For the quarterly period ended ~~July 30, 2011~~April 28, 2012 April 28, 2012

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 x 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 ~~August 22, 2011,~~May 21, 2012, was ~~90,483,881.~~90,455,916. There were no shares outstanding of the registrant’s Class B common stock, par value $0.10 per share, at ~~August 22, 2011.~~May 21, 2012.


	July 30, 2011			January 29, 2011			July 31, 2010			April 28, 2012			January 28, 2012			April 30, 2011
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	109,566		$	125,362		$	165,516	$	148,108		$	157,185		$	133,074
Short-term investments			38,230			50,690			—		—			—			50,455
Income tax receivables											510			200			—
Other receivables			2,540			1,941			1,381		1,227			1,445			2,002
Merchandise inventories			43,176			33,336			39,285		40,080			31,834			37,100
Prepaid expenses and other current assets			15,080			12,651			12,150		14,469			4,570			12,690
Deferred tax assets			19,649			19,649			19,600		20,133			20,133			19,649

Total current assets			228,241			243,629			237,932		224,527			215,367			254,970

EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Leasehold improvements			120,416			115,712			112,058		122,835			123,066			117,279
Furniture, fixtures and equipment			79,334			75,395			74,969		80,301			79,159			78,484

			199,750			191,107			187,027		203,136			202,225			195,763
Less accumulated depreciation and amortization			(106,586)			(102,387)			(99,998)		(116,530	)		(113,901	)		(103,902	)

Net equipment and leasehold improvements			93,164			88,720			87,029		86,606			88,324			91,861

OTHER ASSETS:
Deferred tax assets (Note 1)			27,516			33,255			40,349
Deferred tax assets											23,927			23,780			28,447
Other assets			3,034			2,928			2,560		3,054			3,062			3,031

Total other assets			30,550			36,183			42,909		26,981			26,842			31,478

TOTAL ASSETS		$	351,955		$	368,532		$	367,870	$	338,114		$	330,533		$	378,309

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable – merchandise		$	29,287		$	20,455		$	21,970	$	23,802		$	18,520		$	21,659
Accounts payable – other			14,221			11,571			15,665		11,747			8,269			15,973
Income taxes payable			—			60			—		—			—			44
Accrued liabilities			26,248			24,752			24,561		23,410			25,096			23,252
Current portion of deferred rent			3,435			3,338			2,876		2,619			2,561			3,380

Total current liabilities			73,191			60,176			65,072		61,578			54,446			64,308

LONG-TERM LIABILITIES:
Deferred rent			31,800			30,900			28,988		33,057			33,091			31,382
Other long-term liabilities			1,700			1,763			1,707		1,889			1,924			1,732

Total long-term liabilities			33,500			32,663			30,695		34,946			35,015			33,114

Total liabilities			106,691			92,839			95,767		96,524			89,461			97,422


	July 30, 2011			January 29, 2011			July 31, 2010			April 28, 2012			January 28, 2012			April 30, 2011
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS’ EQUITY:
Common stock, Class A, $0.10 par value, authorized 300,000,000 shares; 114,742,482 shares issued and 92,826,224 outstanding at July 30, 2011; 113,736,844 shares issued and 101,603,911 shares outstanding at January 29, 2011; and 111,976,044 shares issued and 101,739,011 shares outstanding at July 31, 2010			11,474			11,374			11,198
Common stock, Class A, $0.10 par value, authorized 300,000,000 shares; 90,840,928 shares issued and 90,461,783 outstanding at April 28, 2012; 90,660,347 shares issued and 90,419,469 shares outstanding at January 28, 2012; and 114,568,146 shares issued and 101,432,813 shares outstanding at April 30, 2011											9,084			9,066			11,457
Common stock, Class B convertible, $0.10 par value, authorized 10,000,000 shares; no shares issued and outstanding			—			—			—		—			—			—
Paid-in capital			325,710			323,324			324,594		239,995			239,000			324,158
Accumulated deficit (Note 1)			(11,121)			(21,332)			(29,145)
Treasury stock, 21,916,258 shares, 12,132,933 shares, and 10,237,033 shares, at cost, at July 30, 2011, January 29, 2011, and July 31, 2010, respectively			(81,086)			(37,963)			(34,957)
Accumulated other comprehensive income			287			290			413
Accumulated deficit											(6,523	)		(6,250	)		(13,319	)
Treasury stock, 379,145 shares, 240,878 shares, and 13,135,333 shares, at cost, at April 28, 2012, January 28, 2012, and April 30, 2011, respectively											(962	)		(740	)		(41,697	)
Accumulated other comprehensive (loss ) income											(4	)		(4	)		288

Total stockholders’ equity			245,264			275,693			272,103		241,590			241,072			280,887

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	351,955		$	368,532		$	367,870	$	338,114		$	330,533		$	378,309


	13 Weeks Ended						26 Weeks Ended						13 Weeks Ended
	July 30, 2011			July 31, 2010			July 30, 2011			July 31, 2010			April 28, 2012			April 30, 2011
Net sales	$	148,770		$	131,541		$	304,810		$	269,303		$	147,945		$	156,040
Cost of sales		102,693			93,159			205,288			185,798			104,342			102,595

Gross margin		46,077			38,382			99,522			83,505			43,603			53,445
Selling, general, and administrative expenses		41,695			34,737			81,555			69,801			40,438			39,860
Asset impairment		1,057			1,041			1,316			1,131			3,606			259

Operating income		3,325			2,604			16,651			12,573
Operating (loss) income														(441	)		13,326

Interest income		66			85			138			159			38			72
Interest expense (Note 3)		(44	)		(25	)		(87	)		(2,992	)
Interest expense														(48	)		(43	)

Interest income (expense), net		22			60			51			(2,833	)
Interest (expense) income, net														(10	)		29

Income before provision for income taxes		3,347			2,664			16,702			9,740
Provision for income taxes		1,149			1,049			6,491			4,983
(Loss) income before (benefit) provision for income taxes														(451	)		13,355
(Benefit) provision for income taxes														(178	)		5,342

Net income	$	2,198		$	1,615		$	10,211		$	4,757
Net (loss) income													$	(273	)	$	8,013

Net income per share, basic	$	0.02		$	0.02		$	0.10		$	0.05
Net (loss) income per share, basic													$	(0.00	)	$	0.08

Net income per share, diluted	$	0.02		$	0.02		$	0.10		$	0.05
Net (loss) income per share, diluted													$	(0.00	)	$	0.08

Weighted-average shares outstanding, basic		95,731,926			100,257,750			97,324,336			98,756,560			88,486,977			98,916,747

Weighted-average shares outstanding, diluted		95,835,044			100,556,634			97,399,349			99,414,245			88,486,977			98,975,965

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY ~~AND COMPREHENSIVE INCOME~~


	26 Weeks Ended				13 Weeks Ended
	July 30, 2011		July 31, 2010		April 28, 2012			April 30, 2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	10,211	$	4,757
Adjustments to reconcile net income to net cash provided by operating activities:
Net (loss) income					$	(273	)	$	8,013
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation and amortization		9,481		7,988		4,691			4,666
Amortization of premium on investments		460		—		—			235
Amortization/acceleration of discount on secured convertible notes		—		2,083
Amortization of deferred financing costs		52		145		27			26
Amortization of stock payment in lieu of rent		31		49		—			15
Adjustment of derivatives to fair value		—		(20)
Interest added to principal of secured convertible notes		—		35
Conversion inducement fee (Note 3)		—		700
Loss on disposal of equipment and leasehold improvements		46		537		286			18
Asset impairment		1,316		1,131		3,606			259
Deferred income taxes		5,739		4,804		(147	)		4,808
Stock-based compensation (Note 2)		1,960		619
Stock-based compensation						994			900
Changes in operating assets and liabilities:
Income tax receivable						(310	)		—
Other receivables		(599)		(902)		218			(61	)
Merchandise inventories		(9,840)		(10,126)		(8,246	)		(3,764	)
Prepaid expenses and other current assets		(2,481)		(1,356)		(9,926	)		(65	)
Other non-current assets		(106)		24		8			(103	)
Accounts payable and accrued liabilities		9,841		7,628		3,987			2,067
Income taxes payable		(60)		(47)		—			(16	)
Deferred rent		997		302		24			524
Other long-term liabilities		(66)		(66)		(35	)		(33	)

Net cash provided by operating activities		26,982		18,285
Net cash (used in) provided by operating activities						(5,096	)		17,489

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment and leasehold improvements		(14,096)		(13,040)		(3,778	)		(6,045	)
Proceeds from maturity of marketable securities		12,000		—

Net cash used in investing activities		(2,096)		(13,040)		(3,778	)		(6,045	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options		495		206		19			2
Conversion inducement fee (Note 3)		—		(700)
Proceeds from exercise of common stock warrants		—		4,271
Repurchase of common stock		(41,177)		(5,199)		(222	)		(3,734	)

Net cash used in financing activities		(40,682)		(1,422)		(203	)		(3,732	)

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(15,796)		3,823		(9,077	)		7,712
CASH AND CASH EQUIVALENTS, beginning of period		125,362		161,693		157,185			125,362

CASH AND CASH EQUIVALENTS, end of period	$	109,566	$	165,516	$	148,108		$	133,074

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	35	$	34	$	19		$	17
Income taxes	$	1,892	$	597	$	585		$	475
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
Conversion of convertible preferred stock into 537,000 shares of Class A common stock	$	—	$	1,611
Repurchase of common stock unpaid at end of period	$	1,946	$	—
Purchase of equipment and leasehold improvements unpaid at end of period	$	5,366	$	8,209	$	4,427		$	6,215
Amortization of actuarial gain under Supplemental Employee Retirement Plan	$	(3)	$	(8)	$	—		$	(2	)

For the 2613 weeks ended ~~July~~April 28, 2012, and April 30, 2011 ~~and July 31, 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 13 ~~and 26~~ weeks ended ~~July 30, 2011,~~April 28, 2012, are not necessarily indicative of the results that may be expected for the fiscal year ending ~~January 28, 2012.~~February 2, 2013. 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 ~~29, 2011.~~28, 2012.

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, have maturities that are less than one year and are carried at amortized cost plus accrued income. Short-term investments are carried at amortized cost due to the Company’s intent to hold to maturity. Short-term investments on the condensed consolidated balance sheet were $38.2 million at July 30, 2011. Any unrealized gains or 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 July 30, 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 iswill be recognized, measured byas 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. Forecasted earnings, growth rates and other assumptions used to estimate carrying value recoverability rely heavily upon estimates made by the Company’s management. If the Company is not able to achieve its projected growth rates and cash flows, this could result in additional impairment of assets in the future. The Company has considered ~~all~~the relevant valuation techniques that could be ~~obtained~~applied 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.

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 26~~ weeks ended ~~July~~April 28, 2012, and April 30, 2011, ~~and July 31, 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 ~~$1.1 million, $1.3 million, $1.0~~$3.6 million and ~~$1.1~~$0.3 million during the 13 ~~and 26~~ weeks ended ~~July~~April 28, 2012, and April 30, 2011, ~~and July 31, 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 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 and understated its accumulated deficit balance by approximately $6.6 million as of the fiscal quarter ended July 31, 2010. The Company has corrected deferred tax assets and stockholders’ equity on its accompanying condensed consolidated balance sheet as of July 31, 2010, from amounts previously reported.

The Company began fiscal ~~2011~~2012 with approximately ~~$93.5~~$65.7 million of federal net operating loss (“NOL”) carry forwards available to offset taxable income in fiscal ~~2011~~2012 and thereafter, subject to certain annual limitations based on the provisions of Section 382 of the Internal Revenue Code.

The Company’s effective income tax rate for the 13 ~~and 26~~ weeks ended ~~July 30, 2011,~~April 28, 2012, was approximately ~~34% and 39%~~39.5%. The Company expects a ~~39%~~39.5% effective income tax rate for fiscal ~~2011.~~2012. Due to its expected utilization of federal and state NOL carry forwards during fiscal ~~2011,~~2012, the Company anticipates cash payment for income taxes for the fiscal year will be approximately ~~4.5%~~6.9% of pre-tax income, representing the portion of federal and state alternative minimum taxes and state 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 (benefit) provision for deferred income taxes.

~~Recently Adopted Accounting Pronouncements and New Accounting Pronouncements Not Yet Adopted~~

In January 2010, the Financial Accounting Standards Board (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 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 were effective for interim and annual reporting periods beginning after December 15, 2010. Effective January 31, 2010, the Company adopted the new and updated guidance for disclosures, aside from that deferred to periods after December 15, 2010, and this did not significantly impact its consolidated financial statements. The Company adopted the remaining guidance on disclosures effective January 30, 2011, and this did not significantly impact its consolidated financial statements.

For the 2613 weeks ended ~~July~~April 28, 2012, and April 30, 2011 ~~and July 31, 2010~~

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

Recently Adopted Accounting Pronouncements and New Accounting Pronouncements Not Yet Adopted

In May 2011, the ~~FASB~~Financial Accounting Standards Board (the “FASB”) issued guidance on the application of fair value accounting where its use is already required or permitted by other standards within GAAP. ~~The amendments change~~This guidance changed 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~~adopted this guidance, ~~will have any effect on its~~which did not significantly impact the Company’s condensed consolidated financial statements.

In June 2011, the FASB issued amended guidance on the presentation of comprehensive income. ~~The amendments provide~~This guidance provided an entity with an option to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both options, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2011, and ~~should~~is to be applied on a retrospective basis. The Company ~~has not yet selected which presentation option it will apply. The adoption of~~adopted this guidance ~~will effect~~and has presented total comprehensive (loss) income, the ~~presentation~~components of net (loss) income and the components of other comprehensive (loss) income in two separate but consecutive statements within its condensed consolidated financial statements.

The Company had one stock incentive plan under which shares were available for grant at ~~July 30, 2011:~~April 28, 2012: 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 the 2000 Stock Incentive Plan (the “2000 Plan”) that remain unvested and/or unexercised as of ~~July 30, 2011;~~April 28, 2012; 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. 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 and directors 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 to 17,500,000 shares of Class A common stock. An aggregate of ~~22,956,778~~22,669,528 shares of Class A common stock have been issued or may be issued pursuant to the Plans. As of ~~July 30, 2011, 3,154,441~~April 28, 2012, 2,610,432 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.

For the 2613 weeks ended ~~July~~April 28, 2012, and April 30, 2011 ~~and July 31, 2010~~

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						26 Weeks Ended						13 Weeks Ended
	July 30, 2011			July 31, 2010			July 30, 2011			July 31, 2010			April 28, 2012			April 30, 2011
Dividend Yield		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%
Expected Volatility		54.00	%		59.00	%		54.00	%		59.00	%		51.26	%		54.00	%
Risk-Free Interest Rate		0.91	%		1.29	%		1.31	%		1.56	%		0.51	%		1.42	%
Expected Life of Options (in Years)		3.3			3.3			3.3			3.3			3.3			3.3

The Company recorded compensation expense of ~~$0.2 million, $0.4 million, $0.1~~$0.3 million and ~~$0.1~~$0.2 million, in each case less than $0.01 per basic and diluted share, related to stock options outstanding during the 13 ~~and 26~~ weeks ended ~~July~~April 28, 2012, and April 30, 2011, ~~and July 31, 2010,~~ respectively.

At ~~July 30, 2011,~~April 28, 2012, there was ~~$2.9~~$2.8 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 ~~2.7~~2.2 years, representing the remaining vesting periods of such options through fiscal ~~2014.~~2015.

The following table summarizes the Company’s stock option activities with respect to its Plans for the 2613 weeks ended ~~July 30, 2011,~~April 28, 2012, as follows (aggregate intrinsic value in thousands):


Options	Number of Shares			Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value		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
Outstanding at January 28, 2012											3,474,204		$	4.64
Granted		535,000		$	4.10						55,000		$	3.34
Exercised		(175,003	)	$	2.84						(6,001	)	$	3.15
Canceled		(424,549	)	$	8.52						(252,870	)	$	9.84

Outstanding at July 30, 2011		3,216,305		$	4.77		4.50	$	3,116
Vested and expected to vest in the future at July 30, 2011		2,745,868		$	4.95		4.29	$	2,571
Exercisable at July 30, 2011		919,206		$	7.49		1.93	$	344
Outstanding at April 28, 2012											3,270,333		$	4.22		4.29	$	172
Vested and expected to vest in the future at April 28, 2012											2,869,241		$	4.28		4.21	$	152
Exercisable at April 28, 2012											1,153,835		$	5.08		3.31	$	49

Options vested and expected to vest in the future is comprised of all options outstanding at ~~July 30, 2011,~~April 28, 2012, net of estimated forfeitures. Additional information regarding stock options outstanding as of ~~July 30, 2011,~~April 28, 2012, is as follows:

For the 2613 weeks ended ~~July~~April 28, 2012, and April 30, 2011 ~~and July 31, 2010~~

The weighted-average grant-date fair value of options granted during the 13 ~~and 26~~ weeks ended ~~July~~April 28, 2012, and April 30, 2011, was $1.22 and ~~July 31, 2010, was $1.69, $1.60, $1.65 and $1.91,~~$1.57, respectively. The total intrinsic value for options exercised during the 13 ~~and 26~~ weeks ended ~~July~~April 28, 2012, and April 30, 2011, ~~and July 31, 2010,~~each was ~~$0.3 million, $0.3 million,~~ less than $0.1 ~~million and $0.1 million, respectively.~~million.

Cash received from option exercises under all Plans for the 2613 weeks ended ~~July~~April 28, 2012, and April 30, 2011, ~~and July 31, 2010,~~ was ~~$0.5~~less than $0.1 million and ~~$0.2~~less than $0.1 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~~three-and-one-half 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 2613 weeks ended ~~July~~April 28, 2012, and April 30, 2011, ~~and July 31, 2010,~~ the Company granted ~~430,635~~174,580 and ~~213,900~~430,635 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 2613 weeks ended ~~July~~April 28, 2012, and April 30, 2011, was $3.58 and ~~July 31, 2010, was~~ $3.87 ~~and $3.35~~ per share, respectively. The Company recorded approximately $0.4 million ~~$0.7 million,~~and $0.3 ~~million and $0.6~~ million of compensation expense related to outstanding shares of restricted common stock ~~held by employees and directors~~ during the 13 ~~and 26~~ weeks ended ~~July~~April 28, 2012, and April 30, 2011, ~~and July 31, 2010,~~ respectively.

During the 2613 weeks ended ~~July~~April 28, 2012, and April 30, 2011, ~~and July 31, 2010,~~ the Company granted ~~400,000~~none and no400,000 performance shares, respectively, under the 2005 Plan. The weighted-average grant-date fair value of the performance share grants made during the 2613 weeks ended ~~July~~April 30, 2011, which included consideration of the probability of such shares vesting, was $3.08 per share. The Company recorded compensation expense of ~~$0.5~~approximately $0.3 million and ~~$0.9 million, and a compensation benefit of $0.2 million and $0.1~~$0.4 million during the 13 ~~and 26~~ weeks ended ~~July~~April 28, 2012, and April 30, 2011, ~~and July 31, 2010,~~ respectively, related to performance ~~shares granted to officers.~~shares.

The fair value of nonvested restricted common stock awards is equal to the closing trading price of the Company’s Class A 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 Class A 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 2613 weeks ended ~~July 30, 2011:~~April 28, 2012:


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 29, 2011		2,061,212		$	3.06
Nonvested at January 28, 2012							2,105,112		$	3.16
Granted		830,635		$	3.49		174,580		$	3.58
Vested		(179,572	)	$	3.35		(363,968	)	$	3.65
Forfeited		(54,600	)	$	3.41		(34,787	)	$	5.38

Nonvested at July 30, 2011		2,657,675		$	3.17
Nonvested at April 28, 2012							1,880,937		$	3.06

The fair value of restricted common stock and performance shares that vested during the 2613 weeks ended ~~July 30, 2011,~~April 28, 2012, was ~~$0.6~~$1.3 million.

At ~~July 30, 2011,~~April 28, 2012, there was ~~$6.4~~$4.3 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 ~~$3.5~~$2.9 million relates to restricted common stock and ~~$2.9~~$1.4 million relates to performance shares. That cost is expected to be recognized over a weighted-average period of ~~2.0~~1.6 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):


	13 Weeks Ended					26 Weeks Ended					13 Weeks Ended
	July 30, 2011		July 31, 2010			July 30, 2011		July 31, 2010			April 28, 2012		April 30, 2011
Cost of sales	$	45	$	(156	)	$	91	$	(130	)	$	67	$	45
Selling, general, and administrative expenses		1,015		259			1,869		749			927		855

Stock-based compensation	$	1,060	$	103		$	1,960	$	619		$	994	$	900

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

On February 3, 2011, the Company renewed, via amendment and restatement, 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 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, without the lender’s consent. The ability of the Company 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 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 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 1.5% to 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 Company also incurs fees on outstanding letters of credit under the Facility at an annual rate equal to the applicable LIBOR margin for standby letters of credit and 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 cash, cash equivalents, investments, receivables and 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.

At ~~July 30, 2011,~~April 28, 2012, the amount outstanding under the Facility consisted of ~~$5.3~~$4.4 million in open documentary letters of credit related to merchandise purchases and ~~$1.5~~$1.2 million in outstanding standby letters of credit, and the Company had ~~$28.2~~$29.4 million available under the Facility for cash advances and/or the issuance of additional letters of credit.

At ~~July 30, 2011,~~April 28, 2012, the Company was in compliance with all covenant requirements related to the Facility.

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

During the 26 weeks ended July 31, 2010, investors in the Company’s previously outstanding Secured Convertible Notes (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 26 weeks ended July 31, 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 a holder when the Notes were converted and it was written off to paid-in capital. The Company also provided the holder with a $0.7 million conversion inducement, which was recorded as an interest charge during the 26 weeks ended July 31, 2010. The Company also repurchased an insignificant remaining Note balance from another holder. As a result of these transactions, there were no longer any Notes outstanding as of July 31, 2010, and there was a satisfaction and discharge of the Company’s obligations under the Indenture governing the Notes.

During the 26 weeks ended July 31, 2010, certain investors exercised portions of outstanding common stock warrants, resulting in the issuance of 1,160,715 shares of the Company’s Class A common stock in exchange for $4.3 million of proceeds to the Company.

During the 26 weeks ended July 31, 2010, investors in the Company’s Series C Convertible Preferred Stock (the “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 was no longer any Preferred Stock outstanding as of July 31, 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. ~~Fair~~The fair value isshould be 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 ~~includes~~should include 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):


												Carrying Amount at April 28, 2012			Fair Value Measurements at Reporting Date Using
												Carrying Amount at April 28, 2012			Level 1			Level 2			Level 3
Financial assets:
Cash and cash equivalents												$	148,108		$	33,788		$	114,320		$	—
Long-term tenant allowance receivables													896			—			—			896

												Carrying Amount at January 28, 2012			Fair Value Measurements at Reporting Date Using
												Carrying Amount at January 28, 2012			Level 1			Level 2			Level 3
Financial assets:
Cash and cash equivalents												$	157,185		$	62,881		$	94,304		$	—
Long-term tenant allowance receivables													875			—			—			875

	Carrying Amount at January 29, 2011			Fair Value Measurements at Reporting Date Using								Carrying Amount at April 30, 2011			Fair Value Measurements at Reporting Date Using
	Carrying Amount at January 29, 2011			Level 1			Level 2			Level 3				Level 1			Level 2			Level 3
Financial assets:												Carrying Amount at April 30, 2011
Cash and cash equivalents	$	125,362		$	31,738		$	93,624		$	—	$	133,074		$	19,336		$	113,738		$	—
Short-term investments		50,690			—			50,686			—		50,455			—			50,550			—
Long-term tenant allowance receivables		798			—			—			798		817			—			—			817

	Carrying Amount at July 31, 2010			Fair Value Measurements at Reporting Date Using
			Level 1			Level 2			Level 3
Financial assets:	Carrying Amount at July 31, 2010
Cash and cash equivalents	$	165,516		$	21,095		$	144,421		$	—
Long-term tenant allowance receivables		762			—			—			762

Cash and cash equivalents are carried at either cost or amortized cost, which approximates fair value, due to their short term maturities. Certain money market funds are valued through the use of quoted market prices and are represented as Level 1. Other money market funds are valued at $1, which is generally the net asset value of these funds and are represented at Level 2. Units are redeemable on a daily basis and redemption requests generally can be received the same day as the effective date. The Company’s short-term investments consisted of interest-bearing corporate bonds that were guaranteed by the U.S. Government under the Temporary Liquidity Guarantee Program, had maturities that were less than one year and were carried at amortized cost plus accrued income. Short-term investments ~~are~~were carried at amortized cost due to the Company’s intent to hold to maturity. The fair value of the Company’s short-term investments iswas determined based on quoted 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%, at the time of recording, over their five year collection ~~period, and they~~period. The long-term tenant allowance receivables are included in other assets within the condensed consolidated balance sheet.

The table below segregates all non-financial assets and liabilities as of ~~July~~April 28, 2012, January 28, 2012, and April 30, 2011, ~~January 29, 2011, and July 31, 2010,~~ 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 July 30, 2011				Fair Value Measurements at Reporting Date Using											Total Gains (Losses)				Carrying Amount at April 28, 2012				Fair Value Measurements at Reporting Date Using												Total Gains (Losses)
	Carrying Amount at July 30, 2011				Level 1				Level 2				Level 3			Total Gains (Losses)				Carrying Amount at April 28, 2012				Level 1				Level 2				Level 3				Total Gains (Losses)
Long-lived assets held and used	$	93,164			$	—			$	—			$	93,164		$	(1,316	)		$	86,606			$	—			$	—			$	86,606			$	(3,606	)

Total assets	$	93,164			$	—			$	—			$	93,164		$	(1,316	)		$	86,606			$	—			$	—			$	86,606			$	(3,606	)


	Carrying Amount at January 29, 2011				Fair Value Measurements at Reporting Date Using															Carrying Amount at January 28, 2012				Fair Value Measurements at Reporting Date Using
				Level 1				Level 2				Level 3								Carrying Amount at January 28, 2012			Level 1				Level 2				Level 3
Long-lived assets held and used	Carrying Amount at January 29, 2011	$	88,720			$	—			$	—			$	88,720						$	88,324			$	—			$	—			$	88,324

Total assets	$	88,720			$	—			$	—			$	88,720						$	88,324			$	—			$	—			$	88,324


	Carrying Amount at July 31, 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)
				Level 1				Level 2				Level 3							Level 1						Level 2				Level 3							Total Gains (Losses)
Long-lived assets held and used	Carrying Amount at July 31, 2010	$	87,029			$	—			$	—			$	87,029	Total Gains (Losses)		$	(1,131	Carrying Amount at April 30, 2011	)		$	91,861			$	—			$	—			$	91,861			$	(259	)

Total assets	$	87,029			$	—			$	—			$	87,029		$	(1,131	)		$	91,861			$	—			$	—			$	91,861			$	(259	)

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

Net (loss) 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 (loss) 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 was 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 Class A 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 July 30, 2011, and July 31, 2010, they were included in the computation of diluted earnings for the 26 weeks ended July 31, 2010, with respect to the period they were outstanding prior to conversion. For the 26 weeks ended July 31, 2010, 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 26~~ weeks ended ~~July~~April 28, 2012, the Company incurred a net loss, as the participating securities are not allocated any portion of losses and there is no dilutive effect of any unvested share-based payment awards. For the 13 weeks ended April 30, 2011, ~~and July 31, 2010,~~ the effect of the unvested share-based payment awards was anti-dilutive to the computation of diluted earnings per share.

For the 2613 weeks ended ~~July~~April 28, 2012, and April 30, 2011 ~~and July 31, 2010~~

The two-class method requires allocation of undistributed earnings per share ~~among~~between 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):

The computations of ~~diluted earnings~~net (loss) income per share, diluted, excluded the following potentially dilutive securities exercisable ~~or convertible~~ into Class A common stock for the ~~periods indicated~~13 weeks ended April 28, 2012, and April 30, 2011, respectively, because their effect would not have been dilutive.


	13-Week Period Ended				26-Week Period Ended				13-Week Period Ended
	July 30, 2011		July 31, 2010		July 30, 2011		July 31, 2010		April 28, 2012		April 30, 2011
Stock options outstanding		2,253,002		1,558,143		2,490,845		1,502,585		3,216,217		3,200,081
Performance shares and nonvested restricted stock awards		2,659,099		1,481,180		2,433,945		1,538,774		2,077,361		2,253,790
Stock issuable upon conversion of secured convertible notes		—		—		—		991,453
Stock issuable upon conversion of preferred stock		—		—		—		168,181

Total		4,912,101		3,039,323		4,924,790		4,200,993		5,293,578		5,453,871

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 September 27, 2010, the Superior Court granted final approval of the settlement agreement. An appeal was subsequently filed on January 26, 2011. The Company is vigorously defending this appeal and is unable to predict the likely outcome. As of ~~July 30, 2011,~~April 28, 2012, 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~~Wage Orders of the Industrial Welfare Commission. On December 17, 2010, the court denied Plaintiffs’ Motion for Class Certification ~~in its entirety~~ and ~~denied Plaintiffs’~~ Motion For Leave to File An Amended Complaint. Plaintiffs have appealed both orders. 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 ~~July 30, 2011.~~April 28, 2012.

On September 29, 2008, a complaint was filed in the Superior Court of the State of California for the County of San Francisco on behalf of certain of 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 case has been transferred to the complex panel of the San Francisco Superior Court for case management purposes. Plaintiffs’ Motion for Class Certification and Defendants’ Motion to Strike Class Claims were filed on April 25, 2011, were heard by the Court on August 5, 2011, and onOn August 16, 2011, the court denied Plaintiffs’ Motion for Class Certification. Plaintiffs have appealed. 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 ~~July 30, 2011.~~

On April 24, 2009, the U.S. Equal Employment Opportunity Commission (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 its results of operations or financial condition. Accordingly, no provision for a loss contingency has been accrued as of ~~July 30, 2011.~~April 28, 2012.

On May 9, 2011, a complaint was filed in the Superior Court of the State of California for the County of Alameda on behalf of certain of the Company’s current and former employees who were employed and paid by the Company from May 9, 2007 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. On ~~June 7, 2011,~~February 3, 2012, the court granted the Company’s motion to transfer venue to the County of Orange. Once the case is assigned to a new judge in the Superior Court of the State of California for the County of Orange, the Company ~~filed~~intends to file a ~~Petition for Coordination with the Judicial Council of California~~motion to ~~coordinate this action with the Orange County action dated May 22, 2007. No hearing date has been set for the Coordination Motion.~~compel arbitration. 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 ~~July 30, 2011.~~April 28, 2012.

On October 27, 2011 a complaint was filed in the Superior Court of the State of California for the County of Los Angeles on behalf of certain of the Company’s current and former employees who were employed in California during the time period from October 27, 2007 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. On April 2, 2012, the court granted the Company’s motion to compel arbitration and to enforce the class action waiver in the arbitration agreement. 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 April 28, 2012.

As of April 28, 2012, 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. 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,~~losses. However, certain other matters may exist or arise for which the Company does not have insurance ~~coverage. As of July 30, 2011, except as described in the paragraphs above, the Company was not engaged in any other legal proceedings that are expected, individually or in the aggregate, to~~coverage and which could have a material adverse effect on its results of operations or financial condition.

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~~E-commerce operations for Wet Seal and Arden B are included in their respective operating segments.

Information for the 13 ~~and 26~~ weeks ended ~~July~~April 28, 2012, and April 30, 2011, ~~and July 31, 2010,~~ for the two reportable segments is set forth below (in thousands, except percentages):


13 Weeks Ended July 31, 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	$	108,875		$	22,666		$	—		$	131,541		$	131,054		$	24,986		$	—		$	156,040
Percentage of consolidated net sales		83	%		17	%		—			100	%		84	%		16	%		—			100	%
Operating income (loss)	$	6,219		$	2,676		$	(6,291	)	$	2,604		$	18,813		$	2,564		$	(8,051	)	$	13,326
Depreciation and amortization expense	$	3,398		$	370		$	226		$	3,994		$	3,784		$	540		$	342		$	4,666
Interest income	$	—		$	—		$	85		$	85		$	—		$	—		$	72		$	72
Interest expense	$	—		$	—		$	25		$	25		$	—		$	—		$	(43	)	$	(43	)
Income (loss) before provision for income taxes	$	6,219		$	2,676		$	(6,231	)	$	2,664		$	18,813		$	2,564		$	(8,022	)	$	13,355

26 Weeks Ended July 30, 2011	Wet Seal			Arden B			Corporate and Unallocated			Total
Net sales	$	256,086		$	48,724		$	—		$	304,810
Percentage of consolidated net sales		84	%		16	%		—			100	%
Operating income (loss)	$	29,094		$	4,014		$	(16,457	)	$	16,651
Depreciation and amortization expense	$	7,713		$	1,044		$	724		$	9,481
Interest income	$	—		$	—		$	138		$	138
Interest expense	$	—		$	—		$	87		$	87
Income (loss) before provision for income taxes	$	29,094		$	4,014		$	(16,406	)	$	16,702

26 Weeks Ended July 31, 2010	Wet Seal			Arden B			Corporate and Unallocated			Total
Net sales	$	222,786		$	46,517		$	—		$	269,303
Percentage of consolidated net sales		83	%		17	%		—			100	%
Operating income (loss)	$	20,548		$	5,913		$	(13,888	)	$	12,573
Depreciation and amortization expense	$	6,764		$	743		$	481		$	7,988
Interest income	$	—		$	—		$	159		$	159
Interest expense	$	—		$	—		$	2,992		$	2,992
Income (loss) before provision for income taxes	$	20,548		$	5,913		$	(16,721	)	$	9,740

The “Corporate and Unallocated” column is presented solely to allow for reconciliation of segment contribution to consolidated operating (loss) income, interest income, interest expense and (loss) income before (benefit) 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. The application of accounting policies for segment reporting is consistent with the application of accounting policies for corporate reporting.

Wet Seal operating income during the 13 ~~and 26~~ weeks ended ~~July~~April 28, 2012, and April 30, 2011, ~~and July 31, 2010,~~ includes ~~$0.6 million, $0.8 million, $1.0~~$2.7 million and ~~$1.1~~$0.2 million, respectively, of asset impairment charges.

Arden B operating (loss) income during the 13 ~~and 26~~ weeks ended ~~July~~April 28, 2012, and April 30, 2011, includes ~~$0.5~~$0.9 million and ~~$0.5~~$0.1 million, respectively, of asset impairment charges.

Corporate and Unallocated expenses during the 26 weeks ended July 31, 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 September 7, 2010, the Company’s Board of Directors authorized a program to repurchase up to $25.0 million of the outstanding shares of its Class A common stock from time to time in the open market or in privately negotiated transactions. On May 17, 2011, the Company’s Board of Directors authorized a $31.7 million increase to the existing stock repurchase program approved in September 2010, bringing the repurchase authorization up to $56.7 million. Up to June 13, 2011, the timing and number of shares repurchased were determined by the Company’s management based on its evaluation of market conditions and other factors. Effective June 13, 2011, the Company began to execute under this program pursuant to a securities purchase plan established by the Company under Securities and Exchange Commission Rule 10b5-1.

During the 26 weeks ended July 30, 2011, the Company repurchased 9,778,525 shares of its Class A common stock at an average market price of $4.39 per share, for a total cost, including commissions, of approximately $43.1 million, bringing the total repurchased under this program of 10,660,825 shares of its Class A common stock at a total of $46.1 million.

During August 2011, the Company repurchased 2,314,957 additional shares of its Class A common stock at an average market price of $4.57 per share, for a total cost, including commissions, of approximately $10.6 million, completing the stock repurchase program.

Effective August 16, 2011, the Company retired 24,242,219 shares of its Class A common stock held in treasury. In accordance with Delaware law and the terms of the Company’s certificate of incorporation, upon retirement, such treasury shares resumed the status of authorized and unissued shares of Company common stock.

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,” “intends,” “anticipates,” “estimates,” “expects,” “may,” “will,” or similar expressions. In addition, any statements concerning future financial performance, ongoing strategies or prospects, and possible future actions, which may be provided by our management, are also forward-looking statements. Forward-looking statements are based on current expectations and projections about future events and are subject to risks, uncertainties, and assumptions about the 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 ~~29, 2011,~~28, 2012, 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.

We are a national specialty retailer operating stores selling fashionable and contemporary apparel and accessory items designed for female customers aged 1315 to 3539 years old. We operate two nationwide, primarily mall-based, chains of retail stores under the names “Wet Seal” and “Arden B.” ~~As of July 30, 2011,~~At April 28, 2012, we ~~operated 542~~had 553 retail stores in 47 states and Puerto Rico. Of the 553 stores, there were 469 Wet Seal stores and 84 Arden B stores. Our ~~products~~merchandise can also be purchased online through the respective websites of each of our operating segments ~~Wet Seal and Arden B.~~

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~~report our results as two ~~nationwide, primarily mall-based, chains of~~reportable segments representing our two retail ~~stores under the names “Wet Seal”~~divisions, Wet Seal and ~~“Arden~~Arden B.” E-commerce operations for Wet Seal and Arden B are included in their respective reporting segments. 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~~fashionable clothing at a value, with a target customer age range of 1315 to 1923 years old. Wet Seal seeks to provide its customer base with a balance of ~~affordably priced, fashionable~~trend right and fashion basic apparel and ~~accessories.~~accessories that are affordably priced.

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

We maintain a Web-based store located atwww.wetseal.com, offering Wet Seal merchandise comparable to that carried in our stores, to customers over the Internet. We also maintain a Web-based store located atwww.ardenb.com, offering Arden B merchandise comparable to that carried in our stores, to customers over the Internet. Our ~~online~~e-commerce stores are designed to serve as an extension of the in-store experience and offer ~~a wide~~an expanded selection of merchandise, with the goal of ~~expanding~~growing both ~~online~~e-commerce and in-store sales. We 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~~e-commerce 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 continued to experience improvement in our financial results in the second quarter of fiscal 2011. However, the~~The overall retail environment ~~continues~~in the U.S. has shown slight improvement in the early months of 2012. However, only modest growth is expected for 2012 due to ~~be volatile, driven by several factors, including~~continued uncertainty regarding the global economy, the lack of significant improvement in the U.S. housing market and ~~high~~elevated unemployment rates across all regions of the U.S. ~~Although~~In addition, U.S. gross domestic product ~~has shown~~ 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~~remains slow, further contributing to ~~experience~~ a volatile, and generally weak, retail environment. During the first quarter of fiscal 2012, we ran aggressive promotions and took higher levels of clearance markdowns to address the challenges we experienced in our tops business in both brands. As a result, we experienced declines in our merchandise margin and comparable store sales. In addition, we ~~began~~continued to ~~experience increased~~incur sourcing ~~costs~~cost pressures in the ~~fourth~~first quarter of fiscal ~~2010 and have seen further cost increases through second quarter of fiscal 2011~~2012 as a result of ~~rising~~elevated commodity prices, primarily for cotton, increased labor costs due to labor shortages in China, from which a majority of our merchandise is sourced, and increased fuel costs. We expect many of these sourcing cost pressures to continue into fiscal 2012, although recent declines in cotton prices may begin to alleviate some of the ~~second half of fiscal 2011.~~commodity cost pressures late in 2012 or early 2013. 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 performance is subject to general economic conditions and their impact on levels of consumer confidence and consumer spending. Consumer purchases of discretionary items, including our merchandise, generally decline during periods when disposable income is adversely affected or there is economic uncertainty. As a result of the continued difficult economic conditions, we may face risks that will impact many facets of our operations, including, among other things, the ability of one or more of our vendors to deliver their merchandise in a timely manner or otherwise meet their obligations to us. Although we believe we are sufficiently prepared and financially strong enough to endure ~~continued~~ poor economic conditions in the U.S. and world economic markets, if such conditions ~~become more volatile,~~continue, or if they deteriorate further, our business, financial condition, and results of operations may be adversely affected.

Our comparable store sales ~~increased 6.0%~~decreased 7.7% during the 13 weeks ended ~~July 30, 2011,~~April 28, 2012, driven by a ~~6.2%~~7.0% comparable store sales ~~increase~~decrease in our Wet Seal division and ~~a 5.0%~~an 11.4% comparable store sales ~~increase~~decrease in our Arden B division. The Wet Seal division’s comparable store sales ~~increase~~decrease was primarily driven by a decrease in transaction volume, partially offset by an increase in average dollar ~~sale~~sales per transaction, which was driven by an increase in units purchased per customer, ~~and~~partially offset by a ~~slight increase~~decrease in average unit selling ~~price,~~price. At Wet Seal, we performed poorly in the tops category due to, we believe, a weak fashion offering, an overly narrow assortment breadth, and macro trends whereby tops are downtrending in favor of an uptrending bottoms cycle. This poor performance in tops was partially offset by ~~a slight decrease~~strong performance in ~~transaction volume.~~bottoms, shoes and outerwear. The Arden B division comparable store sales ~~increase~~decrease was primarily driven by a decline in transaction volume, partially offset by an increase in its average dollar ~~sale~~sales per transaction, which was driven by an increase in ~~average unit selling price,~~units purchased per customer, partially offset by a ~~decline~~decrease in ~~units purchased per customer,~~average unit selling price. At Arden B, we exceeded our expectations in bottoms and jewelry sales, which were more than offset by a ~~slight decline in transaction volume.~~weak tops assortment and dresses for which sales were below our expectations. Our ~~online~~combined e-commerce sales declined ~~13.4%~~17% during the 13 weeks ended ~~July 30, 2011,~~April 28, 2012, from the prior year, as we ~~implemented an~~continued our initiative to reduce promotional levels and rebalance inventories more toward regular price versus clearance items in the ~~online~~e-commerce channel in an effort to better align ~~online~~the e-commerce presentation and shopping experience with ~~that~~those of the stores. ~~In the first half of August, during the important early weeks of back-to-school,~~As we continue efforts to ~~experience mid-single digit positive comparable store~~improve our fashion assortments at both Wet Seal and Arden B, we have experienced continued sales ~~on a consolidated basis.~~

challenges to begin our second fiscal quarter. We ~~made progress on several key initiatives during~~have provided guidance for the second quarter of fiscal ~~2011. We achieved merchandise margin improvement versus the prior year in the Wet Seal division due to reduced promotional markdowns as~~2012 for a ~~result~~comparable store sales decline of ~~what we believe to be an improved merchandise assortment~~between 7% and ~~clearer promotional messaging in the stores, as well as a shift in sales mix toward jewelry and other accessories that generate higher merchandise margins.~~

Arden B experienced higher inventory shrink results offset by lower overall markdown levels during the second quarter of fiscal 2011 versus the prior year, resulting in a slight decline in merchandise margin performance. We believe that we are well positioned within our dress business at Arden B and that Arden B is a key dress destination for our customers. We expect to be well positioned in this category throughout fiscal 2011 to maximize sales opportunity.11%.

Our top near-term strategic priority is to improve our business trends and drive sales productivity improvement in our ~~stores. To support sales productivity growth, we have established specific~~stores by focusing on distortions by category to give our customer what is most desirable, expanding our assortment breadth to drive momentum in our top and mid-tier volume stores, and planning and implementing in-store, e-commerce and social networking strategies, immediately and through the third and fourth quarters, that will drive increases in traffic and conversion rates. We continue our work on our mid to long-term initiatives, including ~~developing~~driving a more customer-obsessed culture ofin our stores and throughout the business, implementing merchandising improvements as informed by independent customer ~~obsession, understanding and~~research we conducted during fiscal 2011, redefining our ~~brands, evaluating~~“brand DNA” for both divisions, which are aimed at filling niches we do not feel are addressed competitively today, modifying our Wet Seal store ~~designs~~design to support our brands and enhance our customers’ shopping experience, redirecting our store labor toward service and ~~focusing on increasing store personnel productivity~~selling through ~~new~~streamlined operational tasks and/or eliminated non-selling activities and introducing training programs ~~and streamlined operational tasks.~~focused on developing a selling culture. Higher store productivity would ~~allow us~~contribute to ~~attain higher positive~~ comparable store sales growth. Other strategic priorities include continuing to focus on improving ~~upon Wet Seal~~ merchandise margins ~~building upon~~in both divisions, improving the Arden B business to allow it to stabilize and reach its full potential, and expanding our existing Wet Seal retail store base and ~~online~~e-commerce businesses. We are also focused on improving gross margins by optimizing sourcing of merchandise, enhancing our inventory planning and allocation functions and improving supply chain efficiency through better coordination among and within our vendor base, internal distribution and store ~~operation~~operations organizations. Although we have embarked on the strategic initiatives and priorities above, there is much work ahead of us to ensure the successful implementation of our strategy and to realize significant benefits to the business.

~~We continued~~As we focus on day-to-day execution and traffic-driving and conversion strategies to ~~execute~~generate near term sales momentum in our business, we have modified our fiscal 2012 store growth plans for Wet Seal ~~store growth strategy by opening thirteen new~~and Arden B. This change in plans will allow all areas of our company to direct more energy toward key near-term priorities and will result in capital spending reductions for the year. At Wet Seal, we opened one new store and closed four stores ~~and closing only three~~during the 13 weeks ended April 28, 2012. We now plan 20 to 22 net store openings at Wet Seal for all of fiscal 2012, a decrease from our prior plan of 25 to 30 net openings. This reflects a more selective approach to new store development while we work on repositioning efforts at Wet Seal. This will also re-direct real estate focus more toward lease renewals, remodeling and/or refreshing of our current store base this year, as well as toward development of growth strategies for 2013 and beyond. At Arden B, we closed two stores during the 13 weeks ended April 28, 2012, taking our store count to 84. As we entered fiscal 2012, our plans were to maintain Arden B at 86 stores through the year, whereby we would renew most expiring leases and replace a few store closures upon lease expirations with new store openings. We will now focus on turning around the merchandise positioning and sales productivity at Arden B, while mitigating our financial investments in the ~~first half of 2011. We currently plan~~process. As Arden B leases come up for renewal this year, we will either seek short-term extensions or allow the lease to ~~open 28 to 30 Wet Seal~~expire and close the store. In addition, we will not be opening any new Arden B stores induring fiscal ~~2011 with a focus on malls and to a lesser extent, off-mall power center locations, and plan to close seven to ten Wet Seal stores in fiscal 2011 upon certain lease expirations.~~

~~We also currently intend to continue growing~~2012. With these actions, we expect the Arden B store base ~~conservatively,~~will decline from the current 84 stores to between 64 and 69 stores by the end of fiscal 2012. Of these 15 to 20 store closures, we expect approximately five to occur during the third quarter of fiscal 2012, with ~~approximately~~the remainder closing at the end of fiscal 2012. On a net basis, we do not expect the Arden B store closures to significantly change the four ~~new stores and one store closure planned in fiscal 2011.~~wall cash flow performance of this division as a whole.

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 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 ~~29, 2011.~~28, 2012.

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, 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 ~~29, 2011. The~~28, 2012, except for the following updates ~~the Form 10-K discussions of~~for our critical accounting policies for ~~short-term investments, long lived~~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, have maturities that are less than one year and are carried at amortized cost plus accrued income. Our short-term investments are carried at amortized cost due to our intent to hold to maturity. Short-term investments on the condensed consolidated balance sheet were $38.2 million at July 30, 2011. Any unrealized gains or 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 July 30, 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 iswill be recognized, measured byas 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. Forecasted earnings, growth rates and other assumptions used to estimate carrying value recoverability rely heavily upon estimates made by management. If we are not able to achieve our projected growth rates and cash flows, this could result in additional impairment of assets in the future. We have considered all relevant valuation techniques that could be ~~obtained~~applied 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,~~Quarterly, we 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~~During the 13 ~~and 26~~ weeks ended ~~July~~April 28, 2012, and April 30, 2011, we determined such events or changes in circumstances had occurred with respect to certain of our retail stores, and ~~July 31, 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 likely continue. As such, we recorded ~~non-cash~~noncash charges of ~~$1.1 million, $1.3 million, $1.0~~$3.6 million and ~~$1.1~~$0.3 million, ~~during the 13 and 26 weeks ended July 30, 2011, and July 31, 2010, respectively, within asset impairment~~ in ~~the~~our condensed consolidated statements of operations for the 13 weeks ended April 28, 2012, and April 30, 2011, respectively, to write down the carrying ~~values~~value 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 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 and understated our accumulated deficit balance by approximately $6.6 million as of the second quarter ended July 31, 2010. We have corrected deferred tax assets and stockholders’ equity on our accompanying condensed consolidated balance sheet as of July 31, 2010, from amounts previously reported.

We began fiscal ~~2011~~2012 with approximately ~~$93.5~~$65.7 million of federal net operating loss (“NOL”) carry forwards available to offset taxable income in fiscal ~~2011~~2012 and thereafter, subject to certain annual limitations based on the provisions of Section 382 of the Internal Revenue Code.

Our effective income tax rate for the 2613 weeks ended ~~July 30, 2011,~~April 28, 2012, was approximately ~~39%~~39.5%, which reflects our expected effective income tax rate for fiscal ~~2011.~~2012. Due to our expected utilization of federal and state NOL carry forwards during fiscal ~~2011,~~2012, we anticipate cash payment for income taxes for the fiscal year will be approximately ~~4.5%~~6.9% of pre-tax

income, representing the portion of federal and state alternative minimum taxes and state 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 (benefit) provision for deferred incomes taxes.

Recently Adopted Accounting Pronouncements and New Accounting Pronouncements Not Yet Adopted

In ~~January 2010,~~May 2011, the Financial Accounting Standards Board (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 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 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 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 GAAP. ~~The amendments change~~This guidance changed 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~~adopted this guidance ~~will have any effect on~~and it did not significantly impact our condensed consolidated financial statements.

In June 2011, the FASB issued amended guidance on the presentation of comprehensive income. ~~The amendments provide~~This guidance provided an entity with an option to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both options, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2011, and ~~should~~is to be applied on a retrospective basis. We have ~~not yet selected which presentation option we will apply. The adoption of~~adopted this guidance ~~will effect~~and have presented total comprehensive (loss) income, the ~~presentation~~components of net (loss) income and the components of other comprehensive (loss) income in two separate but consecutive statements within 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
	April 28, 2012			April 30, 2011
Net sales		100.0	%		100.0	%
Cost of sales		70.5			65.8

Gross margin		29.5			34.2
Selling, general, and administrative expenses		27.4			25.5
Asset impairment		2.4			0.2

Operating (loss) income		(0.3	)		8.5
Interest (expense) income, net		(0.0	)		0.0

(Loss) income before (benefit) provision for income taxes		(0.3	)		8.5
(Benefit) provision for income taxes		(0.1	)		3.4

Net (loss) income		(0.2	)%		5.1	%

Thirteen Weeks Ended ~~July 30, 2011,~~April 28, 2012, Compared to Thirteen Weeks Ended ~~July 31, 2010~~April 30, 2011


	13 Weeks Ended July 30, 2011		Change From Prior Fiscal Period				13 Weeks Ended July 31, 2010		13 Weeks Ended April 28, 2012		Change From Prior Fiscal Period					13 Weeks Ended April 30, 2011
			($ in millions)								($ in millions)
Net sales	$	148.8	$	17.3	13.1	%	$	131.5	$	147.9	$	(8.1	)	(5.2	)%	$	156.0
Comparable store sales increase					6.0	%
Comparable store sales decrease														(7.7	)%

Net sales for the 13 weeks ended ~~July 30, 2011, increased~~April 28, 2012, decreased primarily as a result of the following:

The increase in net sales was partially offset by an increase in number of stores open, from 536 stores as of April 30, 2011, to 553 stores as of April 28, 2012.


	13 Weeks Ended July 30, 2011			Change From Prior Fiscal Period				13 Weeks Ended July 31, 2010			13 Weeks Ended April 28, 2012			Change From Prior Fiscal Period				13 Weeks Ended April 30, 2011
				($ in millions)										($ in millions)
Cost of sales	$	102.7		$	9.5	10.2	%	$	93.2		$	104.3		$	1.7	1.7	%	$	102.6
Percentage of net sales		69.0	%			(1.8	)%		70.8	%		70.5	%			4.7	%		65.8	%

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 occupancy costs; and depreciation and amortization expense associated with our stores and distribution center.

Cost of sales as a percentage of net sales ~~decreased~~increased due primarily to ~~(i) an increase~~a decrease in merchandise margin as a result of ~~lower~~higher markdown rates ~~and favorable inventory shrink results~~ in both the Wet Seal ~~division, partially offset by higher inventory shrink results in the~~and Arden B ~~division, (ii) a decrease in distribution costs due~~divisions, as compared to the prior year, ~~including a loss~~and the deleveraging effect on ~~disposal charge~~occupancy costs as a result of equipment replaced by a new merchandise sorting system and a decrease in temporary labor as a result of efficiencies gained from the merchandise sorting system, and (iii) the leveraging effect on occupancy costs of positivenegative comparable store sales. Cost of sales was negatively impacted by an increase in buying costs as the current year includes accrual of bonus expenses due to improved performance relative to incentive targets and the prior year included benefits related to reversal of bonus accruals due to declining performance and to stock compensation due to forfeitures.

Cost of sales increased primarily due to the ~~13.1%~~ increase in ~~net sales~~merchandise costs as a result of higher markdowns and an increase in occupancy cost as a result of the increase in number of stores.


	13 Weeks Ended July 30, 2011			Change From Prior Fiscal Period				13 Weeks Ended July 31, 2010			13 Weeks Ended April 28, 2012			Change From Prior Fiscal Period				13 Weeks Ended April 30, 2011
				($ in millions)										($ in millions)
Selling, general, and administrative expenses	$	41.7		$	7.0	20.0	%	$	34.7		$	40.4		$	0.5	1.5	%	$	39.9
Percentage of net sales		28.0	%			1.6	%		26.4	%		27.4	%			1.9	%		25.5	%

Our SG&A expenses are comprised of two components. Selling expenses include store and field support costs, including personnel, advertising, ~~and~~ merchandise delivery, and transaction processing costs, as well as ~~online sales order fulfillment~~e-commerce processing and advertising costs. General and administrative expenses include the cost of corporate functions such as executives, legal, finance and accounting, information systems, ~~e-commerce management,~~ human resources, real estate and construction, marketing, loss prevention, and other centralized services.

Selling expenses ~~increased approximately $4.5 million from~~were in line with the prior year ~~to $32.7~~at $31.2 million. As a percentage of net sales, selling ~~expense was 22.0%~~expenses were 21.1% of net sales, or 50110 basis points higher than a year ago.

The following contributed to the current year ~~increase~~offsetting increases and decreases in selling expenses:

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

General and administrative expenses increased approximately ~~$2.5~~$0.5 million from the prior year, to ~~$9.0~~$9.2 million. As a percentage of net sales, general and administrative expenses were ~~6.0%~~6.3%, or ~~100~~80 basis points higher than a year ago.

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

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

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


	13 Weeks Ended July 30, 2011			Change From Prior Fiscal Period				13 Weeks Ended July 31, 2010			13 Weeks Ended April 28, 2012			Change From Prior Fiscal Period				13 Weeks Ended April 30, 2011
	($ in millions)										($ in millions)
Asset impairment	$	1.1		$	0.1	1.5	%	$	1.0		$	3.6		$	3.3	1,292.3	%	$	0.3
Percentage of net sales		0.8	%			0.0	%		0.8	%		2.4	%			2.2	%		0.2	%

Based on our quarterly assessments of the carrying value of long-lived assets, during the 13 weeks ended ~~July~~April 28, 2012, and April 30, 2011, ~~and July 31, 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 ~~$1.1~~$3.6 million and ~~$1.0~~$0.3 million, respectively.


	13 Weeks Ended July 30, 2011			Change From Prior Fiscal Period					13 Weeks Ended July 31, 2010			13 Weeks Ended April 28, 2012			Change From Prior Fiscal Period					13 Weeks Ended April 30, 2011
	($ in millions)											($ in millions)
Interest income (expense), net	$	0.0		$	(0.1	)	63.3	%	$	0.1
Interest (expense) income, net												$	(0.0	)	$	(0.0	)	0.0	%	$	0.0
Percentage of net sales		0.0	%				0.0	%		0.0	%		0.0	%				0.0	%		0.0	%

We generated interest expense, net, of less than $0.1 million in the 13 weeks ended April 28, 2012, primarily from the amortization of deferred financing costs, partially offset by earnings from investments in cash and cash equivalents, and we generated interest income, net, of less than $0.1 million in the 13 weeks ended ~~July~~April 30, 2011, primarily from ~~investments in cash, cash equivalents and short-term investments, and we generated interest income, net, of $0.1 million in the 13 weeks ended July 31, 2010, primarily~~earnings from investments in cash and cash ~~equivalents.~~equivalents and short-term investments.

Our effective income tax rate for the 13 weeks ended ~~July 30, 2011,~~April 28, 2012, was approximately ~~34%, bringing our year-to-date effective income tax rate to 39%~~39.5%, which approximates our expected effective rate for fiscal ~~2011.~~2012. Due to our expected utilization of federal and state NOL carry forwards during fiscal ~~2011,~~2012, we anticipate cash payment for income taxes for the fiscal year will be approximately ~~4.5%~~6.9% of pre-tax income, representing the portion of federal and state alternative minimum taxes and state 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 (benefit) provision for deferred 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 (internet operations is excluded from comparable store sales).~~e-commerce operations. Operating segment results include net sales, cost of sales, asset impairment, store closure costs, 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)	13 Weeks Ended July 30, 2011		13 Weeks Ended July 31, 2010
(In thousands, except percentages, sales per square foot and number of stores)					13 Weeks Ended April 28, 2012			13 Weeks Ended April 30, 2011
Net sales					$	126,175		$	131,054
Percentage of consolidated net sales						85	%		84	%
Comparable store sales percentage (decrease) increase compared to the prior year fiscal quarter						(7.0	)%		8.3	%
Operating income	$	10,280	$	6,219	$	9,324		$	18,813
Sales per square foot	$	65	$	61	$	64		$	69
Number of stores as of quarter end		460		432		469			454
Square footage as of quarter end		1,832		1,709		1,881			1,806

The comparable store sales ~~increase~~decrease during the 13 weeks ended ~~July 30, 2011,~~April 28, 2012, was due primarily to a decrease of 10.5% in comparable store average transactions, partially offset by an increase of ~~7.6%~~3.8% in comparable store average dollar sales per ~~transaction, partially offset by a decrease of 0.4% in comparable store average transactions.~~transaction. The increase in comparable store average dollar sales per transaction resulted from a ~~7.1%~~6.0% increase in units purchased per customer, ~~and~~partially offset by a ~~0.3% increase~~2.9% decrease in our average unit retail prices. The net sales ~~increase~~decrease was attributable to the comparable store sales ~~increase~~decline and ana $0.8 million decrease in net sales in our e-commerce business, partially offset by the increase in the number of stores compared to the prior ~~year, partially offset by a $0.4 million decrease in net sales in our internet business.~~year.

Wet Seal’s operating income ~~increased~~decreased to ~~8.2%~~7.4% of net sales during the 13 weeks ended ~~July 30, 2011,~~April 28, 2012, from ~~5.7%~~14.4% of net sales during the 13 weeks ended ~~July 31, 2010.~~April 30, 2011. The ~~increase~~decrease in operating income, as a percentage of sales, was due primarily to ~~an increase~~a decrease in merchandise margin as a result of ~~lower~~higher markdown rates ~~a decrease in inventory shrink~~ and ~~a decrease~~an increase in occupancy costs due to the ~~leveraging~~deleveraging effect of ~~positive~~negative comparable store ~~sales.~~sales, compared to the prior year. Additionally, during the 13 weeks ended ~~July 30, 2011,~~April 28, 2012, and the 13 weeks ended July 31, 2010, operating income included asset impairment charges of $0.6 million and $1.0 million, respectively, to write down the carrying value of long-lived assets that were identified during our quarterly impairment evaluation.

The comparable store sales increase during the 13 weeks ended July 30, 2011, was due to a 5.5% increase in comparable store average dollar sales per transaction, partially offset by a 0.5% decrease in comparable store average transactions. The increase in the average dollar sale per transaction resulted from a 13.1% increase in our average unit retail prices, partially offset by a 7.2% decrease in units purchased per customer. The net sales increase was attributable to the comparable store sales increase and an increase in the number of stores compared to the prior year, partially offset by a $0.7 million decrease in net sales in our internet business.

Arden B generated operating income of 6.1% of net sales during the 13 weeks ended July 30, 2011, compared to operating income of 11.8% of net sales during the 13 weeks ended July 31, 2010. This decrease was due primarily to an increase in occupancy costs as a percentage of net sales as the prior year included benefits related to the allocation of rents for gross rent deals and an increase in payroll and benefits costs as a result of increased operational activities and inefficiency in controlling labor hours. Additionally, during the 13 weeks ended JulyApril 30, 2011, operating income included asset impairment charges of ~~$0.5 million to write down the carrying value of long-lived assets that were identified during our quarterly impairment evaluations.~~

~~Twenty-Six Weeks Ended July 30, 2011, Compared to Twenty-Six Weeks Ended July 31, 2010~~

~~Net sales for the 26 weeks ended July 30, 2011, 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 lower markdown rates and favorable inventory shrink results in the Wet Seal division, partially offset by higher markdown rates and higher inventory shrink results in the Arden B division, as compared to the prior year, and a decrease in occupancy costs as a result of the leveraging effect of positive comparable store sales.

~~Cost of sales increased primarily due to the 13.2% increase in net sales and an increase in occupancy cost as a result of the increase in number of stores.~~

Selling expenses increased approximately $8.5 million from the prior year to $64.0 million. As a percentage of net sales, selling expense was 21.0% of net sales, or 40 basis points higher than a year ago.

General and administrative expenses increased approximately $3.3 million from the prior year to $17.6 million. As a percentage of net sales, general and administrative expenses were 5.8%, or 50 basis points 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:~~

Based on our quarterly assessments of the carrying value of long-lived assets, during the 26 weeks ended July 30, 2011, and July 31, 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 $1.3$2.7 million and ~~$1.1 million, respectively.~~

~~We generated interest income, net, of $0.1 million in the 26 weeks ended July 30, 2011, primarily from investments in cash, cash equivalents and short-term investments.~~

~~We incurred interest expense, net, of $2.8 million in the 26 weeks ended July 31, 2010, comprised of:~~

Our effective income tax rate for the 26 weeks ended July 30, 2011, was approximately 39%, reflecting our expected effective income tax rate for fiscal 2011. Due to our expected utilization of federal and state NOL carry forwards during fiscal 2011, we anticipate cash income taxes for the fiscal year will be approximately 4.5% of pre-tax income, representing the portion of federal and state alternative minimum taxes and state 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 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.

The comparable store sales increase during the 26 weeks ended July 30, 2011, was due primarily to an increase of 5.8% in average dollar sales per transaction and an increase of 2.0% in comparable store average transactions. The increase in comparable store average dollar sales per transaction resulted from a 6.3% increase in units purchased per customer, partially offset by a 0.7% decrease in our average unit retail prices. The net sales increase was attributable to the comparable store sales increase, the increase in the number of stores compared to the prior year, and a $0.5 million increase in net sales in our internet business.

Wet Seal’s operating income increased to 11.4% of net sales during the 26 weeks ended July 30, 2011, from 9.2% of net sales during the 26 weeks ended July 31, 2010. The increase in operating income, as a percentage of sales, was due primarily to an increase in merchandise margin as a result of lower markdown rates, a decrease in inventory shrink, and a decrease in occupancy costs due to the leveraging effect of positive comparable store sales. Additionally, during the 26 weeks ended July 30, 2011, and the 26 weeks ended July 31, 2010, operating income included asset impairment charges of $0.8 million and $1.1$0.2 million, respectively, to write down the carrying value of long-lived assets that were identified during our quarterly impairment evaluations.


($ in thousands, except sales per square foot)	26 Weeks Ended July 30, 2011			26 Weeks Ended July 31, 2010
(In thousands, except percentages, sales per square foot and number of stores)							13 Weeks Ended April 28, 2012			13 Weeks Ended April 30, 2011
Net sales	$	48,724		$	46,517		$	21,770		$	24,986
Percentage of consolidated net sales		16	%		17	%		15	%		16	%
Comparable store sales percentage increase compared to the prior year fiscal quarter		2.4	%		0.1	%
Operating income	$	4,014		$	5,913
Comparable store sales percentage decrease compared to the prior year fiscal quarter								(11.4	)%		(0.1	)%
Operating (loss) income							$	(1,304	)	$	2,564
Sales per square foot	$	171		$	172		$	76		$	86
Number of stores as of quarter end		82			76			84			82
Square footage as of quarter end		253			230			261			254

The comparable store sales ~~increase~~decrease during the 2613 weeks ended ~~July 30, 2011,~~April 28, 2012, was due to a ~~4.4%~~17.6% decrease in comparable store average transactions, partially offset by a 7.5% increase in comparable store average dollar sales per ~~transaction, partially offset by a 1.9% decrease in comparable store average transactions.~~transaction. The increase in the comparable store average dollar ~~sale~~sales per transaction resulted from a ~~15.3%~~9.8% increase in units purchased per customer, partially offset by a 2.4% decrease in our average unit retail ~~prices, partially offset by a 9.3% decrease in units purchased per customer.~~prices. The net sales ~~increase~~decrease was attributable to the comparable ~~store~~ sales ~~increase~~decline and ~~the~~a $0.9 million decrease in net sales in our e-commerce business, partially offset by an increase in the number of stores compared to the prior ~~year, partially offset by a $0.5 million decrease in net sales in our internet business.~~year.

Arden B ~~generated~~incurred an operating ~~income~~loss of ~~8.2%~~6.0% of net sales during the 2613 weeks ended ~~July 30, 2011,~~April 28, 2012, compared to operating income of ~~12.7%~~10.3% of net sales during the 2613 weeks ended ~~July 31, 2010.~~April 30, 2011. This decrease 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~~due to the deleveraging effect of ~~net~~negative comparable store sales, ascompared to the prior year included benefits related to the allocation of rents for gross rent deals and an increase in payroll and benefits costs as a result of increased operational activities and inefficiency in controlling labor hours.year. Additionally, during the 2613 weeks ended ~~July~~April 28, 2012, and April 30, 2011, operating (loss) income included asset impairment charges of ~~$0.5~~$0.9 million and $0.1 million, respectively, to write down the carrying value of long-lived assets that were identified during our quarterly impairment evaluations.

Net cash used in operating activities was $5.1 million for the 13 weeks ended April 28, 2012, compared to net cash provided by operating activities ~~was $27.0 million for the 26 weeks ended July 30, 2011, compared to $18.3~~of $17.5 million for the same period last year. For the 2613 weeks ended ~~July 30, 2011,~~April 28, 2012, cash ~~provided by~~used in operating activities was comprised of net ~~income~~loss of ~~$10.2~~$0.3 million, ~~and net non-cash charges, primarily depreciation and amortization, asset impairment, stock-based compensation and provision for deferred income taxes, of $19.1 million, partially offset by~~ an increase in merchandise inventories over the increase of merchandise payables of ~~$1.0~~$3.0 million, and a net use of cash from changes in other operating assets and liabilities of ~~$1.3~~$11.3 million, which includes $9.5 million of February rents and other landlord costs due to the relatively early timing of fiscal 2011 year-end date, which in past years typically would have been paid before the end of the prior fiscal year, partially offset by net non-cash charges and credits, primarily depreciation and amortization, asset impairment, stock-based compensation and benefit for deferred income taxes, of $9.5 million. For the 2613 weeks ~~ending July 30, 2011,~~ended April 28, 2012, net cash used in investing activities of ~~$2.1~~$3.8 million was comprised of ~~$14.1 million of~~ capital expenditures, primarily for the construction of new Wet Seal stores, 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~~network infrastructure within our ~~new retail merchandising system and an upgrade to our point-of-sale operating system, partially offset by $12.0 million of proceeds from the redemption of marketable securities upon maturity.~~corporate offices. Capital expenditures that remain unpaid as of ~~July 30, 2011,~~April 28, 2012, have increased ~~$1.2~~$3.1 million since the end of fiscal ~~2010.~~2011. We expect to pay nearly all of the total balance of such amounts payable of ~~$5.4~~$4.4 million during the ~~third~~second quarter of fiscal ~~2011.~~2012.

We estimate that, in fiscal ~~2011,~~2012, capital expenditures will be between ~~$27.0~~$32.0 million and ~~$28.0~~$34.0 million, of which approximately ~~$17.0~~$24.0 million to ~~$18.0~~$26.0 million is expected to be for the remodeling and/or relocation of existing Wet Seal and Arden B stores upon lease renewals and the construction of new Wet Seal and Arden B stores. We anticipate receiving approximately $5 million in ~~landlord-tenant~~tenant improvement allowances from landlords, resulting in net capital expenditures of between ~~$22~~$27 million and ~~$23~~$29 million.

For the 2613 weeks ~~ending July 30, 2011,~~ended April 28, 2012, net cash used by financing activities was ~~$40.7~~$0.2 million, comprised of ~~$41.2~~$0.2 million used to repurchase ~~9,378,525~~67,247 shares of our Class A common stock to satisfy employee withholding tax obligations, slightly offset by less than ~~$0.5~~$0.1 million of proceeds from the exercise of stock options. Subsequent to July 30, 2011, we paid $1.9 million on the settlement dates for repurchases of 400,000 shares of our Class A common stock for which trades had been executed during our second fiscal quarter. On May 17, 2011, our Board of Directors authorized a $31.7 million increase to our existing stock repurchase program approved in September 2010, bringing the total repurchase authorization up to $56.7 million. During August 2011, we repurchased 2,314,957 additional shares of our Class A common stock for a total cost, including commissions, of approximately $10.6 million, representing completion of the stock repurchase program. Effective August 16, 2011, we retired

24,242,219 shares of our Class A common stock held in treasury. In accordance with Delaware law and the terms of our certificate of incorporation, upon retirement, such treasury shares resumed the status of authorized and unissued shares of Company common stock.

In March 2010, a holder of the Notes, Preferred Stock and Series E warrants converted $4.7 million in principal amount of the 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 and cash equivalents ~~and investments~~ at ~~July 30, 2011,~~April 28, 2012, was ~~$147.8~~$148.1 million compared to ~~$176.1~~$157.2 million at January ~~29, 2011.~~28, 2012.

On February 3, 2011, we renewed, via amendment and restatement, 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 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, 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 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 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 we elect, either the one, two, three or six months LIBOR plus a margin ranging from 1.5% to 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. We also incur fees on outstanding letters of credit under the Facility at an annual rate equal to the applicable LIBOR margin for standby letters of credit and 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 cash, cash equivalents, investments, receivables, and 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.

At ~~July 30, 2011,~~April 28, 2012, the amount outstanding under the Facility consisted of ~~$5.3~~$4.4 million in open documentary letters of credit related to merchandise purchases and ~~$1.5~~$1.2 million in outstanding standby letters of credit. At ~~July 30, 2011,~~April 28, 2012, we had ~~$28.2~~$29.4 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.

The financial performance of our business is susceptible to declines in discretionary consumer spending and availability of consumer credit and low consumer confidence in the United States. Increasing fuel prices and 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 began to experience cost pressures in the fourth quarter of fiscal 2010 and saw further cost increases through ~~the second quarter of~~ fiscal 2011 as a result of rising commodity prices, primarily for cotton, increased labor costs, due to labor shortages in China, from which a majority of our merchandise is sourced, and increasing fuel costs. We expect many of these sourcing cost pressures to continue into fiscal 2012, although recent declines in cotton prices may begin to alleviate some of the ~~second half of fiscal 2011.~~commodity cost pressures late in 2012 or early 2013. The rising value of the currency in China relative to the U.S. dollar may also have ~~a further~~an impact on future product costs. In response to the ~~costs~~cost increases, we have evaluated and opportunistically adjusted our pricing in certain categories, are ~~leveraging~~seeking to leverage our large vendor base to lower costs and are assessing ongoing promotional strategies ~~in efforts to maintain or improve upon historical~~and their impact on 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, our margins have been and may continue to be adversely affected and we cannot be certain that our business will not be affected by inflation in the future.

As of ~~July 30, 2011,~~April 28, 2012, we are not a party to any off-balance sheet arrangements, except for operating lease and purchase obligations as referenced in our Form 10-K for the fiscal year ended January ~~29, 2011~~28, 2012, 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 ~~July 30, 2011,~~April 28, 2012, no borrowings were outstanding under the Facility. At ~~July 30, 2011,~~April 28, 2012, the weighted average interest rate on borrowings under the Facility was 1.333%. Based upon a sensitivity analysis as of ~~July 30, 2011,~~April 28, 2012, if we had average outstanding borrowings of $1 million during ~~second~~first quarter of fiscal ~~2011,~~2012, a 50 basis point increase in interest rates would have resulted in ~~a potential~~an increase in interest expense of approximately $1,250 for the ~~second~~first quarter of fiscal ~~2011.~~2012.

As of ~~July 30, 2011,~~April 28, 2012, 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, as a hypothetical 10% change in the foreign exchange rate of the Chinese currency against the U.S. dollar as of ~~July 30, 2011~~April 28, 2012, 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 of the Chinese currency against 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 Securities Exchange Act of 1934 (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 Securities and Exchange 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 ~~July 30, 2011.~~April 28, 2012.

During the fiscal quarter ended ~~July 30, 2011,~~April 28, 2012, 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 September 27, 2010, the Superior Court granted final approval of the settlement agreement. An appeal was subsequently filed on January 26, 2011. We are vigorously defending this appeal and are unable to predict the likely outcome. As of ~~July 30, 2011,~~April 28, 2012, we have accrued an amount equal to the settlement amount in accrued liabilities in our condensed consolidated balance sheet.

On May 22, 2007, a complaint was filed in the Superior Court of the State of California for the County of Orange on behalf of certain of our current and former employees who were employed and paid by us from May 22, 2003 through the present. We were named as a defendant. The complaint alleged various violations under the State of California Labor Code, the State of California Business and Professions Code, and ~~orders issued by~~Wage Orders of the Industrial Welfare Commission. On December 17, 2010, the court denied Plaintiffs’ Motion for Class Certification ~~in its entirety~~ and ~~denied Plaintiffs’~~ Motion For Leave to File An Amended Complaint. Plaintiffs have appealed both orders. 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 ~~July 30, 2011.~~April 28, 2012.

On September 29, 2008, a complaint was filed in the Superior Court of the State of California for the County of San Francisco on behalf of certain of our current and former employees who were employed and paid by us from September 29, 2004 through the present. We were named as a defendant. The complaint alleges various violations under the State of California Labor Code and the State of California Business and Professions Code. The case has been transferred to the complex panel of the San Francisco Superior Court for case management purposes. Plaintiffs’ Motion for Class Certification and Defendants’ Motion to Strike Class Claims were filed on April 25, 2011, were heard by the Court on August 5, 2011 and onOn August 16, 2011, the court denied Plaintiffs’ Motion for Class Certification. Plaintiffs have appealed. We are vigorously defending this litigation and are unable to predict the likely outcome and whether such outcome may have a material adverse effect on our results of operations or financial condition. Accordingly, no provision for a loss contingency has been accrued as of ~~July 30, 2011.~~April 28, 2012.

On April 24, 2009, the U.S. Equal Employment Opportunity Commission (the “EEOC”), requested information and records relevant to several charges of discrimination by ~~our company~~us against employees of our ~~company.~~Company. In the course of this investigation, the EEOC served a subpoena seeking information related to current and former employees throughout the United States. In April 2010, the EEOC filed an application to enforce the subpoena in the U.S. District Court for the Eastern District of Pennsylvania, and is in the process of a nationwide investigation. We are awaiting the results of the investigation and are unable to predict the likely outcome and whether such outcome may have a material adverse effect on our results of operations or financial condition. Accordingly, no provision for a loss contingency has been accrued as of ~~July 30, 2011.~~April 28, 2012.

On May 9, 2011, a complaint was filed in the Superior Court of the State of California for the County of Alameda on behalf of certain of our current and former employees who were employed and paid by us from May 9, 2007 through the present. We were named as a defendant. The complaint alleges various violations under the State of California Labor Code and the State of California Business and Professions Code. On ~~June 7, 2011, we filed~~February 3, 2012, the court granted our motion to transfer venue to the County of Orange. Once the case is assigned to a ~~Petition for Coordination with~~new judge in the ~~Judicial Council~~Superior Court of the State of California ~~to coordinate this action with the Orange County action dated May 22, 2007. No hearing date has been set~~ for the ~~Coordination Motion.~~County of Orange, we intend to file a motion to compel arbitration. We are vigorously defending this litigation and are unable to predict the likely outcome and whether such outcome may have a material adverse effect on our results of operations or financial condition. Accordingly, no provision for a loss contingency has been accrued as of ~~July 30, 2011.~~April 28, 2012.

On October 27, 2011 a complaint was filed in the Superior Court of the State of California for the County of Los Angeles on behalf of certain of our current and former employees who were employed in California during the time period from October 27, 2007 through the present. We were named as a defendant. The complaint alleges various violations under the State of California Labor Code and the State of California Business and Professions Code. On April 2, 2012, the court granted our motion to compel arbitration and to enforce the class action waiver in the arbitration agreement. 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 April 28, 2012.

As of April 28, 2012, we were not engaged in any other legal proceedings that are expected, individually or in the aggregate, to have a material adverse effect on our results of operations or financial condition. From time to time, we are involved in other litigation matters relating to claims arising out of our operations in the normal course of business. We believe that, in the event of a settlement or an adverse judgment on certain of these claims, we have insurance ~~coverage~~ to cover a portion of such ~~losses; however,~~losses. However, certain other matters may exist or arise for which we do not have insurance ~~coverage. As of July 30, 2011, except as described in the paragraphs above, we were not engaged in any other legal proceedings that are expected, individually or in the aggregate, to~~coverage and which could have a material adverse effect on our results of operations or financial condition.

~~There are no~~We have recorded impairment charges in the past and we may record material impairment charges in the future.

At least quarterly, we assess whether events or changes ~~from~~in circumstances have occurred that potentially indicate the ~~risk factors previously disclosed~~carrying value of long-lived assets may not be recoverable. If we determine that the carrying value of long-lived assets is not recoverable, we will be required to record impairment charges relating to those assets. For example, our assessments during the 13 weeks ended April 28, 2012, 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 a non-cash charge of $3.6 million during the 13 weeks ended April 28, 2012 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. In the future, we may determine that the carrying value of our long-lived assets may not be recoverable, particularly in light of the recent declines in our ~~Annual Report~~merchandise margin and comparable store sales. As a result, we may determine that additional impairment charges are required. In the event we record impairment charges, this could have a material adverse effect on ~~Form 10-K for the fiscal year ended January 29, 2011.~~

Pursuant to the above plans, we repurchased 8,778,525 shares of our Class A common stock, during the 13 weeks ended July 30, 2011, at an average market price of $4.47 per share, for a total cost, including commissions, of approximately $39.4 million, bringing the total repurchased under this program of 10,660,825 shares of our Class A common stock at a total of $46.1 million. No such repurchases occurred during fiscal May.

During August 2011 we repurchased 2,314,957 additional shares of our Class A common stock at an average market price of $4.57 per share, for a total cost, including commissions, of approximately $10.6 million, completing the stock repurchase program.

Effective August 16, 2011, we retired 24,242,219 shares of our Class A common stock held in treasury. In accordance with Delaware law and the terms of our certificate of incorporation, upon retirement, such treasury shares resumed the status of authorized and unissued shares of Company common stock.

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)


Large accelerated filer:	¨	Accelerated filer:	x

Non-accelerated filer:	~~Accelerated filer:~~ x	~~Non-accelerated filer:~~ ¨	~~Smaller reporting company:~~ ¨
		~~(Do~~ (Do not check if a smaller reporting company)	Smaller reporting company:	¨


		Page
PART I. FINANCIAL INFORMATION			~~Page~~

Item 1.	Financial Statements (Unaudited)

	Condensed Consolidated Balance Sheets (Unaudited) as of ~~July~~April 28, 2012, January 28, 2012, and April 30, 2011 ~~January 29, 2011, and July 31, 2010~~		2

	Condensed Consolidated Statements of Operations (Unaudited) for the 13 ~~and 26~~ Weeks Ended ~~July~~April 28, 2012, and April 30, 2011 ~~and July 31, 2010~~		4

	Condensed Consolidated Statements of ~~Stockholders’ Equity and~~ Comprehensive (Loss) Income (Unaudited) for the 2613 Weeks Ended ~~July~~April 28, 2012, and April 30, 2011 ~~and July 31, 2010~~		5

	Condensed Consolidated Statements of ~~Cash Flows~~Stockholders’ Equity (Unaudited) for the 2613 Weeks Ended ~~July~~April 28, 2012, and April 30, 2011 ~~and July 31, 2010~~		76

	~~Notes to~~ Condensed Consolidated ~~Financial~~ Statements of Cash Flows (Unaudited) for the 13 Weeks Ended April 28, 2012, and April 30, 2011		8

~~Item 2.~~	Notes to Condensed Consolidated Financial Statements (Unaudited)		9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		2219

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		3628

Item 4.	Controls and Procedures		3629

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings		3729

Item 1A.	Risk Factors		3730

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		3830

Item 3.	Defaults Upon Senior Securities		3831

Item 4.	~~Reserved~~Mine Safety Disclosures		3831

Item 5.	Other Information		3831

Item 6.	Exhibits		3832

SIGNATURES			3933

EXHIBIT ~~10.1.1~~ 31.1

EXHIBIT 31.2

EXHIBIT 32.1

EXHIBIT 32.2

EXHIBIT 99.1

~~EXHIBIT 31.1~~ 101.INS XBRL Instance Document

~~EXHIBIT 31.2~~ 101.SCH XBRL Taxonomy Extension Schema Document

~~EXHIBIT 32.1~~ 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document

~~EXHIBIT 32.2~~ 101.DEF XBRL Taxonomy Extension Definition Linkbase Document

~~101.INS~~101.LAB XBRL ~~Instance~~Taxonomy Extension Label Linkbase Document
~~101.SCH XBRL Taxonomy Extension Schema Document~~
~~101.CAL XBRL Taxonomy Extension Calculation Linkbase Document~~
~~101.DEF XBRL Taxonomy Extension Definition Linkbase Document~~
~~101.LAB XBRL Taxonomy Extension Label Linkbase Document~~
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document


	Options Outstanding						Options Exercisable
Range of Exercise Prices	Number Outstanding as of July 30, 2011		Weighted- Average Remaining Contractual Life (in years)		Weighted- Average Exercise Price Per Share		Number Exercisable as of July 30, 2011		Weighted- Average Exercise Price Per Share
$ 1.81 - $ 2.93		32,500		2.93	$	2.78		20,834	$	2.69
2.96 - 4.44		2,546,198		5.31		3.70		285,385		3.85
4.50 - 6.82		256,357		1.62		6.03		231,737		6.18
7.21 - 10.95		270,750		1.28		8.64		270,750		8.64
11.49 - 19.90		93,000		0.91		16.78		93,000		16.78
23.02 - 23.02		17,500		0.84		23.02		17,500		23.02

$ 1.81 - $23.02		3,216,305		4.50	$	4.77		919,206	$	7.49


	Options Outstanding						Options Exercisable
Range of Exercise Prices	Number Outstanding as of April 28, 2012		Weighted- Average Remaining Contractual Life (in years)		Weighted- Average Exercise Price Per Share		Number Exercisable as of April 28, 2012		Weighted- Average Exercise Price Per Share
$ 1.81 - $ 2.93		32,500		2.18	$	2.78		22,500	$	2.71
2.96 - 4.44		2,861,833		4.68	$	3.73		809,336	$	3.74
4.50 - 6.82		144,500		2.63	$	5.38		90,499	$	5.79
8.00 - 23.02		231,500		0.86	$	9.72		231,500	$	9.72

$ 1.81 - $23.02		3,270,333		4.29	$	4.22		1,153,835	$	5.08


	Common Stock								Paid-In Capital			Accumulated Deficit			Treasury Stock			Comprehensive Income			Accumulated Other Comprehensive Income			Total Stockholders’ Equity
	Class A				Class B
	Shares		Par Value		Shares		Par Value
Balance at January 29, 2011		113,736,844	$	11,374		—	$	—	$	323,324		$	(21,332	)	$	(37,963	)				$	290		$	275,693
Net income		—		—		—		—		—			10,211			—		$	10,211			—			10,211
Stock issued pursuant to long-term incentive plans		830,635		83		—		—		(83	)		—			—			—			—			—
Stock-based compensation - directors and employees (Note 2)		—		—		—		—		1,960			—			—			—			—			1,960
Amortization of stock payment in lieu of rent		—		—		—		—		31			—			—			—			—			31
Exercise of stock options		175,003		17		—		—		478			—			—			—			—			495
Repurchase of common stock		—		—		—		—		—			—			(43,123	)		—			—			(43,123	)
Amortization of actuarial gain under Supplemental Employee Retirement Plan		—		—		—		—		—			—			—			(3	)		(3	)		(3	)

Comprehensive income																		$	10,208

Balance at July 30, 2011		114,742,482	$	11,474		—	$	—	$	325,710		$	(11,121	)	$	(81,086	)				$	287		$	245,264


	July 31, 2010
	As previously reported			As corrected
Deferred tax assets- long term	$	46,909		$	40,349
Total other assets		49,469			42,909
Total assets		374,430			367,870
Accumulated deficit		(22,585	)		(29,145	)
Total stockholders’ equity		278,663			272,103
Total liabilities and stockholders’ equity		374,430			367,870


	13 Weeks Ended
	July 30, 2011							July 31, 2010
	Net Income			Shares		Per Share Amount		Net Income			Shares		Per Share Amount
Basic earnings per share:
Net income	$	2,198						$	1,615
Less: Undistributed earnings allocable to participating securities		(59	)						(23	)

Basic earnings per share	$	2,139			95,731,926	$	0.02	$	1,592			100,257,750	$	0.02

Diluted earnings per share:
Net income	$	2,198						$	1,615
Less: Undistributed earnings allocable to participating securities		(59	)						(23	)
Effect of dilutive securities					103,118							298,884

Diluted earnings per share	$	2,139			95,835,044	$	0.02	$	1,592			100,556,634	$	0.02


	26 Weeks Ended
	July 30, 2011							July 31, 2010
	Net Income			Shares		Per Share Amount		Net Income			Shares		Per Share Amount
Basic earnings per share:
Net income	$	10,211						$	4,757
Less: Undistributed earnings allocable to participating securities		(249	)						(127	)

Basic earnings per share	$	9,962			97,324,336	$	0.10	$	4,630			98,756,560	$	0.05

Diluted earnings per share:
Net income	$	10,211						$	4,757
Less: Undistributed earnings allocable to participating securities		(249	)						(126	)
Effect of dilutive securities					75,013							657,685

Diluted earnings per share	$	9,962			97,399,349	$	0.10	$	4,631			99,414,245	$	0.05


	13 Weeks Ended
	April 28, 2012								April 30, 2011
	Net Loss			Shares		Per Share Amount			Net Income			Shares		Per Share Amount
Net (loss) income per share, basic:
Net (loss) income	$	(273	)						$	8,013
Less: Undistributed earnings allocable to participating securities		—								(179	)

Net (loss) income per share, basic	$	(273	)		88,486,977	$	(0.00	)	$	7,834			98,916,747	$	0.08

Net (loss) income per share, diluted:
Net (loss) income	$	(273	)						$	8,013
Less: Undistributed earnings allocable to participating securities		—								(179	)
Effect of dilutive securities					—								59,218

Net (loss) income per share, diluted	$	(273	)		88,486,977	$	(0.00	)	$	7,834			98,975,965	$	0.08


13 Weeks Ended July 30, 2011	Wet Seal			Arden B			Corporate and Unallocated			Total
Net sales	$	125,033		$	23,737		$	—		$	148,770
Percentage of consolidated net sales		84	%		16	%		—			100	%
Operating income (loss)	$	10,280		$	1,449		$	(8,404	)	$	3,325
Depreciation and amortization expense	$	3,929		$	504		$	381		$	4,814
Interest income	$	—		$	—		$	66		$	66
Interest expense	$	—		$	—		$	44		$	44
Income (loss) before provision for income taxes	$	10,280		$	1,449		$	(8,382	)	$	3,347


13 Weeks Ended April 28, 2012	Wet Seal			Arden B			Corporate and Unallocated			Total
Net sales	$	126,175		$	21,770		$	—		$	147,945
Percentage of consolidated net sales		85	%		15	%		—			100	%
Operating income (loss)	$	9,324		$	(1,304	)	$	(8,461	)	$	(441	)
Depreciation and amortization expense	$	3,856		$	454		$	381		$	4,691
Interest income	$	—		$	—		$	38		$	38
Interest expense	$	—		$	—		$	(48	)	$	(48	)
Income (loss) before provision (benefit) for income taxes	$	9,324		$	(1,304	)	$	(8,471	)	$	(451	)


	As a Percentage of Net Sales 13 Weeks Ended						As a Percentage of Net Sales 26 Weeks Ended
	July 30, 2011			July 31, 2010			July 30, 2011			July 31, 2010
Net sales		100.0	%		100.0	%		100.0	%		100.0	%
Cost of sales		69.0			70.8			67.3			69.0

Gross margin		31.0			29.2			32.7			31.0
Selling, general, and administrative expenses		28.0			26.4			26.8			25.9
Asset impairment		0.8			0.8			0.4			0.4

Operating income		2.2			2.0			5.5			4.7
Interest income (expense), net		0.0			0.0			0.0			(1.1	)

Income before provision for income taxes		2.2			2.0			5.5			3.6
Provision for income taxes		0.7			0.8			2.2			1.8

Net income		1.5	%		1.2	%		3.3	%		1.8	%


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 Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
May 1, 2011 to May 28, 2011		—		—		—	$	49,959,648
May 29, 2011 to July 2, 2011		5,529,132	$	4.22		5,529,132	$	26,549,619
July 3, 2011 to July 30, 2011		3,249,393	$	4.90		3,249,393	$	10,571,281



~~10.1.1~~		~~Amendment to Employment Agreement, dated as of August 4, 2011, entered into between the Company and Mr. Seipel~~

31.1		Certification of the 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 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.

99.1		The Wet Seal, Inc. Code of Business Ethics and Conduct.

101		The following materials from The Wet Seal, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended ~~July 30, 2011,~~April 28, 2012, formatted in XBRL (Extensible Business Reporting Language) and furnished electronically herewith: (i) the Condensed Consolidated Balance Sheets (Unaudited), (ii) the Condensed Consolidated Statements of Operations (Unaudited), (iii) the Condensed Consolidated Statements of Comprehensive (Loss) Income (Unaudited) (iv) the Condensed Consolidated Statements of Stockholders’ Equity ~~and Comprehensive Income~~ (Unaudited), ~~(iv)~~(v) the Condensed Consolidated Statements of Cash Flows (Unaudited), and ~~(v)~~(vi) Notes to Condensed Consolidated Financial Statements (Unaudited), tagged as blocks of text. This exhibit will not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that section. Such exhibit will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.


			THE WET SEAL, INC.
	(REGISTRANT)

Date: ~~August 26, 2011~~ May 25, 2012	By:	~~By:~~	~~/s/~~/s/ Susan P. McGalla
			Susan P. McGalla
			Chief Executive Officer

Date: ~~August 26, 2011~~ May 25, 2012	By:	~~By:~~	~~/s/~~/s/ Steven H. Benrubi
			Steven H. Benrubi
			Executive Vice President and Chief Financial Officer