011.2012 as we focus efforts on improving merchandising and marketing strategies in that business. We believe future closures for at least the next 12 months following the date of this Annual Report will primarily result from lease expirations where we decide not to extend, or are unable to extend, store leases. We may, however, accelerate the closure of underperforming stores prior to their lease expirations in cases where we can obtain favorable early lease terminations with the landlords or exercise certain rights contained in the leases. We have approximately 56139 existing store leases scheduled to expire in fiscal 2011.2012. We plan to remodel or relocate approximately 2728 of these Wet Seal and Arden B stores during fiscal 20112012 upon lease renewals. These planned remodels/relocations are

primarily inclusiveAdditionally, approximately 60 of the 56 storethese leases scheduled to expire in the last few days of fiscal 2011. We2012, and we expect to remodel or relocate a portion of these stores during fiscal 2013. For the remaining expiring leases, we expect to negotiate new leases that will allow us to remain in all but a substantial majoritysmall number of these locations.

Our ability to increase the number of Wet Seal and Arden B stores in the future will depend, in part, on satisfactory cash flows from existing operations, the demand for our merchandise, and our ability to find suitable mall or other locations with acceptable sites, and satisfactory terms and satisfactory general business conditions. Our management does not believe there are significant geographic constraints within the U.S. on the locations of future stores.

Competitive Strengths

Experienced Management Team. Although weWe have most recently had significant changes among our senior management team in the current members havepast two fiscal years. Our management team has extensive experience and knowledge of our business and operations or ourin the retail apparel industry, which will be instrumental in managing our company through the current difficult economic environment and driving our company in the next phase of its growth cycle. Ms. Susan P. McGalla, our new chief executive officer who joined our company in January 2011, held various leadership roles with American Eagle Outfitter,Outfitters, Inc. from 1994 to 2009, most recently serving as the president and chief merchandising officer of that company. Mr. Ken Seipel, our new president and chief operating officer who joined our company in March 2011, most recently served as the president and chief merchandise/marketing officer of Pamida Discount Stores LLC since 2009. Previous to this, Mr. Seipel served as executive vice president of stores, operations and store design for the Old Navy division of Gap, Inc. from 2003 through 2008 and also held various merchandising and operations management roles earlier in his career with Target Corporation, Shopko Stores, Inc. and J. C. Penney Company, Inc. Our Chief Financial Officer,chief financial officer, Mr. Steven H. Benrubi, served as our corporate controller for over two years prior to his appointment as chief financial officer in September 2007.

Ms. Harriet Bailiss-Sustarsic was appointed executive vice president and chief merchandise officer, Wet Seal division, in November 2011. Prior to joining our company, Ms. Sustarsic most recently served as the senior vice president and general merchandise manager for the North American Guess Retail Division (“Guess”)from 2006 to 2010. Ms. Sustarsic served as the vice president and general merchandise manager for Guess from 2004 to 2006. Prior to joining Guess, Ms. Sustarsic held various management positions at Charlotte Russe Holdings, Inc. (“Charlotte Russe”) from 1996 to 2003. In 2001, Ms. Sustarsic was named president and chief merchandising officer of Charlotte Russe. Ms. Sustarsic also held various merchandising and management positions in the specialty and department store retail sectors from 1980 to 1996. Ms. Sharon Hughes, our president and chief merchandise officer for ourthe Arden B division, who served as a consultant to our Arden B merchandising team from February 2008 to November 2009, at which time she became an employee of our company in her current role. Ms. Hughes previously was an employee of our company from 1990 through 2002, during which period Ms. Hughesshe was involved in the formation of the Arden B division and held several different merchant roles, including senior vice president of merchandising.

Ms. Kim Bajrech and Ms. Debbie Shinn,Barbara Cook was appointed senior vice presidents and divisional merchandise managers for ourpresident of store operations of The Wet Seal, division, joinedInc. in November 2011. Prior to joining our company, Ms. Cook served as the senior vice president of Gap Stores and Operations, North America, from 2007 to 2011. Ms. Cook also served as the managing director of Europe Gap, Outlet & Banana Republic for Gap Inc. (“Gap”) from 2005 to 2007. Prior to joining Gap, Ms. Cook served as the managing director for the United Kingdom (“UK”) Retail Division of T-Mobile, a mobile communications retailer and wireless carrier, from 2002 to 2005. Ms. Cook also served as the regional general manager of UK for Starbucks Coffee Company, an international coffee company in 2009 and have extensive experiencecoffeehouse chain with over 17,000 stores worldwide. Ms. Cook held various management positions in the junior apparel business. In addition, Ms. Bajrech was an employee of our companyand grocer retail sectors from 19901976 to 2002. We are currently evaluating the timing for our need for a chief merchandise officer for our Wet Seal division.1999.

Merchandising Models at Wet Seal and Arden B are Focused on Fashion at Affordable Prices, Speed and Flexibility. At Wet Seal, we have developed considerable expertise in identifying, stockingsourcing and selling a broad assortment of fresh and fashionable apparel and accessories at competitive prices tofor our teenage customers. At Arden B we continue to focus on offering unique and fashionable apparel and accessories for our young contemporary customers and have shifted the merchandising model over recent years to be quicker and more flexible. Additionally, Arden B has been established as a preferred destination for dresses and other social occasion fashion needs for our customers. Our buyers work closely with senior management to evaluate the

optimal product selectionmerchandise assortments and promotion and pricing strategies. A significant portion of our merchandise is sourced domestically or from domestic importers. This sourcing strategy is intended to enable us to ship new merchandise to stores with a higherhigh frequency and to react more quickly to changing fashion trends. We also take regular markdowns with the objective of effectingensuring the rapid sale of slow-moving inventory.

Strong Financial Position.In recent years, we have increased our cash, cash equivalents and investments position, and extinguished our debt.debt and repurchased a significant number of shares of our Class A common stock. Through fiscal 2010, $56 million in principal amount of our convertible notes and $24.6 million in face amount of our convertible preferred stock had been converted into shares of our Class A common stock. Also, in fiscal 2011, 2010, 2009, and 2007, we repurchased 12.3 million, 2.3 million, 2.0 million, and 3.6 million shares of our Class A common stock for $54.5 million, $8.2 million, $7.3 million, and $20.1 million, respectively.respectively under our share repurchase program and for tendering employee shares upon restricted share vesting for tax obligations. We repurchased no common stock during fiscal 2008. As of January 29, 2011,28, 2012, our cash, cash equivalents and investments were $176.1 million;$157.2 million, with no debt, and our stockholders’ equity was $275.7$241.1 million.

Strategy

As part of a strategic review of business operations, we have identified what we believe are significant opportunities to improve our business trends and drive sales improvement.productivity. We are creatively positioning ourselves for growth in existing store sales productivity and in our store base. The key elements of our opportunities are to:

Develop a Culture of Customer Obsession. In fiscal 2011, we began to develop a culture of customer obsession throughout our company, with a goal to make our customer the first and foremost priority in everything we do within our organization. To better understand our target customers for both our Wet Seal and Arden B brands, in the first half of fiscal 2011 we conducted a qualitative and quantitative customer research project, with assistance from an outside research agency. This project focused on determining our target customers wants and aspirations, her likes and dislikes, why she did or did not shop our stores, what she liked and did not like about us, and competitively where she shopped and why. Through this research, we learned that Wet Seal is known by its customer for fashion, consistent newness in merchandise and value pricing, while Arden B is best known by its customers for fashionable dresses and other social occasion wear. We also learned of key opportunities for improvement that we believe will allow us to enhance our customers’ shopping experience and better serve the needs of our target customers, including those that do not currently shop our stores. We will continue to obtain customer feedback and act upon it to support our customer obsession.

Understand and Redefine our Brands.Through our customer research, we gained an understanding of how our target customers perceive our existing brands and set the groundwork for refining the “brand DNA” for both of our divisions. We conducted brand definition work in late fiscal 2011 through early fiscal 2012, through which we believe that we have developed clear and concise brand positions for both Wet Seal and Arden B. During fiscal 2012, we intend to articulate these brand positions within our company and improve how we communicate with our Wet Seal and Arden B customers, both in our stores and e-commerce, as well as with the broader marketplace. We believe our refined brand definitions and messaging will support our buying teams in their efforts to present more cohesive merchandise edits in our stores, will provide our store associates with a common voice with which to interact with our customers, and will clarify the point of view of our two business concepts.

Continue to Manage Business Conservatively in the Near Term Through the Difficult and Competitive Retail and Economic Environment.We have taken many actions intended to increase our financial strength through a difficult economic environment over the near term and to position ourselves to capitalize on our company’s growth and operating leverage opportunities when such environment improves. In anticipation of a continuing difficult retail environment, our near term goals include preserving a strong balance sheet and our existing sales, continuing moderate growth of our Wet Seal division store base, and resuming conservative growth of our Arden B division store base, ensuring ourpursuing capital expenditure investments madethat are accretive or provide efficiencies to the business and maintaining clean inventory levels, and reducing costs opportunistically, although we cannot assure we will be successful in achieving our goals. As part of our cost-cutting initiatives, in January 2008, January 2009 and January 2010, we eliminated 49, 37 and 19 positions, respectively, in our corporate offices and distribution center, and two, four and two positions, respectively, in our field operations, across numerous functional areas. We plan to open 25 to 30 mall-based

Wet Seal stores, net of store closings, and four Arden B stores, net of store closings, during fiscal 2011.2012. Additionally, we intend to continue to identify opportunities to further leverage our recently implemented markdownplanning and size optimization systems, our new distribution center sorter system,allocation, merchandising and inventory management systems, currently being implemented;and our distribution center sorter system; and plan to continue to closely monitor inventory positions during fiscal 20112012, while seeking to have the appropriate inventory mix and levels to obtain new trend opportunities. Lastly, we intend to continue to operate with a more cost-efficient, streamlined management organization by seeking to maintain our past cost reductions and to make conservative re-investments in the business where necessary.

Improve Merchandise Margin.In our Wet Seal division, we identified and began acting upon opportunitiesenacted numerous strategies during fiscal 2011 in an effort to improve ourmerchandise margins. These efforts included consolidation of price points, clarification and reduction of promotional messages, enhanced inventory planning and allocation function, merchandise mix,processes, and modification of markdown cadence in responsecadences. This led to declining merchandise margin performance over the course of fiscal 2009, resulting in merchandise margin improvement during fiscal 2010.for the year despite increased commodity cost pressure, primarily from cotton, and a continuing highly promotional competitive environment. We also intend to continue to improve uponexecuting these merchandising strategies, as well as optimizing size offerings, further refining the use of our markdown cadence, promotional strategiesoptimization system, improving merchandise sourcing, including leveraging our recently implemented vendor scorecard program that allows us to better measure vendor performance, partner with vendors on plans for continued improvement and size offerings by further utilizingto ensure we conduct business with our markdownbest vendors, and size optimization systems, continue our focus onbetter exploiting key merchandise item categories, further develop brandedas informed by our customer research and private label assortments, and further optimize our accessory offerings in the merchandise mixbrand definition work, in order to build upon our fiscal 20102011 improvement. In our Arden B division, we intend to further improvemaintain our inventory management, expand dresses asstrong dress business while also expanding our sportswear business, in order to build market share and provide a percentage ofmerchandise assortment better aligned with our merchandise mix, andtarget customer’s wants. We plan to continue to enhance our promotional planning and strategies, and further improve inventory management, in order to build uponmaintain the significant merchandise margin improvement generated in this division during fiscal 2009 and fiscal 2010.in recent years. We also intend to focus on maintaining a merchandise mix balanced with customer needs and to continue to makemaking improvements to our sourcing processes and expand and strengthen our sourcing base. We also intendbase, including leveraging our recently implemented vendor scorecard program, as noted above, and to improve our price messaging to gain more recognition from our customers forof our value proposition.

Improve Store Operations.Operations and Develop a Selling Culture. Our store operations opportunities includeWe are improving customer service, to support our company customer obsession objectives, through new trainingthe development of more precise labor scheduling tools to allow our store associates to focus more on our customers, increase store productivity and development programs, continuingcomparable store sales growth. We intend to obtain customer feedbackincrease store productivity and acting upon it to improve our business, identifying and implementing opportunities to simplifyefficiency through streamlined operational tasks and/or eliminateeliminated non-selling activities and performingby providing our store associates with the key performance metrics needed to manage and build their business, and perform more detailed analysis and monitoring to identify improvementsimprovement opportunities for underperforming stores. In addition, we intend to improve our employee selling skills through stronger partnerships with the merchandising organization in addition to new e-learning training and development programs.

Improve Real Estate.Moderately Grow Store Base and Position for Future Growth. We will continue to seek to improve our new and remodeled store economics to address pressure from rising occupancy and store construction costs. We will re-evaluate our Wet Seal store prototype and enhanced fixturing, first implemented inexpect fiscal 2008, to analyze whether we are providing the most attractive store design and shopper-friendly environment. Additionally, we expect to continue opening a small number of Wet Seal stores in regional “power centers” during fiscal 2011 and will assess the opportunity for off-mall growth. We expect to continue to build the pipeline for store growth and growth of our store base, which we estimate will result in fiscal 20112012 openings of approximately 25 to 30 new Wet Seal stores, net of store closings, and will continuewe expect to growmaintain the existing Arden B store base conservatively, with approximately four new stores, net of store closings, in fiscal 2011.as we focus 2012 efforts on improving merchandising and marketing strategies. Additionally, we plan to remodel or relocate approximately 2728 Wet Seal and Arden B stores during fiscal 20112012 upon lease renewals. As we open new Wet Seal stores, or remodel our existing Wet Seal stores, in fiscal 2012, we intend to continue to utilize a refreshed store design that was developed in fiscal 2011, and to develop a new store design for use in 2013 and beyond. We also intend to continue to utilize an Arden B new store prototype developed in 2010 as we remodel Arden B stores prospectively. As part of a strategic planning process in fiscal 2012, we intend to develop market-by-market growth targets, identify target malls within those markets, clarify ideal co-tenancies to support location priorities within target malls, and utilize elements of our customer research, brand definitions and new Wet Seal store design to develop marketing strategies to use with our major mall landlords. We believe these efforts should position Wet Seal and Arden B for store base growth beyond fiscal 2012.

Improve Marketing. We believe we have an opportunity to improve our marketing and divisional merchandising strategies and are developingexecution. We intend to make modest incremental marketing investments at both Wet Seal and Arden B and intend to develop and implement specific plans in fiscal 2012 that will incorporate the refined “brand DNA” for each division in fiscal 2011.the second half of the year. We intend to develop a strategic marketing plan to reach our existing and potential customers and communicate regularly, messaging around our product and our brands. We also intend to

build upon progress made in fiscal 2011 with in-store marketing, primarily through improved storefront window displays and store interior product images. We also intend to continue emphasizing Internetto enhance our e-commerce sites as marketing vehicles for our stores, including social networking, and will continue to focus on direct and grass roots marketing programs and in-store visual merchandising. Additionally, we are currently conducting consumer research studies to support and enhance brand marketing programs later in the year and to assess brand positioning opportunities.

Improve Information Systems.Since fiscal 2009, we have strategically implemented new or upgraded information systems in several key areas of our business. These systems include markdown and size optimization, merchandise management, point-of-sale and distribution center automation. We expectwill continue work to complete implementationoptimize use of an updated retail merchandising systemthese information systems. We also intend to focus on improving systems in fiscal 2011,other areas, including planning, allocation and warehouse management, which are designedintended to improvecreate efficiency and improved merchandising decision support and increase efficiency of inventory management practices. Additionally, we intend to update short-term and long-term information systems strategies to provide further efficiencies and cost controls.for our team.

Improve Physical Distribution and Transport. We intend to continue to improve business processes to optimize efficiency of our recently implemented automated sorter system in our distribution center, which we expect will lead to increased merchandise processing speed and further cost savings. Additionally, we will improve supply chain efficiency through better coordination among and within our vendor base and our internal merchant, planning, distribution and store operations organizations.

Realize Comparable Store Sales Growth Opportunity. We are focused on regaining sales productivity lost through our comparable stores sales declines experienced in fiscal 2007 through 2009, which represented a 16.7% decline on a cumulative basis, as a result of the challenging economic environment, as well as thepoor merchandising execution at Wet Seal, and Arden B sales deterioration under its previous merchandising model. In fiscal 2010 and in the first half of fiscal 2011, consolidated comparable store sales began to stabilize, but, in the second half of fiscal 2011, consolidated comparable store sales experienced instability. In addition, sales productivity at both Wet Seal and Arden B remains below historical peaks. In fiscal 2012, we will seek to achieve comparable store sales improvement through the implementation of strategic initiativesimplementing strategies noted above, which, among other things, include continued focus on improvingbuilding a customer service,obsessed culture, improved merchandising, planning, promotional and marketing practices, a focus on exploiting key merchandise category opportunities, as informed by our customer research and brand definition work, continued rollout of our modified Wet Seal store design, and fixturing, key merchandise trends, increased efficiencies inand decision support from our planning, merchandising and allocation functions from markdown and size optimization systems, improving promotional planning and pricing messaging, ensuring inventory is maintained at sufficient levels to increase business, and implementing an enhanced merchandising system.management systems.

Continue Arden B Improvement. SinceBeginning in fiscal 2008, we have significantly reduced the size and cost of the Arden B merchandising organization, refined the product development and sourcing processes to include more partnering with merchandise suppliers, and adjusted our merchandise mix and pricing and promotional strategies. Our newThe changes to the pricing and promotional strategies at Arden B included significant reductions in price points across all categories. As a result, during the last half of fiscal 2009 and the first and fourth quarters of fiscal 2010,In response to these changes, Arden B experiencedbegan to experience positive comparable store sales results and throughout fiscal 2009 and fiscal 2010 we generated significantly improved merchandise margins versus such results forin fiscal 20072009, followed by intermittent improvement in fiscal 2010 and early fiscal 2008. However, we

2011, and then decline in the business in latter fiscal 2011. We believe Arden B has yet opportunity

to achieve its full potential with its target young contemporary customers.generate more consistent financial growth and performance. We aim to drive further sales and profitability improvement at Arden B throughby better leveraging our distinctive quality merchandise, unified appareldress business positioning and accessory assortments, higher penetration of dresses, our value-pricing strategy, new fixturing to increase store capacity,building our sportswear offering and amessaging, and continually improving the in-store customer experience.

Expand our OnlineE-commerce Business. WeUnder the leadership of our new VP of Digital/E-commerce, hired in February 2012, we plan to continue to growresume growth in our Internete-commerce business through several initiatives, including aligning our e-commerce and store shopping experiences, employing multi-channel marketing strategies, such as synergizing e-commerce customer relationship management with our store loyalty programs, expanding our stylee-commerce-only offerings andin certain key merchandise categories, significantly growing our customer contact channels, through social network investments and more targeted Internet marketing programs, including Facebook^®improving e-commerce inventory planning and mobile phone marketing.allocation practices. We experienced substantial e-commerce sales growth in fiscal 2010, with an increase of 20% in Internete-commerce sales over fiscal 2009. Beginning in May 2011, we began to more closely align the e-commerce shopping experience with our stores, in terms of merchandise assortment and promotional messaging to address what we believed was an increasing divergence in customer bases between our e-commerce and store channels. We believe this led to the loss of certain customers who previously shopped only the e-commerce channel and, as a consequence, in fiscal 2011 we experienced a decrease of 11% in e-commerce sales from fiscal 2010. Although we made progress stabilizing our focus on expanding our style offering, introducing new channels to capture customers, continuing to increase Internet marketing, maintaining consistent brand messages across both channels, and being more focused with targeted marketing will allow us toe-commerce sales within Wet Seal in late fiscal 2011, we continue to growface greater challenges at Arden B as we compare against prior year sales that were particularly dependent on an increasing clearance inventory mix. While this strategy has led to short-term declines in our onlinee-commerce sales, we believe establishing consistent shopping and brand experiences between the e-commerce and store channels is instrumental to driving growth in our multi-channel customer base. We believe this will lead to greater long-term growth potential in our e-commerce business and also increase traffic to more value from our e-commerce channel as a marketing vehicle for our stores. We are optimizing inventory allocated to the Internet business to better meet the demand ofAlso, in recent years we have developed industry leading e-commerce tools that enhance our Internet customers and have strengthened our buying and planning staff to meet the anticipated sales growth in this area. We also plan to continue to grow our Internet business through continued improvements to inventory planning, fulfillment,website and customer service. Prior to the 2007 holiday season, we launched new website platforms for both divisions, which supports advanced merchandising capabilities, personalization based on browsing behavior and past purchase history, and testing tools to measure and determine the most effective content and promotional strategies. In fiscal 2008 Wet Seal launched industry leadingexperience. We added social media features for the website, and a cross channel mobile phone application which allowallows our customers to design, rate, and buy outfits using the majority of Wet Seal products. In fiscal 2009, we launchedproducts, website features that allow for selling to countries outside the U.S., customers to search for and reserve denim at stores near them, customers to invite friends to shop with them online whereby each person can control and see the same screen, customers to shop online from their mobile devices and other features that continue to enhance our website and customer experience. In fiscal 2010, we launched additional mobile initiatives in the areas of location based marketing and virtual gift cards. We also added additional methods to tender payment online.payment. Our social media marketing reach has increased substantially, adding over one million Facebook^® fans in 2010.e-commerce strategy will include rationalization and/or improvement of the commercial application of these e-commerce tools.

Buying

Our buying teams are responsible for identifying, evolving and editing fashion trends and developing themes to guide our merchandising strategy. Each retail division has a separate buying team. The merchandising teams for each division develop fashion themes and strategies by identifying trends and assessing customer responseshow they best apply to current trends,our target customer, shopping appropriate domestic and international markets, using fashion services, and gathering references from industry publications. After selecting fashion themes, the buying teams work closely with vendors to use colors, materials, and designs that create images consistent with the themes for our product offerings.

Since the fiscal 2004year ended January 29, 2005 (“fiscal 2004”) for our Wet Seal division, and beginning in fiscal 2008 for our Arden B division, we no longer internally design merchandise.a large percentage of our merchandise is designed externally. This allows us more flexibility to respond to the changing fashion trends of our target customers, to buy in smaller lots, and to reduce sourcing lead times. See also “Allocation and Distribution”Distribution of Merchandise” below.

Marketing, Advertising, and Promotion

We believe that our brands are among our most important assets. Our ability to successfully increase brand awareness is dependent upon our ability to address the changing needs and priorities of each brand’s target customers. To that end, we have embarked onconducted thorough customer market research intendedin fiscal 2011 that allowed us to keep us in touch withbetter understand our customers and their needs and directneeds. After we completed the customer research, we developed “brand DNA” for each division that will allow us to provide consistent brand messages in our marketing effortsdirected to them.our target customers. We will also continue our emphasis on visual merchandising in our stores and e-commerce, and

direct and grass roots marketing. As discussed further in Note 1 to the consolidated financial statements included elsewhere in this Annual Report, we also offer a frequent buyer program in our Wet Seal stores in order to build loyalty to the brand, increase the frequency of visits, promote multiple item purchases, and gain direct access to the customer. As part of this program, we send e-mails to participants to

notify them of special in- storein-store promotions. Our Arden B division also offers a loyalty program, “B Rewarded,” designed for the same purposes as thatthose of our Wet Seal division. We intend to implement marketing strategies to build upon the past successes of these loyalty programs, synergize these programs with our e-commerce customer relationship management efforts, and to accelerate their growth.ensure they align with our refined “brand DNA” for each division. We also plan to more aggressively pursue customer acquisitions and to increase our use of Internete-commerce marketing to drive increased store traffic.

During fiscal 2011, 2010, 2009, and 2008,2009, we spent 0.6%0.8%, 0.4%0.6%, and 0.5%0.4%, respectively, of net sales on advertising. In fiscal 2010,2011, our primary marketing focus was on visual merchandising, including in-store promotion programs and events, and Internet marketing, including Facebook^®, for both Wet Seal and Arden B stores.our customer research project. We expect to increase marketing and advertising spending modestly in fiscal 20112012 in support of our business strategies.

Sourcing and Vendor Relationships

We purchase our merchandise primarily from domestic vendors. For fiscal 2010,2011, we directly imported approximately 14%13% of our retail merchandising receipts were directly imported from foreign vendors. Although in fiscal 20102011 no single vendor provided more than 10% of our merchandise, management believes we are one of the largest customers of many of our smaller vendors. Quality control is monitored at the distribution points of our largest vendors and manufacturers, and merchandise is inspected upon arrival at our Foothill Ranch, California facility.

We do not maintain any long-term or exclusive commitments or arrangements to purchase merchandise from any single supplier, and there are many vendors who could supply our merchandise.

Allocation and Distribution of Merchandise

Our merchandising strategies depend in part on maintaining a regular flow of fresh, fashionable merchandise into our stores. Successful execution depends largely on our integrated buying, planning, allocation, and distribution functions. By working closely with store operations management and merchandise buyers, our teams of planners and allocators manage inventory levels and coordinate allocation of merchandise to each of our stores based on sales volume and store size, demographics, climate, and other factors that may influence an individual store’s product mix. We utilize merchandise planning software that assists us in streamlining the planning process. In fiscal 2009, we implemented size optimization software that we believe has begun to improveimproved our allocation of sizes to better align with each store’s needs.needs and we continue to work towards utilizing the software’s capacity.

All merchandise is received from vendors at our Foothill Ranch, California distribution center, where items are inspected and prepared for shipping to our stores. We ship all of our merchandise to our stores by common carrier. Consistent with our goal of maintaining the freshness of our product offerings, we frequently ship new merchandise to stores, and markdowns are taken regularly to effect the rapidensure acceptable rates of sale of slow-moving inventory. In fiscal 2009, we implemented a markdown optimization system at our Wet Seal division to improve the speed of selling through slow product and improve merchandise margins. Marked-down merchandise that remains unsold is either sent to select stores for deep discounting and sale, sent to our Internete-commerce store for selling, sold to an outside clearance company, or given to charity. The fulfillment process and distribution of merchandise for our onlinee-commerce business is performed at our Foothill Ranch, California distribution center.

Information and Control Systems

Our merchandise, financial, and store computer systems are integrated and operate using primarily Oracle^® technology. We have invested in a large data warehouse that provides management, buyers, and planners comprehensive data that helps us identify emerging trends and manage inventories. The core merchandise system issystems supporting our business are frequently enhanced to support strategic business initiatives.

Through an installation completed in fiscal 2010, all of our stores have a point-of-sale system operating on software provided by Oracle^®. This system facilitates bar-coded ticket scanning, automatic price lookups, and

centralized credit authorizations. All stores are networked to the corporate office via a centrally managed virtual private network. We utilize a store portal/intranet that is integrated with the corporate merchandise ERP system to provide the stores and corporate staff with current information regarding sales, promotions, inventory, and shipments, and enables more efficient communications with the corporate office. We utilize wide area networking hardware at all stores, which guards against security breaches to our storesstores’ point-of-sale system. We also recently upgraded our merchandising system, and launched new website platforms for the online businesses.system. In fiscal 2009, in order to further improve gross margin through the use of technology, we completed implementation of Oracle^® Markdown Optimization for our Wet Seal stores, and we completed the implementation of the SAS^® Size Optimization system. In 2010, to maximize the benefits of size optimization, we completed installation of a new distribution center automated sorter system to allow automated picking of customized size ranges for each store. In addition, aA major upgrade to the Oracle^® Retail Merchandising system began in fiscal 2010 and will bewas completed in early fiscal 2011. Additionally, several enhancements and upgrades were completed in fiscal 2011 to the point-of-sale systems to create more efficiency within the store environment.

Seasonality and Inflation

Our business is seasonal in nature, with the Christmas season, beginning the week of Thanksgiving and ending the first Saturday after Christmas, and the back-to-school season, beginning the last week of July and ending during September, historically accounting for a large percentage of our sales volume. For the past three fiscal years, the Christmas and back-to-school seasons together accounted for an average of slightly less than 30% of our annual sales.

We do not believe that inflation has had a material effect on our results of operations during the past three years. However, we began to experience merchandise cost pressures in the fourth quarter of fiscal 2010 and saw further cost increases through fiscal 2011 as a result of rising commodity prices, primarily for cotton, and increased labor costs, due to labor shortages in China, from which a majority of our merchandise is sourced. In addition,sourced, and increasing fuel costs. We expect these sourcing cost pressures to continue in the first quarter of fiscal 2012. The rising value of the currency in China relative to the U.S. dollar is expected tomay also have a furtheran impact on future product costs. Although our initial mark-ups have remained fairly stable to date, we experienced some deterioration in mark-up rates in fourth quarter 2010 merchandise receipts and are experiencing further cost increases for merchandise on order for the first half of fiscal 2011. In response to the costs increases, we have evaluated and modestlyopportunistically adjusted our pricing in certain categories, primarily through price consolidation, are leveraging our large vendor base to lower costs and are assessing ongoing promotional strategies in efforts to help maintain or improve upon historical merchandise margin levels. We were able to improve our merchandise margins in fiscal 2011 despite rising product costs, and we will continue to diligently monitor our costs as well as the competitive pricing environment in order to mitigate potential margin erosion. However, we cannot be certain that our business will not be affected by inflation in the future.

Trademarks

We own numerous trademarks, several of which are important to our business. Our primary and most significant trademarks and service marks are WET SEAL and ARDEN B, which are registered in the United States Patent and Trademark Office. We also have registered, or have applications pending for, a number of other trademarks including, but not limited to, ACCOMPLICE, B. REWARDED, BLINK by WET SEAL, BLUE ASPHALT, BUTTERFLY DESIGN, CHIC BOUTIQUE, CONTEMPO CASUALS, ENR EVOLUTION NOT REVOLUTION, FASHION INSIDER, FASHIONISTA, FASHION RIGHT.ALL DAY ALL NIGHT., FIT IN. STAND OUT., GET IT. WEAR IT. FLAUNT IT., iRUNWAY, LOVE THE TREND-HATE TO SPEND, LIFE’S A BLUR.FOCUS ON FASHION, REBELLIOUS, ROCK THESE BLUES, SEAL STASH, STYLIZER, TREND SPOT, STYLIZER, REBELLIOUS, and URBAN VIBE. Additionally, we have registered, or have pending applications for the following international trademarks including but not limited to, WET SEAL, BLUE ASPHALT, THE WET SEAL, URBAN VIBE, ARDEN B, and CONTEMPO CASUALS. In general, the registrations for these trademarks and service marks are renewable indefinitely as long as the marks are used as required under applicable regulations. We are not aware of any significant adverse claims or infringement actions relating to our trademarks or service marks.

Competition

The women’s retail apparel industry is highly competitive, with fashion, quality, price, location, and service being the principal competitive factors. Our Wet Seal and Arden B stores compete with specialty apparel retailers, department stores, and other apparel retailers, including Abercrombie & Fitch, Aeropostale, American

Eagle, Anthropologie, Banana Republic, BCBG, bebe, Body Central, Charlotte Russe, Express, Forever 21, Gap, Guess?, H&M, J.C. Penney, Nordstrom, Old Navy, Pacific Sunwear, Rue 21,rue21, Target, Urban Outfitters, Zara, and other regional retailers. Many of our competitors are large national chains that have substantially greater financial, marketing, and other resources than we do. While we believe we compete effectively for favorable site locations and lease terms, competition for prime locations within malls and power centers is intense, and we cannot ensure that we will be able to obtain new locations on terms favorable to us, if at all.

Customers

Our company’s business is not dependent upon a single customer or small group of customers.

Environmental Matters

We are not aware of any federal, state, or local environmental laws or regulations that will materially affect our earnings or competitive position, or result in material capital expenditures. However, we cannot predict the effect on our operations of possible future environmental legislation or regulations. During fiscal 2010,2011, we did not make any material capital expenditures for environmental control facilities and no such material expenditures are anticipated for fiscal 2011.2012.

Government Regulation

Our company is subject to various federal, state, and local laws affecting our business. Each of our company’s stores must comply with licensing and regulation by a number of governmental authorities in jurisdictions in which the store is located. To date, our company has not been significantly affected by any difficulty, delay, or failure to obtain required licenses or approvals.

Our company is also subject to federal and state laws governing such matters as employment and pay practices, overtime, and working conditions. The bulk of our company’s employees are paid on an hourly basis at rates related to the federal and state minimum wages. In the past, we have been assessed penalties or paid settlements to gain dismissal of lawsuits for noncompliance with certain of these laws, and future noncompliance could result in a material adverse effect on our company’s operations. In July 2006, May 2007, and September 2008, May 2011, and October 2011, we were served with class action complaints alleging violations under certain State of California labor laws. In November 2006, we reached an agreement to settle the July 2006 class action complaint for approximately $0.3 million, and we have accrued within accrued liabilities in our consolidated balance sheet an amount equal to this settlement amount, awaiting final approval. On September 27, 2010, the Superior Court granted final approval of the settlement agreement; however, an appeal was subsequently filed on January 26, 2011. On December 17, 2010, the Court denied Plaintiffs’ Motion for Class Certification in its entirety on the May 2007 class action complaint and denied Plaintiffs’ Motion For Leave to File An Amended Complaint. Plaintiffs have appealed both orders but have not yet filed their opening appellate briefs. This motion is currently pending. On May 9, 2011, a complaint was filed in the County of Alameda. In response, we have filed a Motion to Compel Arbitration and, in the alternative, a Motion to Transfer Venue to the County of Orange. On February 3, 2012, the court granted us motion to transfer venue to the County of Orange without prejudice to us renewing our motion to compel arbitration. Each of these motions is currently pending. In April 2009, we were served with a subpoena seeking information related to current and former employees throughout the United States. In April 2010, an application was filed to enforce the subpoena and we are subject to a nationwide investigation. We are awaiting the results of the investigation. We are vigorously defending the May 2007 and September 2008all outstanding complaints and are unable to predict the likely outcomes and whether such outcomes may have a material adverse effect on our results of operations or financial condition. Accordingly, no provisions for loss contingencies for the May 2007 and September 2008such complaints have been accrued as of January 29, 2011.28, 2012.

We continue to monitor our facilities for compliance with the Americans with Disabilities Act, or the ADA, in order to conform to its requirements. Under the ADA, we could be required to expend funds to modify stores to better provide service to, or make reasonable accommodation for the employment of, disabled persons. We believe that expenditures, if required, would not have a material adverse effect on our company’s operations.

Employees

As of January 29, 2011,28, 2012, we had 6,9827,283 employees, consisting of 2,0472,152 full-time employees and 4,9355,131 part-time employees. Full-time personnel consisted of 649673 salaried employees and 1,3981,479 hourly employees. All

part-time personnel are hourly employees. Of all employees, 6,5756,952 were sales personnel and 407331 were administrative and distribution center personnel. Personnel at all levels of store operations are provided various opportunities for cash and/or other incentives based upon various individual store sales and other performance targets. All of our employees are nonunion, and, in management’s opinion, are paid competitively at current industry standards. We believe that our relationship with our employees is good.

Risks Related to our Business

General economic conditions, perceptions of such conditions by our customers and the impact on consumer confidence and consumer spending have adversely impacted our results of operations and may continue to do so.

Our performance is subject to general economic conditions and their impact on levels of consumer confidence and consumer spending. Consumer purchases of discretionary items, including our merchandise, generally decline during periods when disposable income is adversely affected or there is economic uncertainty. As a result of the continued difficult economic conditions, we may face risks that will impact many facets of our operations, including, among other things, the ability of one or more of our vendors to deliver their merchandise in a timely manner or otherwise meet their obligations to us. If continued poor economic conditions in the U.S. and world economic markets become more volatile,continue, or if they deteriorate further, our business, financial condition, and results of operations may be adversely affected.

We may experience declines in comparable store sales in our Wet Seal division.

Although we had flata 2.0% comparable store sales increase in our Wet Seal division in fiscal 2011, we experienced a 4.6% decline in comparable store sales in our Wet Seal division in the fourth quarter of fiscal 2011 and no increase and a decline in comparable store sales in that division in fiscal 2010 we did experience declines in fiscaland 2009, and 2008, and werespectively. We cannot assure that we will improve our comparable store sales in the future. In order to improve comparable store sales results, we will need to focus on a variety of factors, including fashion trends, our merchandise mix, our merchandise planning and allocation practices, holiday periods, actions of competitors, weather conditions and general economic conditions. There can be no guarantee that financial results of our Wet Seal division will improve and if they do, there can be no guarantee as to the timing, duration or significance of the improvement.

Our continued improvements inIn the past, we have experienced poor comparable store sales and improved operating results ofin our Arden B division, may not be indicative of our future performance trends, and we cannot assure that we will be able to re-establish and sustain such improvementimprovements in the future.

In fiscal 2007 and 2008, we experienced poor financial performance in our Arden B division. However,In fiscal 2009 and 2010, comparable store sales and operating results of our Arden B division have improved as a result of efforts by our senior management team, the closing or rebranding of underperforming stores, and changes to promotional and pricing strategies. ThereHowever, in fiscal 2011, we experienced weaker comparable same store sales and operating results in the division due to not having the appropriate inventory levels in key performing categories and fashion content weakness. As a result, there can be no guarantee that this improvementour efforts to improve results will be successful and that the financial performance of our Arden B division will continue.improve.

Our success depends to a significant extent on the performance of our senior management.

In general, our success depends to a significant extent on the performance of our senior management, particularly personnel engaged in merchandising and store operations, and on our ability to identify, hire and retain additional key management personnel. We have had significant changes in management recentlyduring fiscal 2010 and fiscal 2011, and these changes may impact our ability to execute our business strategy.

Effective January 18, 2011, we appointed Ms. Susan P. McGalla as our new chief executive officer. As we noted in our announcement of her appointment, Ms. McGalla will not be based in our executive offices until August 2011. Additionally,officer, effective March 28, 2011, we appointed Mr. Ken Seipel as our new president and chief operating officer.officer, effective November 16, 2011, we appointed Ms. Barbara Cook as our new senior vice president of store operations, and November 28, 2011, we appointed Ms. Harriet Sustarsic as our new executive vice president and chief merchandise officer for our Wet Seal division. While Ms. McGalla, and Mr. Seipel, haveMs. Cook and Ms. Sustarsic immediately becomebecame involved in the day-to-day activities of our company, we expect that we will continue to experience a transition period until they are fully integrated organizationally and until Ms. McGalla is fully integrated geographically.organizationally. We cannot provide any assurance that

there will not be any disruption that adversely impacts our customer relationships, employee morale and/or our business during such transition period. Further, in their roles as

Furthermore, our chief executive officersenior management may not effectively implement our refined “brand DNA” positions which could have an impact on our financial condition, results of operations and chief operating officer,cash flows. Ms. McGalla, and Mr. Seipel, respectively,Ms. Cook and Ms. Sustarsic may also implement other new strategic initiatives for our company. Because these strategic initiativescompany that have not yet been formulated yet,and we cannot predict how these initiatives will impact us. If they are ineffective, this would adversely affect our financial condition, results of operations and cash flow.

Our company’s ability to attract customers to our stores depends heavily on the success of the shopping centers in which many of our stores are located.

Substantially all of our stores are located in regional mall shopping centers. Factors beyond our control impact mall traffic, such as general economic conditions and consumer spending levels. Accordingly, consumerConsumer spending and mall traffic remain depressed due to the continued difficult economic conditions. As a result, mall operators have been facing increasing operational and financial difficulties. The increasing inability of mall “anchor” tenants and other area attractions to generate consumer traffic around our stores, the increasing inability of mall operators to attract “anchor” tenants and maintain viable operations and the increasing departures of existing “anchor” and other mall tenants due to declines in the sales volume and in the popularity of certain malls as shopping destinations, have reduced and may continue to reduce our sales volume and, consequently, adversely affect our financial condition, results of operations and/or cash flows.

Our ability to procure merchandise could be adversely affected by changes in our vendors’ factoring arrangements.

Changes in our vendors’ factoring arrangements may threaten the factors’ financial viability and ability to provide factoring services to its customers. Although we do not have a direct relationship with factors, a portion of our vendors who supply our company with merchandise have direct factoring arrangements. Vendors who engage in factoring transactions will typically sell their accounts receivable to a factor at a discount in exchange for cash payments, which can be used to finance the business and operations of the vendors.

If the financial condition of our vendors’ factors were to deteriorate and certain of our vendors were unable to procure alternative factoring arrangements from competitors of their factor on the same or substantially similar terms, our ability to timely procure merchandise for our stores could be adversely affected. This could require the devotion of significant time and attention by our management to adequately resolve such matters. In turn, our results of operations and financial condition could suffer.

Our ability to use net operating loss carryforwards to offset future taxable income for U.S. federal or state income tax purposes is subject to limitation.

We believe that our net operating losses (“NOLs”) are a valuable asset and we intend to take actions to protect the value of our NOLs. However, Section 382 of the Internal Revenue Code or (“Section 382,382”) contains provisions that may limit the availability of federal net operating loss carryforwards or NOLs, to be used to offset taxable

income in any given year upon the occurrence of certain events, including significant changes in our stockholders’ ownership interests in our company. Under Section 382, potential limitations on NOLs are triggered when there has been an “ownership change” (generally defined as a greater than 50% change (by value) in our stock ownership over a three-year period).

We incurred ownership changes in April 2005 and December 2006, which resulted in Section 382 limitations applying to NOLs generated prior to those dates, which were approximately $172.1$150.6 million. As a result of these ownership changes, of our $93.5$65.7 million NOLs as of January 29, 2011,28, 2012, we may utilize up to $58.3$60.9 million to offset taxable income in fiscal 20112012 and 2012.2013. Future transactions involving the sale or other transfer of our stock may result in additional ownership changes for purposes of Section 382. The occurrence of such additional ownership changes could limit our ability to utilize our remaining NOLs and possibly other tax attributes. The Section 382 limitation is currently under examination by the Internal Revenue Service. Pending the examination results, the NOL utilization could be further limited. Limitations imposed on our ability to use NOLs and other tax attributes to offset future taxable income

could cause us to pay U.S. federal income taxes earlier than we otherwise would if such limitations were not in effect. Any further ownership change also could cause such NOLs and other tax attributes to expire unused, thereby reducing or eliminating the benefit of such NOLs and other tax attributes to us and adversely affecting our future cash flows.

In addition, we may determine that varying state laws with respect to NOL utilization may result in lower limits, or an inability to utilize NOLs in some states altogether, which could result in us incurring additional state income taxes. During fiscal 2008, the State of California passed legislation that suspended our ability to utilize NOLs to offset taxable income in fiscal 2008 and 2009. In late 2010, the State of California extended such legislation, thatwhich further suspended use of NOLs to fiscal 2011. As a result, we incurred additional state income taxes in California, which increased our effective tax rate in fiscal 2008 through 2010. We may also2011. In fiscal 2011 we generated income, and we expect to generate income in future periods on a federal alternative minimum tax basis, which would resultresulting in alternative minimum taxes payable on a portion of such income. In the event that state law results in lower limits, or an inability to utilize loss carryforwards, or we become subject to federal alternative minimum tax, this could adversely affect our future cash flows.

If we are unable to anticipate and react to new fashion trends, our financial condition and results of operations could be adversely affected.

We rely on a limited demographic customer base for a large percentage of our sales. Our brand image is dependent upon our ability to anticipate, identify and provide fresh inventory reflecting current fashion trends.

Furthermore, the continued difficult economic conditions make it increasingly difficult for us to accurately predict product demand trends. If we fail to anticipate, identify or react appropriately or in a timely manner to these fashion and product demand trends, we could experience reduced consumer acceptance of our products, a diminished brand image and higher markdowns. These factors could adversely affect our financial condition and results of operations.

We may suffer negative publicity and our business may be harmed if we need to recall any products we sell.

Each of our Wet Seal and Arden B divisions has in the past needed to, and may in the future need to, recall products that we determine may present safety issues. If products we sell have safety problems of which we are not aware, or if we or the Consumer Product Safety Commission recall a product sold in our stores, we may suffer negative publicity and, potentially, product liability lawsuits, which could have a material adverse impact on our reputation, financial condition and results of operations or cash flows.

If we decrease the price that we charge for our products or offer extensive, continued promotions on our products, we may earn lower gross margins and our revenues and profitability may be adversely affected.

The prices that we are able to charge for our products depend on, among other things, the type of product offered, the consumer response to the product and the prices charged by our competitors. To the extent that we are forced to lower our prices, our gross margins will be lower and our revenues and profitability may be adversely affected.

If we are unable to pass through increases in raw material, labor and energy costs to our customers through price increases, our financial condition and results of operations could be adversely affected.

Our product costs are risingrise from time to time due to increasing commodity prices, primarily for cotton, as well as due to higher production labor and energy costs. We may not be able to, or may elect not to, pass these increases on to our customers through price increases, which may adversely affect our financial condition and results of operations.

We depend upon a single center for our corporate offices and distribution activities, and any significant disruption in the operation of this center could harm our business, financial condition, results of operations and/or cash flows.

Our corporate offices and the distribution functions for all of our stores and Internete-commerce business are handled from a single, leased facility in Foothill Ranch, California. In general, this area of California is subject to earthquakes and wildfires. Any significant interruption in the operation of this facility due to a natural disaster, arson, accident, system failure or other unforeseen event could delay or impair our ability to distribute merchandise to our stores and, consequently, lead to a decrease in sales. Furthermore, we have little experience operating essential functions away from our main corporate offices and are uncertain what effect operating satellite facilities might have on our business, personnel and results of operations. The financial losses incurred may exceed our insurance for earthquake damages and business interruption costs related to any such disruption. As a result, our business, financial condition, results of operations and/or cash flows could be adversely affected.

Fluctuations in our revenues for the third fiscal quarter and the fourth fiscal quarter have a disproportionate effect on our overall financial condition, results of operations and/or cash flows.

We experience seasonal fluctuations in revenues, with a disproportionate amount of our revenues being generated in the third fiscal quarter “back-to-school” season, which begins the last week of July and ends during September, and the fourth fiscal quarter “holiday” season. Our revenues are generally lower during the first and secondhalf of the fiscal quarters.year. In addition, any factors that harm our third and fourth fiscal quarter operating results, including adverse weather or unfavorable economic conditions, could have a disproportionate effect on our results of operations for the entire fiscal year.

In order to prepare for our peak shopping seasons, we must order and keep in stock significantly more merchandise than we would carry at other times of the year. An unanticipated decrease in demand for our products during our peak shopping seasons could require us to sell excess inventory at a substantial markdown, which could reduce our net sales and gross profit. Alternatively, an unanticipated increase in demand for certain of our products could leave us unable to fulfill customer demand and result in lost sales and customer dissatisfaction.

Our quarterly results of operations may also fluctuate significantly as a result of a variety of other factors, including the merchandise mix and the timing and level of inventory markdowns. As a result, historical period-to-period comparisons of our revenues and operating results are not necessarily indicative of future period-to-period results. Reliance should not be placed on the results of a single fiscal quarter, particularly the third fiscal quarter “back-to-school” season or fourth fiscal quarter “holiday” season, as an indication of our annual results or our future performance.

Our failure to effectively compete with other retailers for sales and locations could have a material adverse effect on our financial condition, results of operations and/or cash flows.

The women’s retail apparel industry is highly competitive, with fashion, quality, price, location and service being the principal competitive factors. Our Wet Seal and Arden B stores compete with specialty apparel retailers, department stores and certain other apparel retailers, including Abercrombie & Fitch, Aeropostale, American Eagle, Anthropologie, Banana Republic, BCBG, bebe, Body Central, Charlotte Russe, Express,

Forever 21, Gap, Guess?, H&M, J.C. Penney,Macy’s, Nordstrom, Old Navy, Pacific Sunwear, Rue 21,rue21, Target, Urban Outfitters, Zara, and other regional retailers. Many of our competitors are large national chains that have substantially greater financial, marketing and other resources than we do. We face a variety of competitive challenges, including:

Our industry has low barriers to entry that allow the introduction of new products or new competitors at a fast pace. Any of these factors could result in reductions in sales or the prices of our products which, in turn, could have a material adverse effect on our financial condition, results of operations and/or cash flows.

We expect to open between 25 and 30 mall-based Wet Seal stores, net of store closures, in fiscal 2011.2012. At this time, we currently plan to conservatively growmaintain our Arden B store base in fiscal 2011, with approximately four stores, net of store closures.2012 as we focus our efforts on improving merchandising and marketing strategies. While we believe we compete effectively for favorable site locations and lease terms, competition for prime locations within malls, in particular, and within other locations is intense and we cannot assure that we will be able to obtain new locations on terms favorable to us, if at all.

In addition, actions of our competitors, particularly increased promotional activity, can negatively impact our business. In light of the continued difficult economic conditions, pricing is a significant driver of consumer choice in our industry and we regularly engage in price competition, particularly through our promotional programs. To the extent that our competitors lower prices, through increased promotional activity or otherwise, our ability to maintain gross profit margins and sales levels may be negatively impacted. There can be no assurance that our competitors’ increased promotional activity will not negatively impact our business.

The upcoming expiration of leases for approximately 56139 of our existing stores could lead to increased costs associated with renegotiating our leases and/or relocating our stores.

We have approximately 56139 existing store leases scheduled to expire in fiscal 2011.2012. In connection with the expiration of these leases, we will have to renegotiate new leases, which could result in higher rental amounts for each store and landlord requirements to remodel existing locations as a condition for renewal.store. We may not be able to obtain new lease terms that are favorable to us. In addition, as a result of renewal negotiations, we may be required by the landlord to remodel as a condition for renewal, which could result in significant capital expenditures. In addition, some landlords may refuse to renew our leases due to our lower sales per square foot as compared with other prospective tenants. If we are unable to agree to new terms with our landlords, we will have to close or relocate these stores, which could result in a significant expenditure and could lead to an interruption in the operation of our business at the affected stores, and we could be required to relocate to less desirable locations or may not be able to find viable locations at all.

Our computer hardware and software systems are vital to the efficient operation of our retail and Web-based stores, and damage to these systems could harm our business.

We rely on our computer hardware and software systems for the efficient operation of our retail and Web-based stores. Our information systems provide our management with real-time inventory, sales and cost information that is essential to the operation of our business. Due to our number of stores, geographic diversity and other factors, we would be unable to generate this information in a timely and accurate manner in the event our hardware or software systems were unavailable. These systems are vulnerable to damage or interruption from a number of factors, including earthquake, fire, flood and other natural disasters and power loss, computer systems failure, or security breaches, Internet and telecommunications or data network failure.

A significant information systems failure could reduce the quality or quantity of operating data available to our management. If this information were unavailable for any extended period of time, our management would be unable to efficiently run our business, which would result in a reduction in our net sales.

A cybersecurity incident could have a material adverse effect on our financial condition, results of operations and/or cash flows.

A cyberattack may bypass the security for our information systems, causing an information system security breach and leading to a material disruption of our information systems, the loss of business information and/or the loss of e-commerce sales. Such a cyberattack could result in any of the following:

As a result, our business, financial condition and results of operations could be materially and adversely affected.

Government regulation of the Internet and e-commerce is evolving and unfavorable changes could harm our business.

We are subject to general business regulations and laws, as well as regulations and laws specifically governing the Internet and e-commerce. Existing and future laws and regulations may impede the growth of our Internet or e-commerce services. These regulations and laws may cover taxation, privacy, data protection, pricing, content, copyrights, distribution, mobile communications, electronic contracts and other communications, consumer protection, the provision of e-commerce payment services, unencumbered Internet communications, consumer protection, the provision of e-commerce payment services, unencumbered Internet access to our services, the design and operation of websites and the characteristics and quality of products and services. It is not clear how certain existing laws governing issues such as property ownership, libel and personal privacy apply to the Internet and e-commerce. Unfavorable regulations and laws could diminish the demand for our products and services and increase our costs of doing business.

If we fail to comply with Payment Card Industry Data Security Standards, we may be subject to fines or penalties, which could adversely affect our business, financial condition and results of operations.

We are highly dependent on the use of credit cards to complete sale transactions in our stores and through our websites. If we fail to comply with Payment Card Industry Data Security Standards, we may become subject to fines or limitations on our ability to accept credit cards. Through our sale transactions, loyalty programs and

other methods, we may obtain information about our customers which is subject to federal and state privacy laws. These laws and the judicial interpretation of such laws are constantly evolving. If we fail to comply with these laws, we may be subject to fines or penalties, which could impact our business, financial condition and results of operations.

Because of the importance of our brand names, we may lose market share to our competitors if we fail to adequately protect our intellectual property rights.

We believe that our trademarks and other proprietary rights are important to our success and our competitive position. We have registered trademarks for Wet Seal and Arden B (which are registered in the retail store services and other classes). We take actions to establish and protect our intellectual property. However, others may infringe on our intellectual property rights or seek to block the sale of our products as violative of their intellectual property rights. If we are required to stop using any of our registered or nonregistered trademarks, our sales could decline and, consequently, our business and results of operations could be adversely affected.

Covenants contained in agreements governing our senior credit facility restrict the manner in which we conduct our business, under certain circumstances, and our failure to comply with these covenants could result in a default under these agreements, which would have a material adverse effect on our business, financial condition, growth prospects and ability to procure merchandise for our stores.

Our senior revolving credit facility contains covenants that restrict the manner in which we conduct our business under certain circumstances. Subject to certain exceptions, these covenants restrict or limit our ability to, among other things:

A breach of any of these covenants could result in a default under the agreements governing our existing indebtedness, acceleration of any amounts then outstanding, the foreclosure upon collateral securing the debt obligations, or the unavailability of the line of credit.

We do not authenticate the license rights of our suppliers.

We purchase merchandise from a number of vendors who purport to hold manufacturing and distribution rights under the terms of license agreements or that assert that their products are not subject to any restrictions as to distribution. We generally rely upon each vendor’s representation concerning those manufacturing and distribution rights and do not independently verify whether each vendor legally holds adequate rights to the licensed properties they are manufacturing or distributing. If we acquire unlicensed merchandise or merchandise violating a registered trademark, we could be obligated to remove it from our stores, incur costs associated with destruction of the merchandise if the vendor is unwilling or unable to reimburse us and be subject to civil and criminal liability. The occurrence of any of these events could adversely affect our financial condition, results of operations and/or cash flows.

We are subject to risks associated with our procurement of products from non-U.S. based vendors and U.S. vendors that purchase products internationally, any of which could have a material adverse effect on our business, financial condition, results of operations and/or cash flows.

The majority of our products are manufactured outside the U.S. and isare primarily bought by us within the U.S. from domestic importers. As a result, we are susceptible to greater losses as a result of a number of risks inherent in doing business in international markets and from a number of factors beyond our control, any of which could have a material adverse effect on our business, financial condition, results of operations and/or cash flows.

These factors include:

The U.S. and the countries in which our products are produced or sold may also, from time to time, impose new quotas, duties, tariffs or other restrictions, or adversely adjust prevailing quota, duty or tariff levels. In addition, none of our international suppliers or international manufacturers supplies or manufactures our products exclusively. As a result, we compete with other companies for the production capacity of independent manufacturers and import quota capacity. If we were unable to obtain our raw materials and finished apparel from the countries where we wish to purchase them, either because room under the necessary quotas was unavailable or for any other reason, or if the cost of doing so should increase, it could have a material adverse effect on our business, financial condition, results of operations and/or cash flows.

Violation of labor laws and practices by our suppliers could harm our business and results of operations.

Our company’s policy is to use only those sourcing agents and independent manufacturers who operate in material compliance with applicable laws and regulations. The violation of laws, particularly labor laws, by an independent manufacturer, or by one of the sourcing agents, or the divergence of an independent manufacturer’s or sourcing agent’s labor practices from those generally accepted as ethical in the U.S. or in the country in which the manufacturing facility is located, and the public revelation of those illegal or unethical practices, could cause significant damage to our company’s reputation. Although our manufacturer operating guidelines promote ethical business practices, we do not control the business and operations of the manufacturers and cannot guarantee their legal and regulatory compliance.

We are exposed to business risks as a result of our Internete-commerce operations.

We operate onlinee-commerce stores at www.wetseal.com and www.ardenb.com. Our Internete-commerce operations are subject to numerous risks, including unanticipated operating problems, reliance on third-party computer hardware and software providers, system failures and the need to invest in additional computer systems. Specific risks include: (i) diversion of sales from our stores; (ii) rapid technological change; (iii) liability for onlinee-commerce content; and (iv) risks related to the failure of the computer systems that operate the websites and their related support systems, including computer viruses, telecommunication failures and electronic break-ins and similar disruptions. In addition, Internet operations involve risks which are beyond our control that could have a direct material adverse effect on our operational results, including: (i) price competition involving the items we intend to sell; (ii) the entry of our vendors into the Internet business in direct competition with us; (iii) the level of merchandise returns experienced by us; (iv) governmental regulation; (v) onlinee-commerce security breaches involving unauthorized access to our and/or customer information; (vi) credit card fraud; and (vii) competition

and general economic conditions specific to the Internet, online commercee-commerce and the apparel industry. Our inability to effectively address these risks and any other risks that we face in connection with our Internet operations could materially adversely affect our business, financial condition, results of operations and/or cash flows.

Changes in the health care regulatory environment could cause us to incur additional expense and our failure to comply with related legal requirements could have a material adverse effect on our business.

In 2010, the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 were signed into law in the United States. This legislation expands health care coverage to many uninsured individuals and expands coverage for those already insured. The changes required by this legislation could cause us to incur additional health care and other costs, but we do not expect any material short-term impact on our financial results as a result of the legislation.

Risks Related to our Common Stock

The price of our Class A common stock has fluctuated significantly during the past fewseveral years and may fluctuate significantly in the future.

Our Class A common stock, which is traded on the NASDAQ Global Market, has experienced and may continue to experience significant price and volume fluctuations that could adversely affect the market price of our Class A common stock. The market price of our Class A common stock is likely to fluctuate, both because of

actual and perceived changes in our operating results and prospects and because of general volatility in the stock market. The market price of our Class A common stock could continue to fluctuate widely in response to factors such as:

Fluctuations in the price and trading volume of our Class A common stock in response to factors such as those set forth above could be unrelated or disproportionate to our actual operating performance.

We have never paid dividends on our Class A common stock and do not plan to do so in the future.

Holders of shares of our Class A common stock are entitled to receive any dividends that may be declared by our Board of Directors. However, we have not paid any cash dividends on our Class A common stock and we do not expect to for the foreseeable future. Also, our agreements with our senior lenders restrictlimit the payment of dividends to our stockholders.

Our charter provisions and Delaware law may have anti-takeover effects.

Our certificate of incorporation permits our Board of Directors to designate and issue, without stockholder approval, up to 2,000,000 shares of preferred stock with voting, conversion and other rights and preferences that could differentially and adversely affect the voting power or other rights of the holders of our Class A common stock, which could be used to discourage an unsolicited acquisition proposal. Furthermore, certain provisions of Delaware law applicable to our company could also delay or make more difficult a merger, tender offer or proxy

contest involving our company, including Section 203 of the Delaware General Corporation Law, which prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years unless certain conditions are met.

The possible issuance of preferred stock and the application of anti-takeover provisions of Delaware law could each have the effect of delaying, deferring or preventing a change in control of our company, including, without limitation, discouraging a proxy contest, making the acquisition of a substantial block of Class A common stock more difficult and limiting the price that investors might in the future be willing to pay for shares of our Class A common stock.

None.

Our principal executive offices are located at 26972 Burbank, Foothill Ranch, California, with 301,408 square feet of leased office and distribution facility space. Our principal executive offices contain 215,192 square feet of merchandise handling and storage space in the distribution facility and 86,216 square feet of office space. Our lease for this space runs through December 4, 2017, with the option for us to terminate on December 4, 2014, upon payment by us of an early termination fee of $0.7 million.

We lease all of our stores. Lease terms for our stores typically are 10 years. The leases generally provide for a fixed minimum rental, charges for common area maintenance, real estate taxes and other mall operating costs, and, on occasion, additional rental based on a percentage of sales once a minimum sales level has been reached. Certain leases include cash reimbursements received from landlords for leasehold improvements and other cash payments received from landlords as lease incentives. When a lease expires, we generally renew that lease at current market terms. However, each renewal is based upon an analysis of the individual store’s profitability and sales potential. At the end of fiscal 2010,2011, we had 2,042,5462,152,712 square feet of leased space under retail store leases.

The following table sets forth our 533558 retail stores by state or territory as of January 29, 2011:28, 2012:

The following table sets forth information with respect to store openings and closings since fiscal 2006:2007:

Total Company

		Fiscal Years
		2011				2010				2009				2008				2007
Stores open at beginning of year			533				504				496				494				430
Stores opened during the year			32				41				18				13				78
Stores closed during the year			7				12				10				11				14
Stores open at end of year			558				533				504				496				494

Wet Seal

Arden B

On July 19, 2006, a complaint was filed in the Superior Court of the State of California for the County of Los Angeles on behalf of certain of our current and former employees that were employed and paid by us on an hourly basis during the four-year period from July 19, 2002 through July 19, 2006. We were named as a defendant. The complaint alleged various violations under the State of California Labor Code, the State of California Business and Professions Code, and orders issued by the Industrial Welfare Commission. On November 30, 2006, we reached an agreement to pay approximately $0.3 million to settle this matter, subject to Superior Court approval. On September 27, 2010, the Superior Court granted final approval of the settlement agreement. An appeal was subsequently filed on January 26, 2011. We are vigorously defending this appeal and are unable to predict the likely outcome. As of January 29, 2011,28, 2012, we have accrued an amount equal to the settlement amount in accrued liabilities in our condensed consolidated balance sheet.

On May 22, 2007, a complaint was filed in the Superior Court of the State of California for the County of Orange on behalf of certain of our current and former employees who were employed and paid by us from May 22, 2003 through the present. We were named as a defendant. The complaint alleged various violations under the State of California Labor Code, the State of California Business and Professions Code, and orders issued byWage Orders of the Industrial Welfare Commission. On December 17, 2010, the court denied Plaintiffs’ Motion for Class Certification in its entirety and denied Plaintiffs’ Motion For Leave to File An Amended Complaint. Plaintiffs have appealed both orders but have not yet filed their opening appellate briefs.

orders. We are vigorously defending this litigation and are unable to predict the likely outcome and whether such outcome may have a material adverse effect on our results of operations or financial condition. Accordingly, no provision for a loss contingency has been accrued as of January 29, 2011.28, 2012.

On September 29, 2008, a complaint was filed in the Superior Court of the State of California for the County of San Francisco on behalf of certain of our current and former employees who were employed and paid by us from September 29, 2004 through the present. We were named as a defendant. The complaint alleges various violations under the State of California Labor Code and the State of California Business and Professions Code. The case has been transferred toOn August 16, 2011, the complex panel of the San Francisco Superior Court for case management purposes. Currently,court denied Plaintiffs’ Motion for Class Certification and Defendants’ Motion to Strike Class Claims is due to be filed on April 25, 2011. Discovery is ongoing.Certification. Plaintiffs have appealed. We are vigorously defending this litigation and are unable to predict the likely outcome and whether such outcome may have a material adverse effect on our results of operations or financial condition. Accordingly, no provision for a loss contingency has been accrued as of January 29, 2011.28, 2012.

On April 24, 2009, the U.S. Equal Employment Opportunity Commission or the EEOC,(the “EEOC”) requested information and records relevant to several charges of discrimination by our companyus against employees of our company.Company. In the course of this investigation, the EEOC served a subpoena seeking information related to current and former employees throughout the United States. In April 2010, the EEOC filed an application to enforce the subpoena in the U.S. District Court for the Eastern District of Pennsylvania, and is in the process of a nationwide investigation. We are awaiting the results of the investigation and are unable to predict the likely outcome and whether such outcome may have a material adverse effect on our results of operations or financial condition. Accordingly, no provision for a loss contingency has been accrued as of January 29, 2011.28, 2012.

On May 9, 2011, a complaint was filed in the Superior Court of the State of California for the County of Alameda on behalf of certain of our current and former employees who were employed and paid by us from May 9, 2007 through the present. We were named as a defendant. The complaint alleges various violations under the State of California Labor Code and the State of California Business and Professions Code. We have filed a Motion to Compel Arbitration and, in the alternative, a Motion to Transfer Venue to the County of Orange. On February 3, 2012, the court granted us motion to transfer venue to the County of Orange without prejudice to us renewing our motion to compel arbitration. We are vigorously defending this litigation and are unable to predict the likely outcome and whether such outcome may have a material adverse effect on our results of operations or financial condition. Accordingly, no provision for a loss contingency has been accrued as of January 28, 2012.

On October 27, 2011 a complaint was filed in the Superior Court of the State of California for the County of Los Angeles on behalf of certain of our current and former employees who were employed in California during the time period from October 27, 2007 through the present. We were named as a defendant. The complaint alleges various violations under the State of California Labor Code and the State of California Business and Professions Code. On March 6, 2012, we filed a motion to compel arbitration which is scheduled to be heard on March 28, 2012. We are vigorously defending this litigation and are unable to predict the likely outcome and whether such outcome may have a material adverse effect on our results of operations or financial condition. Accordingly, no provision for a loss contingency has been accrued as of January 28, 2012.

As of January 28, 2012, we were not engaged in any other legal proceedings that are expected, individually or in the aggregate, to have a material adverse effect on our results of operations or financial condition. From time to time, we are involved in other litigation matters relating to claims arising out of our operations in the normal course of business. We believe that, in the event of a settlement or an adverse judgment on certain of these claims, we have insurance coverage to cover a portion of such losses; however,losses. However, certain other matters may exist or arise for which we do not have insurance coverage. As of January 29, 2011, we were not engaged in any other legal proceedings that are expected, individually or in the aggregate, tocoverage and which could have a material adverse effect on our results of operations or financial condition.

Not applicable.

PART II

We have two classes of common stock: Class A and Class B. Our Class A common stock is listed on the NASDAQ Global Market under the symbol “WTSLA.” As of March 25, 2011,19, 2012, there were 686680 stockholders of record of our Class A common stock. The closing price of our Class A common stock on March 25, 2011,19, 2012, was $4.01$3.30 per share. As of March 25, 2011,19, 2012, there were no shares of our Class B common stock outstanding.

Price Range of Stock

The following table reflects the high and low closing sale prices of our Class A common stock as reported by NASDAQ for the last two fiscal years:

Dividend Policy

We have reinvested earnings in the business and have never paid any cash dividends to holders of our common stock. The declaration and payment of future dividends are at the sole discretion of theour Board of Directors and will depend upon our profitability, financial condition, cash requirements, future prospects, and other factors deemed relevant by our Board of Directors. Under certain circumstances, our senior revolving credit facility limits our ability to declare or pay dividends on any of our shares without consent from the lenders. The company hasWe have no intention of paying cash dividends in the immediate future.

Securities Authorized for Issuance Under Equity Compensation Plans

The following table provides information as of January 29, 2011,28, 2012, about our common stock that may be issued upon the exercise of options, warrants, and rights granted to employees, consultants, or members of our Board of Directors under all of our existing equity compensation plans, including our 1996 Long-Term Incentive Plan, as amended; our 2000 Stock Incentive Plan; and our 2005 Stock Incentive Plan, as amended: