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 x 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 ¨ No ¨

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

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

The number of shares outstanding of the registrant’s Class A common stock, par value $0.10 per share, at ~~November~~May 26, ~~2010,~~2011, was ~~100,108,311.~~101,536,814. There were no shares outstanding of the registrant’s Class B common stock, par value $0.10 per share, at ~~November~~May 26, ~~2010.~~2011.


	October 30, 2010		January 30, 2010			October 31, 2009		April 30, 2011		January 29, 2011		May 1, 2010
COMMITMENTS AND CONTINGENCIES (Note 6)
CONVERTIBLE PREFERRED STOCK, $0.01 par value, authorized 2,000,000 shares; no shares issued and outstanding at October 30, 2010, and 1,611 shares issued and outstanding at January 30, 2010, and October 31, 2009, respectively		—		1,611			1,611

STOCKHOLDERS’ EQUITY:
Common stock, Class A, $0.10 par value, authorized 300,000,000 shares; 112,234,844 shares issued and 100,108,311 outstanding at October 30, 2010; 106,889,150 shares issued and 98,046,279 shares outstanding at January 30, 2010; and 104,107,202 shares issued and 97,423,777 shares outstanding at October 31, 2009		11,223		10,689			10,411
Common stock, Class A, $0.10 par value, authorized 300,000,000 shares; 114,568,146 shares issued and 101,432,813 outstanding at April 30, 2011; 113,736,844 shares issued and 101,603,911 shares outstanding at January 29, 2011; and 111,975,210 shares issued and 101,738,177 shares outstanding at May 1, 2010									11,457		11,374		11,198
Common stock, Class B convertible, $0.10 par value, authorized 10,000,000 shares; no shares issued and outstanding		—		—			—		—		—		—
Paid-in capital (Note 1 and Note 3)		325,400		312,689			305,185
Accumulated deficit (Note 1 and Note 3)		(26,584)		(33,902	)		(108,126)
Treasury stock, 12,126,533 shares, 8,842,871 shares, and 6,683,425 shares, at cost, at October 30, 2010, January 30, 2010, and October 31, 2009, respectively		(37,963)		(29,758	)		(22,461)
Paid-in capital									324,158		323,324		324,464
Accumulated deficit (Note 1)									(13,319)		(21,332)		(30,760)
Treasury stock, 13,135,333 shares, 12,132,933 shares, and 10,237,033 shares, at cost, at April 30, 2011, January 29, 2011, and May 1, 2010, respectively									(41,697)		(37,963)		(34,957)
Accumulated other comprehensive income		409		421			539		288		290		417

Total stockholders’ equity		272,485		260,139			185,548		280,887		275,693		270,362

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	373,804	$	347,670		$	279,580	$	378,309	$	368,532	$	360,976


	13 Weeks Ended						39 Weeks Ended						13 Weeks Ended
	October 30, 2010			October 31, 2009			October 30, 2010			October 31, 2009			April 30, 2011			May 1, 2010
Net sales	$	146,401		$	141,546		$	415,704		$	409,921		$	156,040		$	137,762
Cost of sales		101,890			100,517			287,688			290,541			102,595			92,639

Gross margin		44,511			41,029			128,016			119,380			53,445			45,123
Selling, general, and administrative expenses		37,851			35,995			107,652			104,289			39,860			35,064
Asset impairment		1,595			334			2,726			1,886			259			90

Operating income		5,065			4,700			17,638			13,205			13,326			9,969

Interest income		84			98			243			413			72			74
Interest expense (Note 3)		(27	)		(261	)		(3,019	)		(697	)		(43	)		(2,967	)

Interest income (expense), net		57			(163	)		(2,776	)		(284	)		29			(2,893	)

Income before provision for income taxes		5,122			4,537			14,862			12,921			13,355			7,076
Provision for income taxes (Note 1)		2,561			23			7,544			275
Provision for income taxes														5,342			3,934

Net income	$	2,561		$	4,514		$	7,318		$	12,646		$	8,013		$	3,142

Net income per share, basic	$	0.03		$	0.04		$	0.07		$	0.13		$	0.08		$	0.03

Net income per share, diluted	$	0.03		$	0.04		$	0.07		$	0.12		$	0.08		$	0.03

Weighted-average shares outstanding, basic		99,927,566			95,685,372			99,146,895			95,556,814			98,916,747			97,255,370

Weighted-average shares outstanding, diluted		99,950,790			96,405,850			99,446,077			96,134,860			98,975,965			98,282,637

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME


	Common Stock								Paid-In Capital			Accumulated Deficit				Treasury Stock				Comprehensive Income				Accumulated Other Comprehensive Income			Total Stockholders’ Equity			Common Stock												Paid-In Capital				Accumulated Deficit				Treasury Stock				Comprehensive Income			Accumulated Other Comprehensive Income			Total Stockholders’ Equity
	Class A				Class B																		Class A								Class B
	Shares		Par Value		Shares		Par Value																Shares							Par Value			Shares			Par Value
Balance at January 30, 2010		106,889,150	$	10,689		—	$	—	$	312,689					$	(33,902	)		$	(29,758	)							$	421		$	260,139
Balance at January 29, 2011																															113,736,844		$	11,374			—		$	—			$	323,324			$	(21,332	)		$	(37,963	)					$	290		$	275,693
Net income		—		—		—		—		—						7,318				—			$			7,318			—			7,318			—			—			—			—				—				8,013				—		$	8,013			—	8,013
Stock issued pursuant to long-term incentive plans		472,700		47		—		—		(47	)		—				—				—					—			—			830,635			83			—			—			(83	)			—				—				—			—			—
Stock-based compensation - directors and employees (Note 2)		—		—		—		—		1,426			—				—				—				—			1,426			—			—			—			—			900				—				—				—			—			900
Amortization of stock payment in lieu of rent		—		—		—		—		73			—				—				—				—			73			—			—			—			—			15				—				—				—			—			15
Exercise of stock options		64,168		6		—		—		200			—				—				—				—			206			667			—			—			—			2				—				—				—			—			2
Exercise of common stock warrants		1,160,715		116		—		—		4,155			—				—				—				—			4,271
Conversions of secured convertible notes into common stock (Note 3)		3,111,111		311		—		—		5,347			—				—				—				—			5,658
Conversions of convertible preferred stock into common stock (Note 3)		537,000		54		—		—		1,557			—				—				—				—			1,611
Repurchase of common stock		—		—		—		—		—			—				(8,205	)			—				—			(8,205	)		—			—			—			—			—				—				(3,734	)			—			—			(3,734	)
Amortization of actuarial gain under Supplemental Employee Retirement Plan		—		—		—		—		—			—				—				(12	)			(12	)		(12	)		—			—			—			—			—				—				—				(2	)		(2	)		(2	)

Comprehensive income																				$	7,306																																	$	8,011

Balance at October 30, 2010		112,234,844	$	11,223		—	$	—	$	325,400		$	(26,584	)		$	(37,963	)						$	409		$	272,485
Balance at April 30, 2011																															114,568,146		$	11,457			—		$	—		$	324,158			$	(13,319	)		$	(41,697	)					$	288		$	280,887

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME


	Common Stock								Paid-In Capital			Accumulated Deficit				Treasury Stock				Comprehensive Income				Accumulated Other Comprehensive Income			Total Stockholders’ Equity			Common Stock												Paid-In Capital				Accumulated Deficit				Treasury Stock				Comprehensive Income			Accumulated Other Comprehensive Income			Total Stockholders’ Equity
	Class A				Class B																		Class A								Class B
	Shares		Par Value		Shares		Par Value																Shares							Par Value			Shares			Par Value
Balance at January 31, 2009		103,319,360	$	10,332		—	$	—	$	303,551					$	(120,772	)		$	(22,461	)							$	558		$	171,208
Balance at January 30, 2010																															106,889,150		$	10,689			—		$	—			$	312,689			$	(33,902	)		$	(29,758	)					$	421		$	260,139
Net income		—		—		—		—		—						12,646				—			$			12,646			—			12,646			—			—			—			—				—				3,142				—		$	3,142			—	3,142
Stock issued pursuant to long-term incentive plans		600,936		61		—		—		(61	)		—				—				—					—			—			213,900			21			—			—			(21	)			—				—				—			—			—
Stock-based compensation - directors and employees (Note 2)		—		—		—		—		1,148			—				—				—				—			1,148			—			—			—			—			517				—				—				—			—			517
Amortization of stock payment in lieu of rent		—		—		—		—		73			—				—				—				—			73			—			—			—			—			24				—				—				—			—			24
Exercise of stock options		3,334		—		—		—		8			—				—				—				—			8			63,334			7			—			—			196				—				—				—			—			203
Exercise of common stock warrants		183,572		18		—		—		466			—				—				—				—			484			1,160,715			116			—			—			4,155				—				—				—			—			4,271
Conversions of secured convertible notes into common stock (Note 3)																															3,111,111			311			—			—			5,347				—				—				—			—			5,658
Conversions of convertible preferred stock into common stock (Note 3)																															537,000			54			—			—			1,557				—				—				—			—			1,611
Repurchase of common stock																															—			—			—			—			—				—				(5,199	)			—			—			(5,199	)
Amortization of actuarial gain under Supplemental Employee Retirement Plan		—		—		—		—		—			—				—				(19	)			(19	)		(19	)		—			—			—			—			—				—				—				(4	)		(4	)		(4	)

Comprehensive income																				$	12,627																																	$	3,138

Balance at October 31, 2009		104,107,202	$	10,411		—	$	—	$	305,185		$	(108,126	)		$	(22,461	)						$	539		$	185,548
Balance at May 1, 2010																															111,975,210		$	11,198			—		$	—		$	324,464			$	(30,760	)		$	(34,957	)					$	417		$	270,362


	39 Weeks Ended				13 Weeks Ended
	October 30, 2010		October 31, 2009		April 30, 2011		May 1, 2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	7,318	$	12,646	$	8,013	$	3,142
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		12,315		11,166		4,666		3,994
Amortization of premium on investments		67		—		235		—
Amortization/acceleration of discount on secured convertible notes		2,083		451		—		2,083
Amortization of deferred financing costs		153		74		26		137
Amortization of stock payment in lieu of rent		73		73		15		24
Adjustment of derivatives to fair value		(20)		(40)		—		(20)
Interest added to principal of secured convertible notes		35		152		—		35
Conversion inducement fee (Note 3)		700		—		—		700
Loss on disposal of equipment and leasehold improvements		565		172		18		39
Asset impairment		2,726		1,886		259		90
Deferred income taxes		7,262		—		4,808		3,816
Stock-based compensation (Note 2)		1,426		1,148		900		517
Changes in operating assets and liabilities:
Other receivables		(1,734)		1,395		(61)		93
Merchandise inventories		(11,528)		(14,232)		(3,764)		(5,921)
Prepaid expenses and other current assets		(1,409)		(487)		(65)		(476)
Other non-current assets		3		(849)		(103)		53
Accounts payable and accrued liabilities		9,702		7,182		2,067		7,212
Income taxes payable		(47)		(28)		(16)		(47)
Deferred rent		2,391		(1,420)		524		(720)
Other long-term liabilities		(100)		(100)		(33)		(33)

Net cash provided by operating activities		31,981		19,189		17,489		14,718

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment and leasehold improvements		(22,366)		(17,584)		(6,045)		(4,999)
Investment in marketable securities		(51,263)		—

Net cash used in investing activities		(73,629)		(17,584)		(6,045)		(4,999)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options		206		8		2		203
Conversion inducement fee (Note 3)		(700)		—		—		(700)
Proceeds from exercise of common stock warrants		4,271		484		—		4,271
Repurchase of common stock		(8,205)		—		(3,734)		(5,199)

Net cash (used in) provided by financing activities		(4,428)		492
Net cash used in financing activities						(3,732)		(1,425)

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(46,076)		2,097
NET INCREASE IN CASH AND CASH EQUIVALENTS						7,712		8,294
CASH AND CASH EQUIVALENTS, beginning of period		161,693		142,064		125,362		161,693

CASH AND CASH EQUIVALENTS, end of period	$	115,617	$	144,161	$	133,074	$	169,987

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	52	$	49	$	17	$	18
Income taxes	$	597	$	378	$	475	$	322
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING TRANSACTIONS:
Conversion of secured convertible notes into 3,111,111 shares of Class A common stock	$	5,658	$	—	$	—	$	5,658
Conversion of convertible preferred stock into 537,000 shares of Class A common stock	$	1,611	$	—	$	—	$	1,611
Purchase of equipment and leasehold improvements unpaid at end of period	$	9,628	$	5,299	$	6,215	$	4,465
Amortization of actuarial gain under Supplemental Employee Retirement Plan	$	(12)	$	(19)	$	(2)	$	(4)

For the 3913 weeks ended ~~October~~April 30, ~~2010,~~2011, and ~~October 31, 2009~~May 1, 2010

NOTE 1 – Basis of Presentation, Significant Accounting Policies, and Recently Adopted Accounting Pronouncements and New Accounting Pronouncements Not Yet Adopted

The information set forth in these condensed consolidated financial statements is unaudited. These statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information, the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.

In the opinion of management, all adjustments necessary for a fair presentation have been included. The results of operations for the 3913 weeks ended ~~October~~April 30, ~~2010,~~2011, are not necessarily indicative of the results that may be expected for the fiscal year ending January ~~29, 2011.~~28, 2012. For further information, refer to the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K of The Wet Seal, Inc. (the “Company”) for the fiscal year ended January ~~30, 2010.~~29, 2011.

The Company’s short-term investments consist of interest-bearing corporate bonds that are guaranteed by the U.S. Government under the Temporary Liquidity Guarantee Program (“TLGP”), have maturities that are less than one year and are carried at amortized cost plus accrued income. The Company’s long-term investments also consist of interest-bearing corporate bonds that are guaranteed by the U.S. Government under the TLGP, have maturities that are greater than one year and are carried at amortized cost plus accrued income. Short-term ~~and long-term~~ investments are carried at amortized cost due to the Company’s intent to hold to maturity. Short-term ~~and long-term~~ investments on the condensed consolidated balance ~~sheets~~sheet were ~~$25.4~~$50.5 million ~~and $25.9 million, respectively,~~ at ~~October~~April 30, ~~2010.~~2011. Any unrealized gains or unrealized losses on held to maturity investments are considered temporary and are not recorded unless an other than temporary impairment has occurred. Factors considered that could result in the necessity to impair include intention to sell, more likely than not being required to sell the security before recovery of the security’s amortized cost basis and whether the Company expects to recover the entire amortized cost basis of the security. The Company has considered all impairment factors and has determined that an other than temporary impairment has not occurred as of ~~October~~April 30, ~~2010.~~2011.

The Company evaluates the carrying value of long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. Factors that are considered important that could result in the necessity to perform an impairment review include a current-period operating or cash flow loss combined with a history of operating or cash flow losses and a projection or forecast that indicates continuing losses or insufficient income associated with the realization of a long-lived asset or asset group. Other factors include a significant change in the manner of the use of the asset or a significant negative industry or economic trend. This evaluation is performed based on estimated undiscounted future cash flows from operating activities compared with the carrying value of the related assets. If the undiscounted future cash flows are less than the carrying value, an impairment loss is recognized, measured by the difference between the carrying value and the estimated fair value of the assets, based on discounted cash flows using the Company’s weighted average cost of capital. The Company has considered all relevant valuation techniques that could be obtained without undue cost and effort and has determined that the discounted cash flow approach continues to provide the most relevant and reliable means by which to determine fair value in this circumstance.

~~NOTE 1 – Basis of Presentation, Significant Accounting Policies, and New Accounting Pronouncements Not Yet Adopted (Continued)~~

At least quarterly, the Company assesses whether events or changes in circumstances have occurred that potentially indicate the carrying value of long-lived assets may not be recoverable. The Company’s evaluations during the 13 ~~and 39~~ weeks ended ~~October~~April 30, ~~2010,~~2011, and ~~October 31, 2009,~~May 1, 2010, indicated that operating losses or insufficient operating income existed at certain retail stores, with a projection that the operating losses or insufficient operating income for those locations would continue. As such, the Company recorded non-cash charges of ~~$1.6 million, $2.7 million,~~ $0.3 million and ~~$1.9~~$0.1 million during the 13 ~~and 39~~ weeks ended ~~October~~April 30, ~~2010,~~2011, and ~~October 31, 2009,~~May 1, 2010, respectively, within asset impairment in the condensed consolidated statements of operations, to write down the carrying values of these stores’ long-lived assets to their estimated fair values.

NOTE 1 – Basis of Presentation, Significant Accounting Policies, and Recently Adopted Accounting Pronouncements and New Accounting Pronouncements Not Yet Adopted (Continued)

During ~~the third quarter of~~ fiscal 2010, the Company determined it previously had interpreted federal tax rules incorrectly pertaining to expiration of charitable contribution carry forwards available to offset future taxable income. The Company also identified certain other minor errors in its deferred income taxes. As a result, the Company had overstated its net deferred tax assets ~~benefit for income taxes~~ and ~~net income~~understated its accumulated deficit balance by approximately $6.6 million as of ~~and for~~ the fiscal ~~year~~quarter ended ~~January 30, 2010 or fiscal 2009.~~May 1, 2010. The overstatement had no net impact on the statement of cash flows or total cash flows from operating activities for fiscal 2009. The Company does not believe this amount is material to the fiscal 2009 financial statements. However, the Company has corrected deferred tax assets and stockholders’ equity on its accompanying condensed consolidated balance ~~sheets~~sheet as of ~~January 30,~~May 1, 2010, from amounts previously reported to correct this overstatement. Presentation of the Company’s statement of operations, statement of cash flows and statement of stockholders’ equity and comprehensive income for fiscal 2009, to be reported in the Company’s Form 10-K for the fiscal year ending January 29, 2011, will reflect the $6.6 million correction to reduce the benefit for income taxes, and net income and to decrease the deferred tax asset and accumulated deficit balances, and the first and second quarterly filings on Form 10-Q in fiscal 2011 will reflect the corrections related to the first two quarters of fiscal 2010.reported.

A summary of the effects of this income tax correction ~~along with the interest corrections discussed in Note 3,~~ is as follows:


	January 30, 2010						October 31, 2009						May 1, 2010
	As previously reported			As corrected			As previously reported			As corrected			As previously reported			As corrected
Deferred tax assets- long term	$	51,713		$	45,153			*			*		$	47,897		$	41,337
Total other assets		54,297			47,737			*			*			50,428			43,868
Total assets		354,230			347,670			*			*			367,536			360,976
Paid-in capital		309,745			312,689			302,241			305,185
Accumulated deficit		(24,398	)		(33,902	)		(105,182	)		(108,126	)		(24,200	)		(30,760	)
Total stockholders’ equity		266,699			260,139			*			*			276,922			270,362
Total liabilities and stockholders’ equity		354,230			347,670			*			*			367,536			360,976

~~NOTE 1 – Basis~~The Company began fiscal 2011 with approximately $93.5 million of ~~Presentation, Significant Accounting Policies, and New Accounting Pronouncements Not Yet Adopted (Continued)~~

~~During the third quarter of fiscal 2010, the Company implemented a change in tax method, upon filing its 2009~~ federal ~~income tax return, which resulted in the reduction of deferred tax assets related to its charitable contribution~~net operating loss (“NOL”) carry forwards available to offset taxable income in fiscal 2011 and thereafter, subject to certain annual limitations based on the provisions of ~~$0.5 million. This decrease was recorded as a deferred income tax charge and increased~~Section 382 of the ~~Company’s effective income tax rate for the quarter.~~Internal Revenue Code (“Section 382”).

The Company’s effective income tax rate for the 3913 weeks ended ~~October~~April 30, ~~2010,~~2011, was approximately ~~51%~~40%. This rate was increased due to $2.8 million in interest charges incurred in the first fiscal quarter upon the conversion of the Company’s remaining Secured Convertible Notes (the “Notes”) and Series C Convertible Preferred Stock (the “Preferred Stock”), which are not tax-deductible, and the $0.5 million non-cash deferred income tax charge previously discussed. The impacts of these charges were increases in the effective income tax rates in the first fiscal quarter, third fiscal quarter and the 39 weeks ended October 30, 2010, of approximately 16%, 10% and 11%, respectively.

Due to its expected utilization of federal and state ~~net operating loss (“NOL”)~~NOL carry forwards during fiscal ~~2010,~~2011, the Company anticipates cash income taxes for the fiscal year will be approximately 2%4% of pre-tax income, representing the portion of federal and state alternative minimum taxes and state of California regular income taxes that cannot be offset by NOLs. The difference between the effective income tax rate and the anticipated cash income taxes is recorded as a non-cash provision for deferred ~~incomes~~income taxes.

For the ~~NOL carry forwards it may use annually are based on calculations made by management. Through these calculations, management determined that, in~~13 weeks ended April ~~2005~~30, 2011, and ~~December 2006, the Company incurred “ownership changes,” as defined in Section 382~~May 1, 2010

NOTE 1 – Basis of the Internal Revenue Code, that require re-calculation of NOL annual utilization limits. Such ownership changes can result merely from an accumulation of normal market trading activity in the Company’s common stock over time. The NOL annual utilization limits determined upon an ownership change depend on, among other things, the Company’s market capitalizationPresentation, Significant Accounting Policies, and long-term federal interest rates on the ownership change date. If the Company were to determine it had incurred another ownership change at some time after December 2006, the Company would be required to re-calculate its annual federal NOL utilization limit, which could result in a decrease to NOL carry forwards available to offset taxable incomeRecently Adopted Accounting Pronouncements and ~~an increase in cash income tax payments in fiscal 2010 and/or thereafter.~~New Accounting Pronouncements Not Yet Adopted (Continued)

Recently Adopted Accounting Pronouncements and New Accounting Pronouncements Not Yet Adopted

In January 2010, the Financial Accounting Standards Board ~~(“FASB”~~(the “FASB”) issued guidance and clarifications for improving disclosures about fair value measurements. This guidance requires enhanced disclosures regarding transfers in and out of the levels within the fair value hierarchy. Separate disclosures are required for transfers in and out of Level 1 and 2 fair value measurements, and the reasons for the transfers must be disclosed. In the reconciliation for Level 3 fair value measurements, separate disclosures are required for purchases, sales, issuances, and settlements on a gross basis. The new disclosures and clarifications of existing disclosures ~~are~~were effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements, which ~~are~~were effective for interim and annual reporting periods beginning after December 15, 2010. Effective January 31, 2010, the Company adopted the new and updated ~~disclosure~~ guidance for disclosures, aside from that deferred to periods after December 15, 2010, and this did not significantly impact ~~the Company’s condensed~~its consolidated financial statements. The Company ~~does not believe adoption of~~adopted the remaining guidance on disclosures effective January 30, 2011, and this did not significantly impact its consolidated financial statements.

In May 2011, the FASB issued guidance on the application of fair value accounting where its use is already required or permitted by other standards within U.S. GAAP (“GAAP”). The amendments change the wording used to describe many of the requirements in GAAP for measuring fair value and for disclosing information about fair value measurements. Amendments include those that clarify the FASB’s intent about the application of existing fair value measurement and disclosure requirements, and change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. For many of the requirements, the FASB does not intend for the amendments to result in a change in the application of the requirements. This guidance is effective during interim and annual periods beginning after December 15, 2011. The Company does not believe the adoption of this guidance will have any effect on its ~~condensed~~ consolidated financial statements.

The Company ~~has a 2005 Stock Incentive Plan (the “2005 Plan”)~~had one stock incentive plan under which shares were available for grant at ~~October~~April 30, ~~2010.~~2011: the 2005 Stock Incentive Plan (the “2005 Plan”). The Company also previously granted share awards under its 1996 Long-Term Incentive Plan (the “1996 Plan”) and ~~its~~the 2000 Stock Incentive Plan (the “2000 Plan”) that remain unvested and/or unexercised as of ~~October~~April 30, ~~2010;~~2011; however, the 1996 Plan expired during fiscal 2006 and the 2000 Plan expired during fiscal 2009, and no further share awards may be granted under the 1996 Plan and 2000 ~~Plan.~~plan. The 2005 Plan, the 2000 Plan, and the 1996 Plan are collectively referred to as the “Plans.”

The 2005 Plan permits the granting of options, restricted common stock, performance shares, or other equity-based awards to the Company’s employees, officers, directors, and consultants. The Company believes the granting of equity-based awards helps to align the interests of its employees, officers, directors, and consultants with those of its stockholders. The Company has a practice of issuing new shares to satisfy stock option exercises, as well as for restricted stock and performance share grants. The 2005 Plan was approved by the Company’s stockholders on January 10, 2005, as amended with stockholder approval on July 20, 2005, for the issuance of incentive awards covering 12,500,000 shares of Class A common stock. Additionally, an amended and restated 2005 Plan was approved by the Company’s stockholders on May 19, 2010, which increased the incentive awards capacity ~~under the 2005 Plan~~ to 17,500,000 shares of ~~the Company’s~~ Class A common stock. An aggregate of ~~23,080,745~~22,956,778 shares of ~~the Company’s~~ Class A common stock have been issued or may be issued pursuant to the Plans. As of ~~October~~April 30, ~~2010, 6,652,799~~2011, 3,186,591 shares were available for future grants.

The Plans provide that the per-share exercise price of a stock option may not be less than the fair market value of the Company’s Class A common stock on the date the option is granted. Under the Plans, outstanding options generally vest over periods ranging from three to five years from the grant date and generally expire from five to ten years after the grant date. Certain stock option and other equity-based awards provide for accelerated vesting if there is a change in control (as defined in the Plans). The Company records compensation expense for employee stock options based on the estimated fair value of the options on the date of grant using the Black-Scholes option-pricing model. The Company uses historical data, the implied volatility of market-traded options and other factors to estimate the expected price volatility, option lives, and forfeiture rates.

The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant and the estimated life of the option. The following weighted-average assumptions were used to estimate the fair value of options granted during the periods indicated using the Black-Scholes option-pricing model:


	13 Weeks Ended						39 Weeks Ended						13 Weeks Ended
	October 30, 2010			October 31, 2009			October 30, 2010			October 31, 2009			April 30, 2011			May 1, 2010
Dividend Yield		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%
Expected Volatility		59.00	%		56.00	%		59.00	%		56.00	%		54.00	%		59.00	%
Risk-Free Interest Rate		0.90	%		1.65	%		0.95	%		1.63	%		1.42	%		1.74	%
Expected Life of Options (in Years)		3.3			3.3			3.3			3.3			3.3			3.3

The Company recorded compensation expense of ~~$0.1 million, $0.2 million,~~ $0.2 million and ~~a compensation benefit of~~ less than $0.1 million, in each case less than $0.01 per basic and diluted share, related to stock options outstanding during the 13 ~~and 39~~ weeks ended ~~October~~April 30, 2011, and May 1, 2010, ~~and October 31, 2009,~~ respectively. ~~Refer to “Change in Estimated Forfeiture Rate” later within this Note 2 for additional information.~~

At ~~October~~April 30, ~~2010,~~2011, there was ~~$0.9~~$3.1 million of total unrecognized compensation expense related to nonvested stock options under the Company’s share-based payment plans, which will be recognized over an average period of ~~2.2~~2.9 years, representing the remaining vesting periods of such options through fiscal ~~2013.~~2014.

The following table summarizes the Company’s stock option activities with respect to its Plans for the 13 weeks ended April 30, 2011, as follows (aggregate intrinsic value in thousands):

For the 3913 weeks ended ~~October~~April 30, ~~2010,~~2011, and ~~October 31, 2009~~May 1, 2010

~~The following table summarizes the Company’s stock option activities with respect to its Plans for the 39 weeks ended October 30, 2010, as follows (aggregate intrinsic value in thousands):~~

Options vested and expected to vest in the future is comprised of all options outstanding at ~~October~~April 30, ~~2010,~~2011, net of estimated forfeitures. Additional information regarding stock options outstanding as of ~~October~~April 30, ~~2010,~~2011, is as follows:

The weighted-average grant-date fair value of options granted during the 13 ~~and 39~~ weeks ended ~~October~~April 30, 2011, and May 1, 2010, was $1.57 and ~~October 31, 2009, was $1.25, $1.30, $1.35 and $1.35,~~$2.04, respectively. The total intrinsic value for options exercised during the 13 ~~and 39~~ weeks ended ~~October~~April 30, ~~2010,~~2011, and ~~October 31, 2009,~~May 1, 2010, was in each case was less than $0.1 ~~million.~~million, respectively.

Cash received from option exercises under all Plans for the 3913 weeks ended ~~October~~April 30, 2011, and May 1, 2010, ~~and October 31, 2009,~~ was ~~$0.2~~less than $0.1 million and ~~less than $0.1~~$0.2 million, respectively. The Company did not realize tax benefits for the tax deductions from option exercises as it must first utilize its regular NOL prior to realizing the excess tax benefits.

Under the 2005 Plan, the Company grants directors, certain executives, and other key employees restricted common stock with vesting contingent upon completion of specified service periods ranging from one to three years. The Company also grants certain executives and other key employees performance share awards with vesting contingent upon a combination of specified service periods and the Company’s achievement of specified common stock price levels.

During the 3913 weeks ended ~~October~~April 30, ~~2010,~~2011, and ~~October 31, 2009,~~May 1, 2010, the Company granted ~~472,700~~430,635 and ~~263,436~~213,900 shares, respectively, of restricted common stock to certain employees and directors under the Plans. The weighted-average grant-date fair value of the restricted common stock granted during the 3913 weeks ended ~~October~~April 30, 2011, and May 1, 2010, was $3.87 and ~~October 31, 2009, was $3.22 and $2.71~~$3.35 per share, respectively. The Company recorded approximately ~~$0.4 million, $1.1 million, $0.4~~$0.3 million and ~~$0.9~~$0.4 million of compensation expense related to outstanding shares of restricted common stock held by employees and directors during the 13 ~~and 39~~ weeks ended ~~October~~April 30, 2011, and May 1, 2010, respectively.

During the 13 weeks ended April 30, 2011, and ~~October 31, 2009, respectively.~~May 1, 2010, the Company granted 400,000 and no performance shares, respectively, under the 2005 Plan. The weighted-average grant-date fair value of the performance share grants made during the 13 weeks ended April 30, 2011, which included consideration of the probability of such shares vesting, was $3.08 per share. The Company recorded compensation expense of $0.4 million and $0.1 million during the 13 weeks ended April 30, 2011, and May 1, 2010, respectively, related to performance shares granted to officers.

For the 3913 weeks ended ~~October~~April 30, ~~2010,~~2011, and ~~October 31, 2009~~May 1, 2010

During the 39 weeks ended October 30, 2010, and October 31, 2009, the Company granted no performance shares under the 2005 Plan. The Company recorded compensation expense of $0.2 million, $0.1 million, $0.1 million and $0.3 million during the 13 and 39 weeks ended October 30, 2010, and October 31, 2009, respectively, related to performance shares previously granted to officers.

The fair value of nonvested restricted common stock awards is determined based on the closing trading price of the Company’s common stock on the grant date. The fair value of nonvested performance shares is determined based on a number of factors, including the closing trading price of the Company’s common stock and the estimated probability of achieving the Company’s stock price performance conditions as of the grant date. The following table summarizes activity with respect to the Company’s nonvested restricted common stock and performance shares for the 3913 weeks ended ~~October~~April 30, ~~2010:~~2011:


Nonvested Restricted Common Stock and Performance Shares	Number of Shares			Weighted- Average Grant- Date Fair Value		Number of Shares			Weighted- Average Grant- Date Fair Value
Nonvested at January 30, 2010		1,596,318		$	2.37
Nonvested at January 29, 2011							2,061,212		$	3.06
Granted		472,700		$	3.22		830,635		$	3.49
Vested		(450,706	)	$	3.00		(179,572	)	$	3.35
Forfeited		(1,037,200	)	$	1.94		(49,800	)	$	3.45

Nonvested at October 30, 2010		581,112		$	3.34
Nonvested at April 30, 2011							2,662,475		$	3.17

The fair value of restricted common stock and performance shares that vested during the 3913 weeks ended ~~October~~April 30, ~~2010,~~2011, was ~~$1.6~~$0.6 million.

At ~~October~~April 30, ~~2010,~~2011, there was ~~$0.9~~$7.3 million of total unrecognized compensation expense related to nonvested restricted common stock and performance shares under the Company’s share-based payment plans, of which ~~$0.9~~$3.9 million relates to restricted common stock and ~~less than $0.1~~$3.4 million relates to performance shares. That cost is expected to be recognized over a weighted-average period of ~~2.3~~2.1 years. These estimates utilize subjective assumptions about expected forfeiture rates, which could change over time. Therefore, the amount of unrecognized compensation expense noted above does not necessarily represent the expense that will ultimately be recognized by the Company in its condensed consolidated statements of operations.

The following table summarizes stock-based compensation recorded in the condensed consolidated statements of operations (in thousands):

In the first quarter of fiscal 2009, based on historical experience, the Company modified the estimated annual forfeiture rate used in recognizing stock-based compensation expense, from a 10% forfeiture rate to a 15% forfeiture rate. During this same period, the Company also realized benefits from actual forfeiture experience that was higher than previously estimated for unvested stock options and restricted common stock, resulting primarily from executive and other employee departures from the Company. The impact of these events was a benefit during the 39 weeks ended October 31, 2009, of approximately $0.9 million, of which $0.4 million was included in cost of sales and $0.5 million was included in selling, general, and administrative expenses in the condensed consolidated statements of operations. During the 39 weeks ended October 30, 2010, the estimated annual forfeiture rate has remained at 15%.

For the 3913 weeks ended ~~October~~April 30, ~~2010,~~2011, and ~~October 31, 2009~~May 1, 2010

NOTE 3 – Senior Revolving Credit Facility, Secured Convertible Notes, Convertible Preferred Stock, and Common Stock Warrants

On February 3, 2011, the Company ~~maintains a~~renewed, via amendment, its $35.0 million senior revolving credit facility with its existing lender (the “Facility”), which can be increased up to $50.0 million in the absence of any default and upon the satisfaction of certain conditions precedent specified in the Facility. The Facility expires in ~~May 2011, and the Company is currently negotiating a renewal of the Facility.~~February 2016. Under the Facility, the Company is subject to borrowing base limitations on the amount that can be borrowed and certain customary covenants, including, under certain circumstances, covenants limiting the ability to incur additional indebtedness, make investments and acquisitions, grant liens, pay dividends, repurchase its Class A common stock, close stores, and dispose of assets, ~~subject to certain exceptions,~~ without the lender’s consent. The ability of the Company ~~and its subsidiaries~~ to borrow and request the issuance of letters of credit is subject to the requirement that the Company maintain an excess of the borrowing base over the outstanding credit extensions of ~~not less than $5.0~~the greater of 10% of the aggregate amount of the facility or $4.0 million. The annual interest rate on the revolving line of credit under the Facility is (i) the higher of the lender’s prime rate, the Federal funds rate plus 0.5% or if the ~~Company elects, the~~one month London InterBank Offered Rate (LIBOR) plus 1.0%, collectively referred to as the “Base Rate”, plus the applicable margin ranging from 0.5% to 1.0% or, (ii) if the Company elects, either the one, two, three or six months LIBOR plus a margin ranging from ~~1.0%~~1.5% to ~~1.5%~~2.0%. The applicable Base Rate or LIBOR margin is based on the level of average excess availability, as defined under the Facility, at the time of election, as adjusted quarterly. The ~~applicable LIBOR margin was 1.0% as of October 30, 2010. The~~ Company also incurs fees on outstanding letters of credit under the Facility at aan annual rate equal to the applicable LIBOR margin for standby letters of credit and ~~33.3%~~23.0% of the applicable LIBOR margin for commercial letters of credit. Additionally, the Company is subject to commitment fees at an annual rate of 0.25% on the unused portion of the line of credit under the Facility.

Borrowings under the Facility are secured by ~~all presently owned~~cash, cash equivalents, investments, receivables and ~~hereafter acquired assets of~~inventory held by the Company and two of its wholly owned subsidiaries, The Wet Seal Retail, Inc. and Wet Seal Catalog, Inc., each of which may be a borrower under the Facility. ~~The obligations of the Company and the subsidiary borrowers under the Facility are guaranteed by another wholly owned subsidiary of the Company, Wet Seal GC, LLC.~~

At ~~October~~April 30, ~~2010,~~2011, the amount outstanding under the Facility consisted of ~~$6.0~~$5.5 million in open documentary letters of credit related to merchandise purchases and ~~$1.7~~$1.5 million in outstanding standby letters of credit, and the Company had ~~$27.3~~$28.0 million available under the Facility for cash advances and/or the issuance of additional letters of credit.

At ~~October~~April 30, ~~2010,~~2011, the Company was in compliance with all covenant requirements related to the Facility.

During the 3913 weeks ended ~~October 30,~~May 1, 2010, investors in the Notes converted $4.7 million of the Notes into 3,111,111 shares of the Company’s Class A common stock. As a result of these conversions, the Company recorded non-cash interest charges of $2.1 million during the 3913 weeks ended ~~October 30,~~May 1, 2010, to write-off a ratable portion of unamortized debt discount and deferred financing costs associated with the Notes. Additionally, a ratable portion of accrued interest of $1.0 million was forfeited by the holder when the Notes were converted and it was written off to paid-in capital. ~~Finally, the~~The Company also provided the holder with a $0.7 million conversion inducement, which was recorded as an interest charge during the 3913 weeks ended ~~October 30,~~May 1, 2010. The Company also repurchased an insignificant remaining Note balance from another holder. As a result of these transactions, there ~~are~~were no longer any Notes outstanding as of ~~October 30,~~May 1, 2010, and there was a satisfaction and discharge of ~~our~~the Company’s obligations under the Indenture governing the Notes. ~~No Notes were converted during the 39 weeks ended October 31, 2009.~~

Prior to the first quarter of fiscal 2010, the Company recognized the ratable portion of accrued interest forfeited by Note holders upon conversions as a reduction of interest expense. The Company has determined that the correct treatment of accrued interest forfeited is a credit to paid-in capital rather than a reduction of interest expense. In the condensed consolidated balance sheets as of January 30, 2010, and October 31, 2009, the Company has retrospectively reclassified $2.9 million from accumulated deficit to paid-in capital to reflect the correct treatment of accrued interest forfeited in periods prior to fiscal 2010. This reclassification has no effect on the previously reported total stockholders’ equity or cash flows and is not material to all periods presented.

During the 3913 weeks ended ~~October 30,~~May 1, 2010, ~~and October 31, 2009,~~ certain investors exercised portions of outstanding common stock warrants, resulting in the issuance of 1,160,715 ~~and 183,572~~ shares ~~respectively,~~ of the Company’s Class A common stock in exchange for $4.3 million ~~and $0.5 million, respectively,~~ of proceeds to the Company.

During the 3913 weeks ended ~~October 30,~~May 1, 2010, investors in the Company’s Preferred Stock converted $1.6 million of Preferred Stock into 537,000 shares of the Company’s Class A common stock. As a result of this transaction, there iswas no longer any Preferred Stock outstanding as of ~~October 30,~~May 1, 2010. ~~No Preferred Stock was converted during the 39 weeks ended October 31, 2009.~~

For the 3913 weeks ended ~~October~~April 30, ~~2010,~~2011, and ~~October 31, 2009~~May 1, 2010

Fair value is defined as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. The fair value ~~should be~~is calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity. In addition, the fair value of liabilities ~~should include~~includes consideration of non-performance risk, including the Company’s own credit risk.

Inputs used in measuring fair value are prioritized into a three-level hierarchy based on whether the inputs to those measurements are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. The fair-value hierarchy requires the use of observable market data when available and consists of the following levels:

The following tables present information on the Company’s financial instruments (in thousands):

Cash and cash equivalents are carried at either cost or amortized cost, which approximates fair value, due to their short term maturities. ~~Money~~Certain money market funds are valued through the use of quoted market prices orand are represented as Level 1. Other money market funds are valued at $1, which is generally the net asset value of these ~~funds.~~funds and are represented at Level 2. Short-term ~~and long-term~~ investments are carried at amortized cost due to the Company’s intent to hold to maturity. The fair value of the Company’s short-term ~~and long-term~~ investments is determined based on quoted ~~market~~ prices for similar instruments in active markets. The Company believes the carrying amounts of other receivables and accounts payable approximate fair value. The fair value of the long-term tenant allowance receivables was determined by discounting them to present value using an incremental borrowing rate of 9.26% over their five year collection period, and they are included in other assets within the condensed consolidated balance sheet. ~~The Company determined~~

For the ~~fair value of its embedded derivative instrument using a combination of the Black-Scholes model~~13 weeks ended April 30, 2011, and ~~Monte-Carlo simulation. The estimated fair values for the Notes and Preferred Stock were determined to be the market value of the Company’s Class A common stock as of January 30,~~May 1, 2010 and October 31, 2009, multiplied by the number of shares of common stock into which such securities could be converted. There are no longer any embedded derivatives, Notes or Preferred Stock outstanding as of October 30, 2010, as a result of the conversions discussed in Note 3.

The table below segregates all non-financial assets and liabilities as of ~~October~~April 30, ~~2010,~~2011, January ~~30,~~29, 2011, and May 1, 2010, ~~and October 31, 2009,~~ that are measured at fair value on a nonrecurring basis in periods subsequent to initial recognition into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date:


	Carrying Amount at October 30, 2010				Fair Value Measurements at Reporting Date Using											Total Gains (Losses)				Carrying Amount at April 30, 2011			Fair Value Measurements at Reporting Date Using									Total Gains (Losses)
	Carrying Amount at October 30, 2010				Level 1				Level 2				Level 3			Total Gains (Losses)				Carrying Amount at April 30, 2011			Level 1			Level 2			Level 3			Total Gains (Losses)
Long-lived assets held and used	$	91,824			$	—			$	—			$	91,824		$	(2,726	)		$	91,861		$	—		$	—		$	91,861		$	(259	)

Total assets	$	91,824			$	—			$	—			$	91,824		$	(2,726	)		$	91,861		$	—		$	—		$	91,861		$	(259	)


	Carrying Amount at January 30, 2010				Fair Value Measurements at Reporting Date Using											Total Gains (Losses)				Carrying Amount at January 29, 2011			Fair Value Measurements at Reporting Date Using
				Level 1				Level 2				Level 3							Level 1					Level 2			Level 3
Long-lived assets held and used	Carrying Amount at January 30, 2010	$	78,063			$	—			$	—			$	78,063	Total Gains (Losses)		$	(2,341	Carrying Amount at January 29, 2011	)	$	88,720		$	—		$	—		$	88,720

Total assets	$	78,063			$	—			$	—			$	78,063		$	(2,341	)		$	88,720		$	—		$	—		$	88,720


	Carrying Amount at October 31, 2009				Fair Value Measurements at Reporting Date Using											Total Gains (Losses)				Carrying Amount at May 1, 2010			Fair Value Measurements at Reporting Date Using									Total Gains (Losses)
				Level 1				Level 2				Level 3							Level 1					Level 2			Level 3					Total Gains (Losses)
Long-lived assets held and used	Carrying Amount at October 31, 2009	$	81,594			$	—			$	—			$	81,594	Total Gains (Losses)		$	(1,886	Carrying Amount at May 1, 2010	)	$	80,777		$	—		$	—		$	88,777			$	(90	)

Total assets	$	81,594			$	—			$	—			$	81,594		$	(1,886	)		$	80,777		$	—		$	—		$	88,777		$	(90	)

The Company performs impairment tests whenever there are indicators of impairment. Refer to Note 1 for further information.

Long-lived assets held and used with a carrying value of $91.8 million and $81.6 million, respectively, represent their fair values after the impairment charges of $1.6 million, $2.7 million, $0.3 million and $1.9 million, respectively, during the 13 and 39 weeks ended October 30, 2010, and October 31, 2009.

Net income per share, basic, is computed based on the weighted-average number of common shares outstanding for the period, including consideration of the two-class method with respect to certain of the Company’s other equity securities (see below). Net income per share, diluted, is computed based on the weighted-average number of common and potentially dilutive common equivalent shares outstanding for the period, also with consideration given to the two-class method.

The dilutive effect of stock warrants iswas determined using the “treasury stock” method, whereby exercise is assumed at the beginning of the reporting period and proceeds from such exercise are assumed to be used to purchase the Company’s Class A common stock at the average market price during the period. The dilutive effect of stock options is also determined using the “treasury stock” method, whereby proceeds from such exercise, unamortized compensation on share-based awards, and excess tax benefits arising in connection with share-based compensation are assumed to be used to purchase the common stock at the average market price during the period.

The Notes and Preferred Stock were convertible into shares of Class A common stock. Both of these securities included rights whereby, upon payment of dividends or other distributions to Class A common stockholders, the Notes and Preferred Stock would participate ratably in such distributions based on the number of common shares into which such securities were convertible at that time. Because of these rights, the Notes and Preferred Stock were considered to be participating securities requiring the use of the two-class method for the computation of earnings per share. For the dilutive computation, under the two-class method, determination of whether the Notes and Preferred Stock were dilutive was based on the application of the “if-converted” method. Although the Notes and Preferred Stock were fully converted and represented Class A common shares outstanding as of ~~October~~April 30, 2011, and May 1, 2010, they were included in the computation of diluted earnings for the 3913 weeks ended ~~October 30,~~May 1, 2010, with respect to the period they were outstanding prior to conversion. For the 3913 weeks ended ~~October 30,~~May 1, 2010, ~~and the 13 and 39 weeks ended October 31, 2009,~~ the effect of the Notes and Preferred Stock was not dilutive to the computation of diluted earnings per share.

While the Company historically has paid no cash dividends, participants in the Company’s equity compensation plans who were granted restricted stock and performance shares are allowed to receive cash dividends paid on unvested restricted stock and unvested performance shares. The Company’s unvested restricted stock and unvested performance shares also qualify as participating securities and are included in the computation of earnings per share pursuant to the two-class method. For the dilutive computation, under the two-class method, determination of whether the unvested share-based payment awards are dilutive is based on the application of the “treasury stock” method and whether the performance criteria has been met. For the 13 ~~and 39~~ weeks ended ~~October~~April 30, ~~2010,~~2011, and ~~October 31, 2009,~~May 1, 2010, the effect of the unvested share-based payment awards was anti-dilutive to the computation of diluted earnings per share.

The two-class method requires allocation of undistributed earnings per share among the common stock, Notes, Preferred Stock and unvested share-based payment awards based on the dividend and other distribution participation rights under each of these securities. The following table summarizes the allocation of undistributed earnings among common stock and other participating securities using the two-class method and reconciles the weighted average common shares used in the computation of basic and diluted earnings per share (in thousands, except share data):


	39 Weeks Ended														13 Weeks Ended
	October 30, 2010							October 31, 2009							April 30, 2011							May 1, 2010
	Net Income			Shares		Per Share Amount		Net Income			Shares		Per Share Amount		Net Income			Shares		Per Share Amount		Net Income			Shares		Per Share Amount
Basic earnings per share:
Net income	$	7,318						$	12,646						$	8,013						$	3,142
Less: Undistributed earnings allocable to participating securities		(170	)						(686	)						(179	)						(120	)

Basic earnings per share	$	7,148			99,146,895	$	0.07	$	11,960			95,556,814	$	0.13	$	7,834			98,916,747	$	0.08	$	3,022			97,255,370	$	0.03

Diluted earnings per share:
Net income	$	7,318						$	12,646						$	8,013						$	3,142
Less: Undistributed earnings allocable to participating securities		(169	)						(682	)						(179	)						(119	)
Effect of dilutive securities					299,182							578,046							59,218							1,027,267

Diluted earnings per share	$	7,149			99,446,077	$	0.07	$	11,964			96,134,860	$	0.12	$	7,834			98,975,965	$	0.08	$	3,023			98,282,637	$	0.03

The computations of diluted earnings per share excluded the following potentially dilutive securities exercisable or convertible into Class A common stock for the periods indicated because their effect would not have been dilutive.

~~On November 3, 2010, all of the Company’s remaining Series E warrants expired unexercised. As a result, no warrants to acquire the Company’s Class A common stock remain outstanding.~~

For the 3913 weeks ended ~~October~~April 30, ~~2010,~~2011, and ~~October 31, 2009~~May 1, 2010

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 the Company’s current and former employees that were employed and paid by the Company on an hourly basis during the four-year period from July 19, 2002 through July 19, 2006. The Company was 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, the Company reached an agreement to pay approximately $0.3 million to settle this matter, subject to Superior Court approval. On ~~April 28, 2008, a notice of appeal of the judgment was filed. On~~ September 27, 2010, the Superior Court granted final approval of the settlement agreement. An appeal was subsequently filed on January 26, 2011. As of ~~October~~April 30, ~~2010,~~2011, the Company has accrued an amount equal to the settlement amount in accrued liabilities in its 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 the Company’s current and former employees who were employed and paid by the Company from May 22, 2003 through the present. The Company was 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. Discovery is ongoing and Plaintiffs filed their motion for class certification in July 2010. The Company filed its opposition to the motion for class certification on October 19, 2010. The class certification hearing is scheduled forOn December 17, ~~2010.~~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. The Company is vigorously defending this litigation and is unable to predict the likely outcome and whether such outcome may have a material adverse effect on its results of operations or financial condition. Accordingly, no provision for a loss contingency has been accrued as of ~~October~~April 30, ~~2010.~~2011.

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 the Company’s current and former employees who were employed and paid by the Company from September 29, 2004 through the present. The Company was 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 ~~Plaintiffs filed an amended complaint, and the Company filed a motion to strike allegations of the third amended complaint on or about February 16, 2010, which was held in abeyance. The~~ case has been transferred to the complex panel of the San Francisco Superior Court for case management purposes. ~~Currently,~~ Plaintiffs’ ~~motion~~Motion for ~~class certification is due~~Class Certification and Defendants’ Motion to beStrike Class Claims were filed on April 25, 2011 and will be heard by the Court on August 5, 2011. ~~Discovery is ongoing.~~Additionally, on April 25, 2011, Plaintiffs filed a motion to amend the operative complaint to add another potential class representative, and the Company thereafter filed a Motion to Compel Arbitration of that individual’s claims. On May 24, 2011, the Court denied Plaintiffs’ motion to amend the complaint. The Company is vigorously defending this litigation and is unable to predict the likely outcome and whether such outcome may have a material adverse effect on its results of operations or financial condition. Accordingly, no provision for a loss contingency has been accrued as of ~~October~~April 30, ~~2010.~~

On March 18, 2009, a complaint was filed in the Superior Court of the State of California for the County of Orange on behalf of certain of the Company’s current and former employees that were employed and paid by the Company from March 18, 2005 through March 18, 2009. The Company was 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 October 23, 2009, the Company reached an agreement to pay approximately $0.2 million to settle this matter. The Company paid the settlement amount in August 2010 and the Superior Court dismissed the action with prejudice on September 2, 2010.2011.

On April 24, 2009, the U.S. Equal Employment Opportunity Commission, or the EEOC, requested information and records relevant to several charges of discrimination by the Company against employees of the 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. The Company is awaiting the results of the investigation and is unable to predict the likely outcome and whether such outcome may have a material adverse effect on ~~the Company’s~~its results of operations or financial condition. Accordingly, no provision for a loss contingency has been accrued as of ~~October~~April 30, ~~2010.~~2011.

From time to time, the Company is involved in other litigation matters relating to claims arising out of its operations in the normal course of business. The Company believes that, in the event of a settlement or an adverse judgment on certain of these claims, the Company has insurance coverage to cover a portion of such losses; however, certain other matters may exist or arise for which the Company does not have insurance coverage. As of ~~October~~April 30, ~~2010,~~2011, the Company was not engaged in any other legal proceedings that are expected, individually or in the aggregate, to have a material adverse effect on its results of operations or financial condition.

For the 3913 weeks ended ~~October~~April 30, ~~2010,~~2011, and ~~October 31, 2009~~May 1, 2010

The Company operates exclusively in the retail apparel industry in which it sells fashionable and contemporary apparel and accessory items, primarily through mall-based chains of retail stores, to female consumers with a young, active lifestyle. The Company has identified two operating segments (“Wet Seal” and “Arden B”). Internet operations for Wet Seal and Arden B are included in their respective operating segments.

Information for the 13 ~~and 39~~ weeks ended ~~October~~April 30, ~~2010,~~2011, and ~~October 31, 2009,~~May 1, 2010, for the two reportable segments is set forth below (in thousands, except percentages):


39 Weeks Ended October 30, 2010	Wet Seal			Arden B			Corporate and Unallocated			Total
13 Weeks Ended April 30, 2011													Wet Seal			Arden B			Corporate and Unallocated			Total
Net sales	$	348,260		$	67,444		$	—		$	415,704		$	131,054		$	24,986		$	—		$	156,040
Percentage of consolidated net sales		84	%		16	%		—			100	%		84	%		16	%		—			100	%
Operating income (loss)	$	33,054		$	6,029		$	(21,445	)	$	17,638		$	18,813		$	2,564		$	(8,051	)	$	13,326
Depreciation and amortization expense	$	10,500		$	1,111		$	704		$	12,315		$	3,784		$	540		$	342		$	4,666
Interest income	$	—		$	—		$	243		$	243		$	—		$	—		$	72		$	72
Interest expense	$	—		$	—		$	3,019		$	3,019		$	—		$	—		$	43		$	43
Income (loss) before provision for income taxes	$	33,054		$	6,029		$	(24,221	)	$	14,862		$	18,813		$	2,564		$	(8,022	)	$	13,355

39 Weeks Ended October 31, 2009	Wet Seal			Arden B			Corporate and Unallocated			Total
13 Weeks Ended May 1, 2010													Wet Seal			Arden B			Corporate and Unallocated			Total
Net sales	$	338,987		$	70,934		$	—		$	409,921		$	113,911		$	23,851		$	—		$	137,762
Percentage of consolidated net sales		83	%		17	%		—			100	%		83	%		17	%		—			100	%
Operating income (loss)	$	26,315		$	7,221		$	(20,331	)	$	13,205		$	14,329		$	3,238		$	(7,598	)	$	9,969
Depreciation and amortization expense	$	9,247		$	1,233		$	686		$	11,166		$	3,367		$	372		$	255		$	3,994
Interest income	$	—		$	—		$	413		$	413		$	—		$	—		$	74		$	74
Interest expense	$	—		$	—		$	697		$	697		$	—		$	—		$	2,967		$	2,967
Income (loss) before provision for income taxes	$	26,315		$	7,221		$	(20,615	)	$	12,921		$	14,329		$	3,238		$	(10,491	)	$	7,076

The “Corporate and Unallocated” column is presented solely to allow for reconciliation of segment contribution to consolidated operating income, interest income, interest expense and income before provision for income taxes. Wet Seal and Arden B segment results include net sales, cost of sales, asset impairment and other direct store and field management expenses, with no allocation of corporate overhead or interest income and expense.

Wet Seal operating segment results during the 39 weeks ended October 31, 2009, included $0.8 million of additional net sales resulting from a change in estimated breakage for unredeemed gift cards, gift certificates and store credits remaining outstanding more than two years from their respective issuance dates. Wet Seal operating income during the 13 ~~and 39~~ weeks ended ~~October~~April 30, 2011, and May 1, 2010, ~~and October 31, 2009~~ includes ~~$1.0 million, $2.1 million, $0.3~~$0.2 million and ~~$1.9~~$0.1 million, respectively, of asset impairment charges.

Arden B operating segment results during the 39 weeks ended October 31, 2009, included $0.4 million of additional net sales resulting from a change in estimated breakage for unredeemed gift cards, gift certificates and store credits remaining outstanding more than two years from their respective issuance dates. Arden B operating income during the 13 ~~and 39~~ weeks ended ~~October~~April 30, ~~2010, and October 31, 2009~~2011, includes ~~$0.6 million, $0.6 million, less than~~ $0.1 million ~~and less than $0.1 million, respectively,~~ of asset impairment charges.

Corporate and Unallocated expenses during the 3913 weeks ended ~~October 30,~~May 1, 2010, include non-cash interest expense of $2.1 million as a result of accelerated write-off of remaining unamortized debt discount and deferred financing costs upon conversion of Notes and $0.7 million of interest expense for a conversion inducement associated with conversions of Notes and Preferred Stock.

On May 17, 2011, the Company’s Board of Directors authorized a $31.7 million increase in the existing stock repurchase program approved in September 2010, bringing total repurchase authorization, under the program, up to $56.7 million, of which $6.7 million has already been utilized. As of May 17, 2011, capacity of $50.0 million remains available under the stock repurchase program. The timing and number of shares repurchased will be determined by the Company’s management based on its calculation of market conditions and other factors. The repurchase program may be suspended or discontinued at any time.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our unaudited condensed consolidated financial statements and the notes thereto. The following discussion and analysis contains forward-looking statements. 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,” “anticipates,” “estimates,” “expects” or similar expressions. In addition, any statements concerning future financial performance, strategies or prospects, and possible future actions 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 “Risk Factors” included in our Annual Report on Form 10-K for the fiscal year ended January ~~30, 2010,~~29, 2011, and elsewhere in this Quarterly Report of Form 10-Q.

All references to “we,” “our,” “us,” and “the Company” in this Quarterly Report on Form 10-Q mean The Wet Seal, Inc. and its wholly owned subsidiaries.

WeIncorporated in the State of Delaware, we are a national specialty retailer operating stores selling fashionable and contemporary apparel and accessory items designed for female customers aged 13 to 35 years old. As of ~~October~~April 30, ~~2010,~~2011, we operated ~~522~~536 retail stores in 47 states and Puerto ~~Rico and the District of Columbia.~~Rico. Our products can also be purchased ~~online.~~online through our web sites.

We consider the following to be key performance indicators in evaluating our performance:

Comparable store sales—For purposes of measuring comparable store sales, sales include merchandise sales as well as membership fee revenues recognized under our Wet Seal division’s frequent buyer program during the applicable period. Stores are deemed comparable stores on the first day of the month following the one-year anniversary of their opening or significant remodel/relocation, which we define to be a square footage increase or decrease of at least 20%. Stores that are remodeled or relocated with a resulting square footage change of less than 20% are maintained in the comparable store base with no interruption. However, stores that are closed for four or more days in a fiscal month, due to remodel, relocation or other reasons, are removed from the comparable store base for that fiscal month as well as for the comparable fiscal month in the following fiscal year. Comparable store sales results are important in achieving operating leverage on expenses such as store payroll, occupancy, depreciation and amortization, general and administrative expenses, and other costs that are at least partially fixed. Positive comparable store sales results generate greater operating leverage on expenses while negative comparable store sales results negatively affect operating leverage. Comparable store sales results also have a direct impact on our total net sales, cash, and working capital.

Average transaction counts—We consider the trend in the average number of sales transactions occurring in our stores to be a key performance metric. To the extent we are able to increase transaction counts in our stores that more than offset the decrease, if any, in the average dollar sale per transaction, we will generate increases in our comparable store sales.

Gross margins—We analyze the components of gross margin, specifically cumulative mark-on, markups, markdowns, shrink, buying costs, distribution costs, and store occupancy costs. Any inability to obtain acceptable levels of initial markups, a significant increase in our use of markdowns or in inventory shrink, or an inability to generate sufficient sales leverage on other components of cost of sales could have an adverse impact on our gross margin results and results of operations.

Operating income—We view operating income as a key indicator of our financial success. The key drivers of operating income are comparable store sales, gross margins, and the changes we experience in operating costs.

Cash flow and liquidity (working capital)—We evaluate cash flow from operations, liquidity and working capital to determine our short-term operational financing needs.

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-competitive clothing, with a target customer age range of 13 to 19 years old. Wet Seal seeks to provide its customer base with a balance of affordably priced, fashionable and fashion basic apparel and accessories. ~~Wet Seal stores average approximately 4,000 square feet in size. As of October 30, 2010, we operated 444 Wet Seal stores.~~

Arden B. Arden B is a fashion brand at value price points for the feminine contemporary woman. Arden B targets customers aged 25 to 35 years old and seeks to deliver contemporary collections of fashion and fashion basic separates and accessories for various aspects of the customers’ lifestyles. ~~Arden B stores average approximately 3,000 square feet in size. As of October 30, 2010, we operated 78 Arden B stores.~~

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.~~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.~~Internet. Our online stores are designed to serve as an extension of the in-store experience and offer a wide selection of merchandise, ~~which helps expand~~with the goal of expanding in-store sales. Internet operations for both Wet Seal and Arden B are included in their respective operating segments. ~~For the past three years and continuing in this year,~~Since fiscal 2007, we have experienced ~~rapid~~ growth in both visitor traffic and our online sales, and we will 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. The Wet Seal and Arden B reportable segments include, in addition to data from their respective stores, data from their respective Internet operations.

See Note 7 of the notes to condensed consolidated financial statements for financial information regarding segment reporting, which information is incorporated herein by reference.

We ~~continue~~have experienced improvement in our financial results in the first quarter of fiscal 2011. However, the overall retail environment continues to ~~operate in a challenging retail environment~~be volatile driven by several factors, including ~~disruptions~~the lack of significant improvement in the U.S. housing ~~and financial markets~~market and high unemployment rates across all regions of the U.S. ~~Beginning in the fourth calendar quarter of 2008 and continuing through the second calendar quarter of 2009, U.S. gross domestic product decreased on a year-over-year basis.~~ Although U.S. gross domestic product has shown ~~improvement~~growth since the third calendar quarter of 2009, the increases have been modest, unemployment rates remain high in the teen segment and throughout the U.S. overall, and we continue to experience a volatile, and generally weak, retail environment. In addition, we began to experience increased sourcing costs in the fourth quarter of fiscal 2010 and have ~~recently experienced~~seen further cost ~~pressures~~increases in the first quarter of 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.~~sourced, and increased fuel costs. We expect these sourcing cost pressures to intensify in the second half of fiscal 2011. The rising value of the currency in China relative to the U.S. dollar may also have a further impact on future product costs. Our ~~operating~~ performance is ~~susceptible~~subject to ~~these~~ general economic conditions ~~which have impacted~~and their impact on levels of consumer confidence and consumer spending. Consumer purchases of discretionary ~~consumer spending~~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. Although we believe we are sufficiently prepared and financially strong enough to endure continued poor economic conditions in the U.S., and ~~the changes occurring in China that are impacting product costs. Although~~world economic markets, if such conditions become more volatile, or if they deteriorate further, our ~~operating performance improved versus the prior year periods for the 13~~business, financial condition, and ~~39 weeks ended October 30, 2010, and our initial mark-ups have held up well to date, these uncertain and volatile conditions and rising product costs could~~results of operations may be adversely ~~affect our ability to sustain or further improve our operating performance.~~affected.

Our comparable store sales ~~decreased 0.1% for~~increased 7.0% during the 13 weeks ended ~~October~~April 30, ~~2010,~~2011, driven by an 8.3% comparable store sales increase in our Wet Seal division, partially offset by a ~~2.9%~~0.1% comparable store sales decrease in our Arden B ~~division, partially offset by a 0.4% comparable store sales increase in our Wet Seal~~ division. The Wet Seal ~~division~~division’s comparable store sales increase was primarily driven by an increase in average dollar sale per transaction and units purchased per customer, which was mainly due to an increase in ~~average unit selling price,~~transaction volume, partially offset by a decrease in ~~transaction volume.~~average unit selling price. Directionally, the shifts in transaction volume and ~~average unit selling price~~units purchased per customer metrics were in line with our expectations and resulted from ~~our planned merchandise content shift at Wet Seal towards apparel~~strong performance in tops, bottoms and ~~away from lower-priced accessories relative to the prior year quarter.~~jewelry. The Arden B division comparable store sales decrease was primarily driven by declines in transaction volume and units purchased per customer, ~~and transaction volume,~~ partially offset by an increase in its average unit selling price. Lastly, we increased investment in our e-commerce inventories, marketing and team infrastructure starting in the third quarter of fiscal 2010 and generated online sales growth of ~~24.4%~~13.5% over the prior year. During the four weeks ended May 28, 2011, our comparable store sales increased 2.9%. Our online sales declined 5.7% during the four weeks ended May 28, 2011, from the prior year ~~quarter.~~as we began to reduce promotional levels and plan to rebalance inventories more toward regular price versus clearance items in the online channel in an effort to drive higher merchandise margins.

We made progress on several key initiatives during the ~~third~~first quarter. We ~~continued to achieve~~achieved merchandise margin improvement versus the prior year ~~quarter~~ in the Wet Seal division due to ~~the increase in merchandise mix in apparel, especially tops, and the reduction~~less promotional activity required as a result of ~~categories that had been underperforming. However, we experienced negative comparable store sales results in our denim business during the third quarter, which~~what we believe ~~was caused mainly by a highly promotional competitive environment in this category, which we expect~~ to ~~continue through the fourth quarter.~~ be an improved merchandise assortment and benefits from our size optimization system.

Arden B experienced higher than originally planned promotional and overall markdown levels during the ~~third~~first quarter, resulting in a slight decline in merchandise margin performance. ~~During the quarter,~~We believe that we ~~focused on increasing inventory position~~are well positioned within our dress business at ~~the~~ Arden B ~~division~~ and ~~as a result, experienced stronger dress sales later in the quarter. We~~ believe Arden B ~~remains~~is a key dress destination for our customers, ~~and~~ we expect to be well positioned in this category ~~during the fourth quarter.~~

~~We believe the progress~~Our top near-term strategic priority is to drive sales productivity improvement in our stores. To support sales productivity growth, we have ~~made~~established specific initiatives including developing a culture of customer obsession, understanding and redefining our brands, evaluating our store designs to ensure they support our brands and enhance our customer’s shopping experience and focusing on ~~our key initiatives~~increasing store personnel productivity via new training programs and ~~our compelling promotional offers during the weekend after Thanksgiving led~~streamlined operational tasks. Higher store productivity would allow us to ~~our~~attain higher positive comparable store sales ~~increase of 7.0% for the four weeks ended November 27, 2010, driven by an 8.3% comparable store sales increase in our~~growth. Other strategic priorities include improving upon Wet Seal ~~division, partially offset by a 0.3% comparable store sales decrease in our~~merchandise margins, building upon the Arden B ~~division. Our consolidated internet~~ business ~~sales increased 45.5% for the four weeks ended November 27, 2010.~~

~~Our operating performance since fiscal 2005 has resulted in increased liquidity~~to allow it to reach its full potential, and ~~improved credit standing with suppliers. However, we may not generate increases in comparable~~expanding our existing retail store ~~sales or may be unsuccessful in executing some or all~~base and online businesses. We are also focused on improving gross margins, by optimizing sourcing of merchandise, enhancing our ~~business strategy. If~~inventory planning and allocation functions and improving supply chain efficiency through better coordination among and within our ~~comparable~~vendor, internal distribution and store sales drop significantly for an extended period of time, or we falter in execution of our business strategy, we may not achieve our financial performance goals, which could impact our results of operations and operating cash flow.operation organizations.

We continued to execute our Wet Seal store growth strategy by opening 12five new Wet Seal stores in the ~~third~~first fiscal quarter of ~~2010, for a total of 24 openings during the 39 weeks ended October 30, 2010, and are on track to open a net of 27 Wet Seal stores for the fiscal year.~~2011. We currently plan to open 6025 to 30 Wet Seal stores in fiscal 2011 with a focus on malls and to a lesser extent, off-mall power ~~centers in select markets throughout the country and on malls in which we previously had highly productive Wet Seal stores.~~center locations.

We opened three new Arden B stores in the third fiscal quarter of 2010 and for the 39 weeks ended October 30, 2010, and expect to open nine Arden B stores in fiscal 2010, for a net growth of four stores for the year. We also currently intend to continue growing the Arden B store base ~~moderately~~conservatively, with approximately four new stores planned in fiscal ~~2011, but have yet to establish a specific growth plan.~~2011.

Our condensed consolidated financial statements were prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.

The preparation of financial statements in conformity with GAAP requires the appropriate application of ~~certain~~ accounting policies, some of which require us to make estimates and assumptions about future events and their impact on amounts reported in our condensed consolidated financial statements. Since future events and their impact cannot be determined with absolute certainty, the actual results will inevitably differ from our estimates.

We believe the application of our accounting policies, and the estimates inherently required therein, are reasonable. Our accounting policies and estimates are reevaluated on an ongoing basis, and adjustments are made when facts and circumstances dictate a change. Our accounting policies are more fully described in Note 1 of Notes to Consolidated Financial Statements and in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended January ~~30, 2010.~~29, 2011.

The policies and estimates discussed below involve the selection or application of alternative accounting policies that are material to our condensed consolidated financial statements. Management has discussed the development and selection of these critical accounting policies and estimates with the Audit Committee of our Board of Directors.

We have certain accounting policies that require more significant management judgment and estimates than others. These include our accounting policies with respect to revenue recognition, short-term ~~and long-term~~ investments, merchandise inventories, long-lived assets, stock-based compensation, accounting for income taxes and insurance reserves. There have been no significant additions to or modifications of the application of the critical accounting policies described in our Annual Report on Form 10-K for the fiscal year ended January ~~30, 2010.~~29, 2011. The following updates the Form 10-K discussions of our critical accounting policies for short-term ~~and long-term~~ investments, long lived assets and accounting for income taxes.

Our short-term investments consist of interest-bearing corporate bonds that are guaranteed by the U.S. Government under the Temporary Liquidity Guarantee Program (“TLGP”), have maturities that are less than one year and are carried at amortized cost plus accrued income. Our ~~long-term investments also consist of interest-bearing, corporate bonds that are~~

~~guaranteed by the U.S. Government under the TLGP, have maturities that are greater than one year and are carried at amortized cost plus accrued income. Short-term and long-term~~short-term investments are carried at amortized cost due to our intent to hold to

maturity. Short-term ~~and long-term~~ investments on the condensed consolidated balance ~~sheets~~sheet were ~~$25.4~~$50.5 million ~~and $25.9 million, respectively,~~ at ~~October~~April 30, ~~2010.~~2011. Any unrealized gains or unrealized losses on held to maturity investments are considered temporary and are not recorded unless an other than temporary impairment has occurred. Factors considered that could result in the necessity to impair include intention to sell, more likely than not being required to sell the security before recovery of the security’s amortized cost basis and whether we expect to recover the entire amortized cost basis of the security. We have considered all impairment factors and have determined that an other than temporary impairment has not occurred as of ~~October~~April 30, ~~2010.~~2011.

We evaluate the carrying value of long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. Factors that are considered important that could result in the necessity to perform an impairment review include a current-period operating or cash flow loss combined with a history of operating or cash flow losses and a projection or forecast that indicates continuing losses or insufficient income associated with the realization of a long-lived asset or asset group. Other factors include a significant change in the manner of the use of the asset or a significant negative industry or economic trend. This evaluation is performed based on estimated undiscounted future cash flows from operating activities compared with the carrying value of the related assets. If the undiscounted future cash flows are less than the carrying value, an impairment loss is recognized, measured by the difference between the carrying value and the estimated fair value of the assets, based on discounted cash flows using our weighted average cost of capital. We have considered all relevant valuation techniques that could be obtained without undue cost and effort and have determined that the discounted cash flow approach continues to provide the most relevant and reliable means by which to determine fair value in this circumstance.

At least quarterly, we ~~assesses~~assess whether events or changes in circumstances have occurred that potentially indicate the carrying value of long-lived assets may not be recoverable. Our evaluations during the 13 ~~and 39~~ weeks ended ~~October~~April 30, ~~2010,~~2011, and ~~October 31, 2009,~~May 1, 2010, indicated that operating losses or insufficient operating income existed at certain retail stores, with a projection that the operating losses or insufficient operating income for those locations would continue. As such, we recorded non-cash charges of ~~$1.6 million, $2.7 million,~~ $0.3 million and ~~$1.9~~$0.1 million during the 13 ~~and 39~~ weeks ended ~~October~~April 30, ~~2010,~~2011, and ~~October 31, 2009,~~May 1, 2010, respectively, within asset impairment in the condensed consolidated statements of operations, to write down the carrying values of these stores’ long-lived assets to their estimated fair values.

The estimation of future cash flows from operating activities requires significant estimates of factors that include future sales growth and gross margin performance. If our sales growth, gross margin performance or other estimated operating results are not achieved at or above our forecasted level, or inflation exceeds our forecast and we are unable to recover such costs through price increases, the carrying value of certain of our retail stores may prove to be unrecoverable and we may incur additional impairment charges in the future.

During ~~our third quarter of~~ fiscal 2010, we determined we previously had interpreted federal tax rules incorrectly pertaining to expiration of charitable contribution carry forwards available to offset future taxable income. We also identified certain other minor errors in our deferred income taxes. As a result, we had overstated our net deferred tax assets ~~benefit for income taxes~~ and ~~net income~~understated our accumulated deficit balance by approximately $6.6 million as of the ~~end of~~ fiscal ~~2009. The overstatement had no net impact on the statement of cash flows or total cash flows from operating activities for fiscal 2009.~~quarter ended May 1, 2010. We ~~do not believe this amount is material to the fiscal 2009 financial statements. However, we~~ have corrected deferred tax assets and stockholders’ equity on our accompanying condensed consolidated balance sheet as of ~~January 30,~~May 1, 2010, from amounts previously ~~reported,~~reported.

We began fiscal 2011 with approximately $93.5 million of federal net operating loss (“NOL”) carry forwards available to ~~correct this overstatement. Presentation of our statement of operations, statement of cash flows and statement of stockholders’ equity and comprehensive~~offset taxable income for fiscal 2009, to be reported in the Company’s Form 10-K for the period ended January 29, 2011, will reflect the $6.6 million correction to reduce the benefit for income taxes and net income and to decrease the deferred tax asset and accumulated deficit balances, and the first and second quarterly filings on Form 10-Q in fiscal 2011 ~~will reflect~~and thereafter, subject to certain annual limitations based on the ~~corrections related to~~provisions of Section 382 of the ~~first two quarters of fiscal 2010.~~

During the third quarter of fiscal 2010, we implemented a change in tax method, upon filing our 2009 federal income tax return, which resulted in the reduction of deferred tax assets related to our charitable contribution carry forwards of $0.5 million. This decrease was recorded as a deferred income tax charge and increased our effective income tax rate for the quarter.Internal Revenue Code (“Section 382”).

Our effective income tax rate for the 3913 weeks ended ~~October~~April 30, ~~2010,~~2011, was approximately ~~51%~~40%. This rate was increased due to $2.8 million in interest charges incurred in the first fiscal quarter upon the conversion of our remaining Secured Convertible Notes (the “Notes”) and Series C Convertible Preferred Stock (the “Preferred Stock”), which are not tax-deductible, and the $0.5 million non-cash deferred income tax charge previously discussed. The impacts of these charges were increases in the effective income tax rates in the first fiscal quarter, third fiscal quarter and the 39 weeks ended October 30, 2010, of approximately 16%, 10% and 11%, respectively.

Due to our expected utilization of federal and state ~~net operating loss (“NOL”)~~NOL carry forwards during fiscal ~~2010,~~2011, we anticipate cash income taxes for the fiscal year will be approximately 2%4% of pre-tax income, representing the portion of federal and state alternative minimum taxes and state of California regular income taxes that cannot be offset by NOLs. The difference between the effective income tax rate and the anticipated cash income taxes is recorded as a non-cash provision for deferred incomes taxes.

Recently Adopted Accounting Pronouncements and New Accounting Pronouncements Not Yet Adopted

In January 2010, the Financial Accounting Standards Board ~~(“FASB”~~(the “FASB”) issued guidance and clarifications for improving disclosures about fair value measurements. This guidance requires enhanced disclosures regarding transfers in and out of the levels within the fair value hierarchy. Separate disclosures are required for transfers in and out of Level 1 and 2 fair value measurements, and the reasons for the transfers must be disclosed. In the reconciliation for Level 3 fair value measurements, separate disclosures are required for purchases, sales, issuances, and settlements on a gross basis. The new disclosures and clarifications of existing disclosures ~~are~~were effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements, which ~~are~~were effective for interim and annual reporting periods beginning after December 15, 2010. Effective January 31, 2010, we adopted the new and updated guidance for disclosures, aside from that deferred to periods after December 15, 2010, and this did not significantly impact our ~~condensed~~ consolidated financial statements. We adopted the remaining

guidance on disclosures effective January 30, 2011, and this did not significantly impact our consolidated financial statements.

In May 2011, the FASB issued guidance on the application of fair value accounting where its use is already required or permitted by other standards within U.S. GAAP (“GAAP”). The amendments change the wording used to describe many of the requirements in GAAP for measuring fair value and for disclosing information about fair value measurements. Amendments include those that clarify the FASB’s intent about the application of existing fair value measurement and disclosure requirements, and change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. For many of the requirements, the FASB does not intend for the amendments to result in a change in the application of the requirements. This guidance is effective during interim and annual periods beginning after December 15, 2011. We do not believe the adoption of ~~the remaining disclosure~~this guidance will have any effect on our ~~condensed~~ consolidated financial statements.

The following table sets forth selected condensed consolidated statements of operations data as a percentage of net sales for the periods indicated. The discussion that follows should be read in conjunction with the table below:


	As a Percentage of Net Sales 13 Weeks Ended						As a Percentage of Net Sales 39 Weeks Ended						As a Percentage of Net Sales 13 Weeks Ended
	October 30, 2010			October 31, 2009			October 30, 2010			October 31, 2009			April 30, 2011			May 1, 2010
Net sales		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%
Cost of sales		69.6			71.0			69.2			70.9			65.8			67.2

Gross margin		30.4			29.0			30.8			29.1			34.2			32.8
Selling, general, and administrative expenses		25.8			25.5			25.9			25.4			25.5			25.5
Asset impairment		1.1			0.2			0.7			0.5			0.2			0.1

Operating income		3.5			3.3			4.2			3.2			8.5			7.2
Interest income (expense), net		0.0			(0.1	)		(0.6	)		(0.0	)		0.0			(2.1	)

Income before provision for income taxes		3.5			3.2			3.6			3.2			8.5			5.1
Provision for income taxes		1.8			0.0			1.8			0.1			3.4			2.8

Net income		1.7	%		3.2	%		1.8	%		3.1	%		5.1	%		2.3	%

Thirteen Weeks Ended ~~October~~April 30, ~~2010,~~2011, Compared to Thirteen Weeks Ended ~~October 31, 2009~~May 1, 2010


	13 Weeks Ended October 30, 2010		Change From Prior Fiscal Period				13 Weeks Ended October 31, 2009		13 Weeks Ended April 30, 2011		Change From Prior Fiscal Period				13 Weeks Ended May 1, 2010
			($ in millions)								($ in millions)
Net sales	$	146.4	$	4.9	3.4	%	$	141.5	$	156.0	$	18.2	13.3	%	$	137.8
Comparable store sales decrease					(0.1	)%
Comparable store sales increase													7.0	%

Net sales for the 13 weeks ended ~~October~~April 30, ~~2010,~~2011, increased primarily as a result of the following:


	13 Weeks Ended October 30, 2010			Change From Prior Fiscal Period				13 Weeks Ended October 31, 2009			13 Weeks Ended April 30, 2011			Change From Prior Fiscal Period				13 Weeks Ended May 1, 2010
				($ in millions)										($ in millions)
Cost of sales	$	101.9		$	1.4	1.4	%	$	100.5		$	102.6		$	10.0	10.7	%	$	92.6
Percentage of net sales		69.6	%			(1.4	)%		71.0	%		65.8	%			(1.4	)%		67.2	%

Cost of sales includes the cost of merchandise; markdowns; inventory shortages; inventory valuation adjustments; inbound freight; payroll expenses associated with buying, planning and allocation; processing, receiving and other warehouse costs; rent and other ~~store~~ occupancy costs; and depreciation and amortization expense associated with our stores and distribution center.

Cost of sales as a percentage of net sales decreased due primarily to a decrease in occupancy costs as a result of the leveraging effect of positive comparable store sales and an increase in merchandise margin as a result of ~~higher initial markup~~lower markdown rates and favorable inventory shrink accruals in ~~both divisions,~~the Wet Seal division, partially offset by ~~an increase~~higher markdown rates and higher inventory shrink accruals in the ~~markdown rate for both divisions,~~Arden B division, as compared to the prior year.

Cost of sales increased due primarily to the 13.3% increase in ~~absolute dollar amounts was negatively impacted by~~net sales and an increase in occupancy cost as a result of an increase in number of stores, ~~open,~~ from ~~500~~501 stores as of ~~October 31, 2009,~~May 1, 2010, to ~~522~~536 stores as of ~~October~~April 30, 2010. Cost of sales was also affected by an increase in distribution labor costs from an increase in units shipped and an increase in apparel as a percentage of the merchandise mix, which requires more distribution handling cost than accessories.2011.


	13 Weeks Ended October 30, 2010			Change From Prior Fiscal Period				13 Weeks Ended October 31, 2009			13 Weeks Ended April 30, 2011			Change From Prior Fiscal Period				13 Weeks Ended May 1, 2010
				($ in millions)										($ in millions)
Selling, general, and administrative expenses	$	37.9		$	1.9	5.2	%	$	36.0		$	39.9		$	4.8	13.7	%	$	35.1
Percentage of net sales		25.8	%			0.3	%		25.5	%		25.5	%			0.0	%		25.5	%

Our ~~selling, general and administrative~~SG&A expenses ~~(“SG&A”)~~ are comprised of two components. Selling expenses include store and field support costs, including personnel, advertising and merchandise delivery costs as well as ~~internet~~Internet processing costs. General and administrative expenses include the cost of corporate functions such as executives, legal, finance and accounting, information systems, human resources, real estate and construction, loss prevention and other centralized services.

Selling expenses increased ~~$1.2~~approximately $4.0 million from the prior year to ~~$30.0~~$31.3 million. As a percentage of net sales, selling expense was ~~20.5%~~20.0% of net sales, or 1020 basis points higher ~~as a percentage of net sales,~~ than a year ago.

~~The~~ increase in ~~selling expenses,~~credit card fees due to increased sales volume, partially offset by declines in average processing fees as a ~~percentage of net sales, was primarily due~~percent to ~~an increase in internet order fulfillment costs and an~~sales;

General and administrative expenses increased approximately ~~$0.7~~$0.8 million from the prior year to ~~$7.9~~$8.6 million. As a percentage of net sales, general and administrative expenses were ~~5.3%~~5.5%, or 20 basis points ~~higher,~~lower than a year ago.

The following contributed to the current year increase in general and administrative expenses:

However, the increases in general and administrative expenses were partially offset by the following decreases:


	13 Weeks Ended October 30, 2010			Change From Prior Fiscal Period				13 Weeks Ended October 31, 2009			13 Weeks Ended April 30, 2011			Change From Prior Fiscal Period				13 Weeks Ended May 1, 2010
	($ in millions)										($ in millions)
Asset impairment	$	1.6		$	1.3	377.5	%	$	0.3		$	0.3		$	0.2	187.8	%	$	0.1
Percentage of net sales		1.1	%			0.9	%		0.2	%		0.2	%			0.1	%		0.1	%

Based on our quarterly assessments of the carrying value of long-lived assets, during the 13 weeks ended ~~October~~April 30, ~~2010,~~2011, and ~~October 31, 2009,~~May 1, 2010, we identified certain retail stores with carrying values of their assets, including leasehold improvements, furniture, fixtures and equipment, in excess of such stores’ respective forecasted undiscounted cash flows. Accordingly, we reduced their respective carrying values to their estimated fair market values, resulting in non-cash charges of ~~$1.6~~$0.3 million and ~~$0.3~~$0.1 million, respectively.


	13 Weeks Ended October 30, 2010			Change From Prior Fiscal Period				13 Weeks Ended October 31, 2009			13 Weeks Ended April 30, 2011			Change From Prior Fiscal Period				13 Weeks Ended May 1, 2010
	($ in millions)										($ in millions)
Interest income (expense), net	$	0.1		$	0.3	135.0	%	$	(0.2	)	$	0.0		$	2.9	101.0	%	$	(2.9	)
Percentage of net sales		0.0	%			0.1	%		(0.1	)%		0.0	%			2.1	%		(2.1	)%

We generated interest income, net, of less than $0.1 million in the 13 weeks ended ~~October~~April 30, ~~2010, comprised of:~~

We incurred ~~a nominal amount of~~ interest expense, net, of $2.9 million in the 13 weeks ended ~~October 31, 2009,~~May 1, 2010, comprised of:

In the third quarter of fiscal 2010, we incurred a 50% effective income tax rate, which is significantly higher than the rate in fiscal 2009 primarily as a result of the reversal of our deferred tax asset valuation allowance at the end of fiscal 2009. In addition, this rate was higher than that expected for future periods due to a $0.5 million non-cash deferred income tax charge in the third fiscal quarter due to a tax method change that resulted in the reduction of deferred tax assets related to charitable contribution carry forwards. Excluding the effect of this charge, theOur effective income tax rate for the ~~third quarter would have been~~13 weeks ended April 30, 2011, was approximately 40%~~, which is the rate we currently expect to incur for the remainder of the fiscal year.~~

. Due to our expected utilization of federal and state NOL carry forwards during fiscal ~~2010,~~2011, we anticipate cash income taxes for the fiscal year will ~~only~~ be approximately 2%4% of pre-tax income, representing the portion of federal and state alternative minimum taxes and state of California regular income taxes that cannot be offset by NOLs. The difference between the effective income tax rate and the anticipated cash income taxes is recorded as a non-cash provision for deferred ~~incomes~~income taxes.

The following is a discussion of the operating results of our business segments. We consider each of our operating divisions to be a segment. In the tables below, Wet Seal and Arden B reportable segments include data from their respective stores and internet operations. Operating segment results include net sales, cost of sales, asset impairment and other direct store and field management expenses, with no allocation of corporate overhead or interest income or expense.


(In thousands, except sales per square foot and store count data)	13 Weeks Ended October 30, 2010			13 Weeks Ended October 31, 2009			13 Weeks Ended April 30, 2011			13 Weeks Ended May 1, 2010
Net sales	$	125,475		$	119,105		$	131,054		$	113,911
Percentage of consolidated net sales		86	%		84	%		84	%		83	%
Comparable store sales percentage increase (decrease) compared to the prior year fiscal quarter		0.4	%		(7.6	)%
Comparable store sales percentage increase compared to the prior year fiscal quarter								8.3	%		1.5	%
Operating income	$	12,509		$	10,378		$	18,813		$	14,329
Sales per square foot	$	68		$	68		$	69		$	65
Number of stores as of quarter end		444			420			454			422
Square footage as of quarter end		1,763			1,655			1,806			1,676

~~Wet Seal~~The comparable ~~stores~~store sales ~~increased 0.4% during the 13 weeks ended October 30, 2010, compared to a prior year quarter decrease of 7.6%. The~~ increase during the 13 weeks ended ~~October~~April 30, ~~2010,~~2011, was due primarily to an increase of ~~4.8%~~3.9% in average dollar sales per transaction ~~partially offset by a~~and an increase of 4.6% ~~decrease~~ in comparable store average transactions. The increase in comparable store average dollar sales per transaction resulted from ~~an 8.6%~~a 6.0% increase in units purchased per customer, partially offset by a 1.8% decrease in our average unit retail ~~prices, partially offset by a 3.3% decrease in units purchased per customer, as a result of a merchandise content shift towards apparel and away from lower-priced accessories.~~prices. The net sales increase was attributable to the comparable store sales increase, a ~~$1.2~~$0.9 million increase in net sales in our internet business and the increase in the number of stores compared to the prior year.

Wet Seal’s operating income increased to ~~10.0%~~14.4% of net sales during the 13 weeks ended ~~October~~April 30, ~~2010,~~2011, from ~~8.7%~~12.6% of net sales during the 13 weeks ended ~~October 31, 2009.~~May 1, 2010. The increase in operating income, as a percentage of sales, was due primarily to an increase in merchandise margin as a result of ~~higher initial markup~~lower markdown rates, a decrease in inventory shrink, and a decrease in occupancy costs due to ~~favorable adjustments received from landlords on prior year common area maintenance costs.~~the leveraging effect of positive comparable store sales. Additionally, during the 13 weeks ended ~~October~~April 30, ~~2010,~~2011, and the 13 weeks ended ~~October 31, 2009,~~May 1, 2010, operating income included asset impairment charges of ~~$1.0~~$0.2 million and ~~$0.3~~$0.1 million, respectively, to write down the carrying value of long-lived assets that were identified during our quarterly impairment ~~evaluations.~~evaluation.


(In thousands, except sales per square foot and store count data )	13 Weeks Ended October 30, 2010			13 Weeks Ended October 31, 2009
(In thousands, except sales per square foot and store count data)							13 Weeks Ended April 30, 2011			13 Weeks Ended May 1, 2010
Net sales	$	20,926		$	22,441		$	24,986		$	23,851
Percentage of consolidated net sales		14	%		16	%		16	%		17	%
Comparable store sales percentage (decrease) increase compared to the prior year fiscal quarter		(2.9	)%		1.3	%		(0.1	)%		4.8	%
Operating income	$	117		$	1,444		$	2,564		$	3,238
Sales per square foot	$	77		$	82		$	86		$	88
Number of stores as of quarter end		78			80			82			79
Square footage as of quarter end		234			244			254			238

~~Arden B~~The slight comparable ~~stores~~store sales ~~decreased 2.9% during the 13 weeks ended October 30, 2010, compared to a prior year quarter increase of 1.3%. The~~ decrease during the 13 weeks ended ~~October~~April 30, ~~2010,~~2011, was due to a ~~0.5%~~3.4% decrease in comparable store average transactions, ~~and~~largely offset by a ~~2.4% decrease~~3.4% increase in comparable store average dollar sales per transaction. The ~~decrease~~increase in the average dollar sale per transaction resulted from a ~~3.8% decrease in units purchased per customer, partially offset by a 1.5%~~17.7% increase in our average unit retail ~~prices.~~prices, partially offset by a 12.4% decrease in units purchased per customer. The net sales ~~decrease~~increase was attributable to the ~~comparable store sales decrease and a decrease~~increase in ~~the~~ number of stores compared to the prior year ~~partially offset by~~and a ~~$0.9~~$0.2 million increase in net sales in our internet ~~business.~~business, partially offset by the aforementioned decrease in comparable store sales.

Arden B generated operating income of ~~0.6%~~10.3% of net sales during the 13 weeks ended ~~October~~April 30, ~~2010,~~2011, compared to operating income of ~~6.4%~~13.6% of net sales during the 13 weeks ended ~~October 31, 2009. The~~May 1, 2010. This decrease ~~in operating results~~ was due primarily to a decrease in merchandise margin as a result of higher markdown rates, an increase in inventory shrink and an increase in occupancy costs as a percentage of net sales as ~~the prior year included~~ a ~~rent benefit for early termination~~result of ~~store leases,~~ the deleveraging effect from the decrease in comparable store sales, ~~and an increase in internet order fulfillment costs~~ as ~~a result of increased net sales in our internet business~~ compared to the prior year. Additionally, during the 13 weeks ended ~~October~~April 30, ~~2010, and the 13 weeks ended October 31, 2009,~~2011, operating income included asset impairment charges of ~~$0.6 million and less than~~ $0.1 million ~~respectively,~~ to write down the carrying value of long-lived assets that were identified during our quarterly impairment evaluations.

~~Thirty-Nine Weeks Ended October 30, 2010, Compared to Thirty-Nine Weeks Ended October 31, 2009~~

~~Net sales for the 39 weeks ended October 30, 2010, increased primarily as a result of the following:~~

Cost of sales as a percentage of net sales decreased due primarily to an increase in merchandise margin as a result of higher initial markup rates in both divisions and favorable spring physical inventory shrink results, as compared to the prior year, partially offset by an increase in markdown rates due to the highly promotional retail environment. Cost of sales in absolute dollar amount was negatively impacted by an increase in occupancy cost as a result of an increase in number of stores, from 500 stores as of October 31, 2009, to 522 stores as of October 30, 2010.

Selling expenses increased approximately $1.5 million from the prior year to $85.5 million. As a percentage of net sales, selling expense was 20.6% of net sales, or 10 basis points higher than a year ago.

~~However, the increases in selling expenses were partially offset by the following decreases:~~

General and administrative expenses increased approximately $1.9 million from the prior year, to $22.2 million. As a percentage of net sales, general and administrative expenses were 5.3%, or 40 basis points higher than a year ago.

~~The following contributed to the current year increase in general and administrative expenses:~~

~~However, the increases in general and administrative expenses were partially offset by the following decreases:~~

Based on our quarterly assessments of the carrying value of long-lived assets, during the 39 weeks ended October 30, 2010, and October 31, 2009, we identified certain retail stores with carrying values of their assets, including leasehold improvements, furniture, fixtures and equipment, in excess of such stores’ respective forecasted undiscounted cash flows. Accordingly, we reduced their respective carrying values to their estimated fair market values, resulting in non-cash charges of $2.7 million and $1.9 million, respectively.

~~We incurred interest expense, net, of $2.8 million in the 39 weeks ended October 30, 2010, comprised of:~~

~~We incurred interest expense, net, of $0.3 million in the 39 weeks ended October 31, 2009, comprised of:~~

During the 39 weeks ended October 30, 2010, we incurred a 51% effective income tax rate, which is significantly higher than the rate in fiscal 2009 primarily as a result of the reversal of our deferred tax asset valuation allowance at the end of fiscal 2009. In addition, this rate was higher than that expected for future periods due to $2.8 million in interest charges incurred upon the Note conversions in the first fiscal quarter 2010, which are not tax deductible, and a $0.5 million non-cash deferred income tax charge in the third fiscal quarter due to a tax method change that resulted in the reduction of deferred tax assets related to charitable contribution carry forwards. Excluding the effect of these charges, the effective income tax rate for the 39 weeks ended October 30, 2010 would have been approximately 40%, which is the rate we currently expect to incur for the remainder of the fiscal year.

Due to our expected utilization of federal and state NOL carry forwards during fiscal 2010, we anticipate cash income taxes for the fiscal year will be approximately 2% of pre-tax income, representing the portion of federal and state alternative minimum taxes that cannot be offset by NOLs. The difference between the effective income tax rate and the anticipated cash income taxes is recorded as a non-cash provision for deferred incomes taxes.

~~The following is a discussion of the operating results of our business segments.~~

Wet Seal comparable stores sales decreased 0.8% during the 39 weeks ended October 30, 2010, compared to a prior year decrease of 9.2%. The decrease during the 39 weeks ended October 30, 2010, was due primarily to a 7.8% decrease in comparable store average transactions, partially offset by a 7.6% increase in comparable store average dollar sales per transaction. The increase in comparable store average dollar sales per transaction resulted from a 10.9% increase in our average unit retail prices, partially offset by a 2.9% decrease in units purchased per customer, as a result of a merchandise content shift towards apparel and away from lower-priced accessories. The net sales increase was attributable to the increase in the number of stores compared to the prior year and a $2.2 million increase in net sales in our internet business, partially offset by the comparable store sales decline and the prior year including $0.8 million of additional net sales resulting from a change in estimated breakage for unredeemed gift cards, gift certificates and store credits remaining outstanding more than two years from their respective issuance dates.

Wet Seal’s operating income increased to 9.5% of net sales during the 39 weeks ended October 30, 2010, from 7.8% during the 39 weeks ended October 31, 2009. The increase in operating income, as a percentage of sales, was due primarily to an increase in merchandise margin as a result of an increase in initial markup rates and favorable spring physical inventory shrink results, and a decrease in buying costs primarily due to our open chief merchandise officer position and a reduction in stock compensation expense. Additionally, during the 39 weeks ended October 30, 2010, and the 39 weeks ended October 31, 2009, operating income included asset impairment charges of $2.1 million and $1.9 million, respectively, to write down the carrying value of long-lived assets that were identified during our quarterly impairment evaluations. Operating income for the 39 weeks ended October 31, 2009, included the $0.8 million breakage benefit noted above.

Arden B comparable stores sales decreased 0.8% during the 39 weeks ended October 30, 2010, compared to a prior year decrease of 2.5%. The decrease during the 39 weeks ended October 30, 2010, was due primarily to a 1.8% decrease in comparable store average dollar sales per transaction, partially offset by a 1.0% increase in comparable store average transactions. The decrease in the average dollar sales per transaction resulted from a 4.7% decline in average unit retail prices, partially offset by a 2.8% increase in units purchased per customer. The net sales decrease was primarily attributable to the decrease in the number of stores compared to the prior year, the comparable store sales decrease and the prior year including $0.4 million of additional net sales resulting from a change in estimated breakage for unredeemed gift cards, gift certificates and store credits remaining outstanding more than two years from their respective issuance dates, partially offset by a $1.6 million increase in net sales in our internet business.

Arden B generated operating income of 8.9% of net sales during the 39 weeks ended October 30, 2010, compared to operating income of 10.2% of net sales during the 39 weeks ended October 31, 2009. The decrease in operating income was due primarily to a decrease in merchandise margin as a result of higher markdown rates, an increase in buying wages and an increase in stock compensation expense. Additionally, during the 39 weeks ended October 30, 2010, and the 39 weeks ended October 31, 2009, operating income included asset impairment charges of $0.6 million and less than $0.1 million, respectively, to write down the carrying value of long-lived assets that were identified during our quarterly impairment evaluations. Also, operating income for the 39 weeks ended October 31, 2009, included the $0.4 million of breakage benefit noted above.

Net cash provided by operating activities was ~~$32.0~~$17.5 million for the 3913 weeks ended ~~October~~April 30, ~~2010,~~2011, compared to ~~$19.2~~$14.7 million for the same period last year. For the 3913 weeks ended ~~October~~April 30, ~~2010,~~2011, cash provided by operating activities was comprised of net income of ~~$7.3~~$8.0 million, net non-cash charges, primarily depreciation and amortization, asset impairment, stock-based compensation and provision for deferred income taxes, ~~and non-cash interest expense,~~ of ~~$26.7~~$10.9 million, ~~a $0.7 million add back for a conversion inducement fee,~~ and ~~an increase in merchandise payables over the increase of merchandise inventories of less than $0.1 million, partially offset by~~ a net ~~use~~source of cash from changes in other operating assets and liabilities of ~~$2.8~~$1.1 million, partially offset by an increase in merchandise inventories over the increase of merchandise payables of $2.5 million. For the 3913 weeks ending ~~October~~April 30, ~~2010,~~2011, net cash used in investing activities of ~~$73.6~~$6.0 million was comprised of ~~$22.4 million for~~ capital expenditures, primarily for remodeling of existing Wet Seal and Arden B stores upon lease renewals and/or store relocations, the construction of new Wet Seal and Arden B stores, and investment in the development of our new retail merchandising system and an upgrade to our point-of-sale operating ~~systems and a merchandise sorting system installed in our distribution center, and $51.2 million for investment of cash from money market funds into short-term and long-term investments.~~system. Capital expenditures that remain unpaid as of ~~October~~April 30, ~~2010,~~2011, have increased ~~$7.0~~$2.0 million since the end of fiscal ~~2009.~~2010. We expect to pay nearly all of the total balance of such amounts payable of ~~$9.6~~$6.2 million during the ~~fourth~~second quarter of fiscal ~~2010.~~2011.

We estimate that, in fiscal ~~2010,~~2011, capital expenditures will be ~~approximately~~ between $29.0 million and $30.0 million, ~~net~~ of which approximately ~~$5.4 million in landlord tenant improvement allowances. Of the total net capital expenditures, approximately $18.0~~$22.0 million to ~~$19.0~~$23.0 million is expected to be for the remodeling and/or relocation of existing Wet Seal and Arden B stores upon lease renewals ~~and/or store relocations~~ and the construction of new Wet Seal and Arden B stores. We anticipate approximately $4.5 million in landlord tenant improvement allowances, resulting in net capital expenditures of between $24.5 million and $25.5 million.

For the 3913 weeks ending ~~October~~April 30, ~~2010,~~2011, net cash used by financing activities was ~~$4.4~~$3.7 million, comprised of ~~$8.2~~$3.7 million used to repurchase ~~2,276,462~~1,000,000 shares of our Class A common stock, which utilized all remaining capacity under a $12.5 million repurchase authorization granted by our Board of Directors in November 2009 and a portion of the capacity under a $25 million repurchase authorization granted by our Board of Directors in September 2010, and a $0.7 million conversion inducement fee to a Note holder, partiallyslightly offset by ~~$4.3 million of proceeds from investor exercises of common~~

~~stock warrants, which resulted in the issuance of 1,160,715 shares of our Class A common stock, and $0.2~~less than $0.1 million of proceeds from the exercise of stock options. Effective May 17, 2011, our Board of Directors has authorized a $31.7 million increase to our existing stock repurchase program, approved in September 2010, bringing total repurchase authorization, under the program, up to $56.7 million, of which $6.7 million has already been utilized. As of May 17, 2011, capacity of $50.0 million remains available under the stock repurchase program.

In March 2010, a holder of the Notes, Preferred Stock and Series E warrants converted $4.7 million in principal amount of our Notes into 3,111,111 shares of our Class A common stock and 1,611 shares of the Preferred Stock into 537,000 shares of our Class A common stock, and exercised Series E warrants into 625,000 shares of our Class A common stock for an exercise price of $2.3 million. As an inducement for the holder to undertake these conversions and/or exercises of the Notes, Preferred Stock and Series E warrants, we provided the holder with a $0.7 million inducement fee. We also repurchased an insignificant remaining Note balance from another holder. As a result of these transactions, there are no longer any remaining

Notes and Preferred Stock outstanding and there was a satisfaction and discharge of our obligations under the Indenture governing the Notes.

On November 3, 2010, all of the Company’s remaining Series E Warrants expired unexercised. As a result, no warrants to acquire the Company’s Class A common stock remain outstanding.

Total cash, cash equivalents and investments at ~~October~~April 30, ~~2010,~~2011, was ~~$166.7~~$183.5 million compared to ~~$161.7~~$176.1 million at January ~~30, 2010.~~29, 2011.

~~We maintain a~~On February 3, 2011, we renewed, via amendment, our $35.0 million senior revolving credit facility with our existing lender (the “Facility”), which can be increased up to $50.0 million in the absence of any default and upon the satisfaction of certain conditions precedent specified in the Facility. The Facility expires in ~~May 2011, and we are currently negotiating a renewal of the Facility.~~February 2016. Under the Facility, we are subject to borrowing base limitations on the amount that can be borrowed and certain customary covenants, including, under certain circumstances, covenants limiting our ability to incur additional indebtedness, make investments and acquisitions, grant liens, pay dividends, repurchase our common stock, close stores, and dispose of assets, ~~subject to certain exceptions.~~without the lender’s consent. Our ability to borrow and request the issuance of letters of credit is subject to the requirement that we maintain an excess of the borrowing base over the outstanding credit extensions of ~~not less than $5.0~~the greater of 10% of the aggregate amount of the facility or $4.0 million. The annual interest rate on ~~our~~the revolving line of credit under the Facility is (i) the higher of the lender’s prime rate, the Federal funds rate plus 0.5% or ~~if we elect,~~ the one month London InterBank Offered Rate ~~(“LIBOR”)~~(LIBOR) plus 1.0%, collectively referred to as the “Base Rate”, plus the applicable margin ranging from 0.5% to 1.0% or, (ii) if we elect, either the one, two, three or six months LIBOR plus a margin ranging from ~~1.0%~~1.5% to ~~1.5%~~2.0%. The applicable Base Rate or LIBOR margin is based on the level of average excess availability, as defined under the Facility, at the time of election, as adjusted quarterly. ~~The applicable LIBOR margin was 1.0% as of October 30, 2010.~~ We also incur fees on outstanding letters of credit under the Facility at aan annual rate equal to the applicable LIBOR margin for standby letters of credit and ~~33.3%~~23.0% of the applicable LIBOR margin for commercial letters of credit. Additionally, we are subject to commitment fees at an annual rate of 0.25% on the unused portion of the line of credit under the Facility.

Borrowings under the Facility are secured by ~~all of our presently owned~~cash, cash equivalents, investments, receivables and ~~hereafter acquired assets of~~inventory held by us and our wholly owned subsidiaries, The Wet Seal Retail, Inc. and Wet Seal Catalog, Inc., each of which may be a borrower under the Facility. ~~Our obligations thereunder and the subsidiary borrowers under the Facility are guaranteed by one of our wholly owned subsidiaries, Wet Seal GC, LLC.~~

At ~~October~~April 30, ~~2010,~~2011, the amount outstanding under the Facility consisted of ~~$6.0~~$5.5 million in open documentary letters of credit related to merchandise purchases and ~~$1.7~~$1.5 million in outstanding standby letters of credit. At ~~October~~April 30, ~~2010,~~2011, we had ~~$27.3~~$28.0 million available for cash advances and/or for the issuance of additional letters of credit, and we were in compliance with all covenant requirements under the Facility.

We believe we will have sufficient cash and credit availability to meet our operating and capital requirements for at least the next 12 months. However, the significant deterioration in consumer confidence and spending experienced over the past few years could remain depressed for an extended period. As a result of this continuing economic crisis, we may experience continued declines in consolidated comparable store sales or experience other events that negatively affect our operating results. If our consolidated comparable store sales drop significantly for an extended period, or we falter in the execution of our business strategy, we may not achieve our financial performance goals, which could adversely impact our results of operations and operating cash flow. This could also cause a decrease in or elimination of excess availability under the Facility, which could force us to seek alternatives to address potential cash constraints, including seeking additional debt and/or equity financing.

The financial performance of our business is susceptible to declines in discretionary consumer spending, availability of consumer credit and low consumer confidence in the United States. ~~Volatile~~Increasing fuel prices and ~~increasing~~ commodity costs may also cause a shift in consumer demand away from the retail clothing products that we offer. There are no guarantees that government or other initiatives will limit the duration or severity of the current economic challenges or stabilize factors that affect our sales and profitability. Continuing adverse economic trends could affect us more significantly than companies in other industries.

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 ~~have recently experienced~~began to experience cost pressures in the fourth quarter of fiscal 2010 and saw further cost increases through the first quarter of fiscal 2011 as a result of the 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 intensify in the second half of fiscal 2011. The rising value of the currency in China relative to the U.S. dollar may also have a further impact on future product costs. Although our initial mark ups have ~~held up well~~remained fairly stable to date, we have experienced some deterioration in mark-up rates in the fourth quarter of 2010 and the first quarter of fiscal 2011on our merchandise receipts and ~~are experiencing~~expect further cost increases for merchandise on ~~first quarter 2011 orders.~~order for the second half of fiscal 2011. In response to the costs increases, we have evaluated and opportunistically adjusted our pricing in certain categories, we are leveraging our large vendor base to obtain the lowest possible cost, and are assessing ongoing promotional strategies in efforts to help maintain or improve upon historical merchandise margin levels. 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.

As of April 30, 2011, we are not a party to any off-balance sheet arrangements, except for operating lease and purchase obligations as reference in our Form 10-K under “Commitments and Contingencies” and “Other Off-Balance Sheet Arrangements.”

To the extent that we borrow under the Facility, we are exposed to market risk related to changes in interest rates. At ~~October~~April 30, ~~2010,~~2011, no borrowings were outstanding under the Facility. At April 30, 2011, the weighted average interest rate on borrowings under the Facility was 1.333%. Based upon a sensitivity analysis as of April 30, 2011, if we had average outstanding borrowings of $1 million during first quarter of fiscal 2011, a 50 basis point increase in interest rates would have resulted in a potential increase in interest expense of approximately $300.

As of ~~October~~April 30, ~~2010,~~2011, we are not a party to any derivative financial instruments.

We contract for and settle all purchases in U.S. dollars. We only purchase a modest amount of goods directly from international vendors. Thus, we consider the effect of currency rate changes to be indirect and we believe the effect of a major shift in currency exchange rates on short-term results would be ~~minimal.~~minimal, as a hypothetical 10% change in the foreign exchange rate of the Chinese currency against the U.S. dollar as of April 30, 2011 would not materially affect our results of operations or cash flows. Over a longer period, the cumulative year-to-year impact of such changes, especially the exchange rate between the currency in China and the U.S. dollar, could be significant, albeit indirectly, through increased charges in U.S. dollars from our vendors that source their products internationally.

We conducted an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer, of our disclosure controls and procedures, as such term is defined in Rule 13a-15(e) and 15d-15(e) promulgated under the Exchange Act. These disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Commission’s rules and forms. Our disclosure controls and procedures are also designed to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer, in order to allow timely decisions regarding required disclosures. Based on this evaluation, our chief executive officer and our chief financial officer concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of ~~October~~April 30, ~~2010.~~2011.

During the fiscal quarter ended ~~October~~April 30, ~~2010,~~2011, no changes occurred with respect to our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

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 ~~April 28, 2008, a notice of appeal of the judgment was filed. On~~ September 27, 2010, the Superior Court granted final approval of the settlement agreement. An appeal was subsequently filed on January 26, 2011. As of ~~October~~April 30, ~~2010,~~2011, 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 by the Industrial Welfare Commission. Discovery is ongoing and Plaintiffs filed their motion for class certification in July 2010. We filed our opposition to the motion for class certification on October 19, 2010. The class certification hearing is scheduled forOn December 17, ~~2010.~~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. 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 ~~October~~April 30, ~~2010.~~2011.

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. ~~Plaintiffs filed an amended complaint, and we filed a motion to strike allegations of the third amended complaint on or about February 16, 2010, which was held in abeyance.~~ The case has been transferred to the complex panel of the San Francisco Superior Court for case management purposes. ~~Currently,~~ Plaintiffs’ ~~motion~~Motion for ~~class certification is due~~Class Certification and Defendants’ Motion to beStrike Class Claims were filed on April 25, 2011 and will be heard by the Court on August 5, 2011. ~~Discovery is ongoing.~~Additionally, on April 25, 2011, Plaintiffs filed a motion to amend the operative complaint to add another potential class representative, and we thereafter filed a Motion to Compel Arbitration of that individual’s claims. On May 24, 2011, the Court denied Plaintiffs’ motion to amend the complaint. 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 ~~October~~April 30, ~~2010.~~

On March 18, 2009, 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 that were employed and paid by us from March 18, 2005 through March 18, 2009. 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 October 23, 2009, we reached an agreement to pay approximately $0.2 million to settle this matter. We paid the settlement amount in August 2010 and the Superior Court dismissed the action with prejudice on September 2, 2010.2011.

On April 24, 2009, the U.S. Equal Employment Opportunity Commission, or the EEOC, requested information and records relevant to several charges of discrimination by our company against employees of our 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 ~~October~~April 30, ~~2010.~~2011.

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, certain other matters may exist or arise for which we do not have insurance coverage. As of ~~October~~April 30, ~~2010,~~2011, 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.

~~The following risk factor represents an addition to~~There are no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended January ~~30, 2010.~~

We are in the process of identifying a new president and chief executive officer for our Company and the resulting transition and integration of this person may impact our ability to execute our business strategy in the near term and has caused us to delay our search for a new chief merchandise officer for our Wet Seal division.

As previously announced, on October 8, 2010, Mr. Edmond S. Thomas, resigned as a director and his term as president and chief executive officer of our Company concluded upon the expiration of his existing employment agreement on that date.

We have entered into a transition services agreement with Mr. Thomas, pursuant to which Mr. Thomas is currently serving as interim president and chief executive officer for a transition period that will conclude no later than February 8,29, 2011. ~~However, there can be no assurance that Mr. Thomas will continue to serve in any capacity during the entire transition~~

~~period. In addition, we have not been able find a suitable replacement for Mr. Thomas to date and do not know if we will be able to do so before the conclusion of his transition period.~~

If Mr. Thomas ceases to render services prior to the end of his transition period and we are not able to appoint a new president and chief executive officer in a timely manner, our business, financial condition, and results of operations could be materially and adversely affected. In addition, we anticipate that we will experience a transition period before our new president and chief executive officer is fully integrated into his or her new roles. 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 period.

As previously disclosed, we have a search underway to identify a chief merchandise officer for our Wet Seal division. However, as a result of our search for a new president and chief executive officer, we have delayed the search for a chief merchandise officer and will resume it at the time a president and chief executive officer is identified and can assist in the process. This delay may further impact our ability to execute our business strategy in the near term.


Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (2)		Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (2)
August 29, 2010 to October 2, 2010		882,300	$	3.39		882,300		6,284,093
January 30, 2011 to February 26, 2011										1,000,000	$	3.71		1,000,000		4,149,929
February 27, 2011 to April 2, 2011										—		—		—		4,149,929
April 3, 2011 to April 30, 2011										—		—		—		4,149,929

Effective May 17, 2011, our Board of Directors authorized a $31.7 million increase to the existing stock repurchase program approved in September 2010, bringing total repurchase authorization up to $56.7 million. As of May 17, 2011, capacity of $50.0 million remains available under the stock repurchase program.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


Delaware		33-0415940
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

26972 Burbank, Foothill Ranch, CA		92610
(Address of principal executive offices)		(Zip Code)


PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)

	Condensed Consolidated Balance Sheets (Unaudited) as of ~~October~~April 30, ~~2010,~~2011, January ~~30,~~29, 2011, and May 1, 2010 ~~and October 31, 2009~~	2-3

	Condensed Consolidated Statements of Operations (Unaudited) for the 13 ~~and 39~~ Weeks Ended ~~October~~April 30, ~~2010,~~2011, and ~~October 31, 2009~~May 1, 2010	4

	Condensed Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Unaudited) for the 3913 Weeks Ended ~~October~~April 30, ~~2010,~~2011, and ~~October 31, 2009~~May 1, 2010	5-6

	Condensed Consolidated Statements of Cash Flows (Unaudited) for the 3913 Weeks Ended ~~October~~April 30, ~~2010,~~2011, and ~~October 31, 2009~~May 1, 2010	7

	Notes to Condensed Consolidated Financial Statements (Unaudited)	~~8-21~~	8-19

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	~~22-36~~	20-30

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36	30

Item 4.	Controls and Procedures	36	30

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	~~36-37~~	31

Item 1A.	Risk Factors	~~37-38~~	32

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38	32

Item 3.	Defaults Upon Senior Securities	38	32

Item 4.	~~Removed and~~ Reserved	38	32

Item 5.	Other Information	38	32

Item 6.	Exhibits	38	32

SIGNATURES		39	33

EXHIBIT 31.1

EXHIBIT 31.2

EXHIBIT 32.1

EXHIBIT 32.2


	October 30, 2010		January 30, 2010			October 31, 2009
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	115,617	$	161,693		$	144,161
Short-term investments		25,350		—			—
Other receivables		2,140		479			389
Merchandise inventories		40,687		29,159			39,761
Prepaid expenses and other current assets		12,195		10,939			11,087
Deferred tax assets (Note 1)		19,600		19,600			—

Total current assets		215,589		221,870			195,398

EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Leasehold improvements		115,485		108,958			109,641
Furniture, fixtures and equipment		78,162		66,708			67,462

		193,647		175,666			177,103
Less accumulated depreciation and amortization		(101,823)		(97,603	)		(95,509)

Net equipment and leasehold improvements		91,824		78,063			81,594

LONG-TERM INVESTMENTS		25,919		—			—

OTHER ASSETS:
Deferred tax assets (Note 1)		37,891		45,153			—
Other assets		2,581		2,584			2,588

Total other assets		40,472		47,737			2,588

TOTAL ASSETS	$	373,804	$	347,670		$	279,580

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable – merchandise	$	26,158	$	14,588		$	19,445
Accounts payable – other		17,320		9,480			12,713
Income taxes payable		—		47			200
Accrued liabilities		22,211		24,918			23,044
Current portion of deferred rent		3,297		2,735			2,886

Total current liabilities		68,986		51,768			58,288

LONG-TERM LIABILITIES:
Secured convertible notes, including accrued interest of $0, $956 and $904 at October 30, 2010, January 30, 2010, and October 31, 2009, respectively, and net of unamortized discount of $0, $2,083 and $2,261 at October 30, 2010, January 30, 2010, and October 31, 2009, respectively		—		3,540			3,310
Deferred rent		30,656		28,827			29,123
Other long-term liabilities		1,677		1,785			1,700

Total long-term liabilities		32,333		34,152			34,133

Total liabilities		101,319		85,920			92,421


	April 30, 2011		January 29, 2011			May 1, 2010
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	133,074	$	125,362		$	169,987
Short-term investments		50,455		50,690			—
Other receivables		2,002		1,941			386
Merchandise inventories		37,100		33,336			35,080
Prepaid expenses and other current assets		12,690		12,651			11,278
Deferred tax assets		19,649		19,649			19,600

Total current assets		254,970		243,629			236,331

EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Leasehold improvements		117,279		115,712			112,248
Furniture, fixtures and equipment		78,484		75,395			68,988

		195,763		191,107			181,236
Less accumulated depreciation and amortization		(103,902)		(102,387	)		(100,459)

Net equipment and leasehold improvements		91,861		88,720			80,777

OTHER ASSETS:
Deferred tax assets (Note 1)		28,447		33,255			41,337
Other assets		3,031		2,928			2,531

Total other assets		31,478		36,183			43,868

TOTAL ASSETS	$	378,309	$	368,532		$	360,976

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable – merchandise	$	21,659	$	20,455		$	22,111
Accounts payable – other		15,973		11,571			11,593
Income taxes payable		44		60			—
Accrued liabilities		23,252		24,752			24,332
Current portion of deferred rent		3,380		3,338			2,487

Total current liabilities		64,308		60,176			60,523

LONG-TERM LIABILITIES:
Deferred rent		31,382		30,900			28,355
Other long-term liabilities		1,732		1,763			1,736

Total long-term liabilities		33,114		32,663			30,091

Total liabilities		97,422		92,839			90,614


Options	Number of Shares			Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value
Outstanding at January 29, 2011		3,280,857		$	5.26
Granted		420,000		$	4.02
Exercised		(667	)	$	3.27
Canceled		(136,499	)	$	5.19

Outstanding at April 30, 2011		3,563,691		$	5.12		4.15	$	2,128
Vested and expected to vest in the future at April 30, 2011		3,033,330		$	5.37		3.86	$	1,758
Exercisable at April 30, 2011		1,272,259		$	7.74		1.64	$	440


	Options Outstanding						Options Exercisable
Range of Exercise Prices	Number Outstanding as of October 30, 2010		Weighted- Average Remaining Contractual Life (in years)		Weighted- Average Exercise Price Per Share		Number Exercisable as of October 30, 2010		Weighted- Average Exercise Price Per Share
$ 1.81 - $ 2.93		162,500		2.62	$	2.62		99,169	$	2.58
2.96 - 4.83		972,167		4.21		3.49		287,521		3.87
4.86 - 8.00		478,940		1.71		6.40		465,941		6.44
8.08 - 12.28		383,500		1.25		10.62		383,500		10.62
15.02 - 23.02		118,000		1.31		19.32		118,000		19.32

$ 1.81 - $23.02		2,115,107		2.82	$	6.26		1,354,131	$	7.92


	13 Weeks				39 Weeks
	October 30, 2010		October 31, 2009		October 30, 2010		October 31, 2009
Stock options outstanding		1,970,107		2,009,813		1,900,023		2,004,600
Performance shares and nonvested restricted stock awards		1,594,590		1,785,238		1,582,784		1,833,914
Stock issuable upon conversion of Notes		—		3,111,113		660,969		3,111,113
Stock issuable upon conversion of Preferred Stock		—		537,000		112,121		537,000
Stock issuable upon exercise of warrants:
June 2004 warrants		—		1,723,705		—		1,723,705
Series E warrants		4,931,401		6,092,116		—		6,092,116

Total		8,496,098		15,258,985		4,255,897		15,302,448


13 Weeks Ended October 30, 2010	Wet Seal			Arden B			Corporate and Unallocated			Total
Net sales	$	125,475		$	20,926		$	—		$	146,401
Percentage of consolidated net sales		86	%		14	%		—			100	%
Operating income (loss)	$	12,509		$	117		$	(7,561	)	$	5,065
Depreciation and amortization expense	$	3,732		$	371		$	224		$	4,327
Interest income	$	—		$	—		$	84		$	84
Interest expense	$	—		$	—		$	27		$	27
Income (loss) before provision for income taxes	$	12,509		$	117		$	(7,504	)	$	5,122

13 Weeks Ended October 31, 2009	Wet Seal			Arden B			Corporate and Unallocated			Total
Net sales	$	119,105		$	22,441		$	—		$	141,546
Percentage of consolidated net sales		84	%		16	%		—			100	%
Operating income (loss)	$	10,378		$	1,444		$	(7,122	)	$	4,700
Depreciation and amortization expense	$	3,266		$	401		$	229		$	3,896
Interest income	$	—		$	—		$	98		$	98
Interest expense	$	—		$	—		$	261		$	261
Income (loss) before provision for income taxes	$	10,378		$	1,444		$	(7,285	)	$	4,537


	39 Weeks Ended October 30, 2010		Change From Prior Fiscal Period				39 Weeks Ended October 31, 2009
			($ in millions)
Net sales	$	415.7	$	5.8	1.4	%	$	409.9
Comparable store sales decrease					(0.8	)%


31.1		Certification of the ~~Interim~~ Chief Executive Officer filed herewith pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of the Chief Financial Officer filed herewith pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of the ~~Interim~~ Chief Executive Officer furnished herewith pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of the Chief Financial Officer furnished herewith pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


	THE WET SEAL, INC. (REGISTRANT)

Date: ~~December~~June 2, ~~2010~~2011	By:	/s/ ~~Edmond S. Thomas~~Susan P. McGalla
		~~Edmond S. Thomas~~Susan P. McGalla
		~~Interim President and~~ Chief Executive Officer

Date: ~~December~~June 2, ~~2010~~2011	By:	/s/ Steven H. Benrubi
		Steven H. Benrubi
		Executive Vice President and Chief Financial Officer