WET SEAL INC - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-K
(MARK ONE)

/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934

FOR THE FISCAL YEAR ENDED FEBRUARY 3, 2001

OR

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER 0-18632

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THE WET SEAL, INC.

(Exact name of registrant as specified in its charter)

DELAWARE 33-0415940
(State of Incorporation) (I.R.S. Employer Identification No.)
26972 BURBANK, FOOTHILL RANCH, CA 92610
(Address of principal executive offices) (Zip Code)

(949) 583-9029

(Registrant's telephone number, including area code)

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

CLASS A COMMON STOCK PREFERRED STOCK PURCHASE RIGHTS
(Title of Class) (Title of Class)

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

The aggregate market value of voting stock held by non-affiliates as of
March 15, 2001 was $309,588,267.

The number of shares outstanding of the registrant's Class A Common Stock
and Class B Common Stock, par value $.10 per share, at March 15, 2001 was
11,496,946 and 2,912,665, respectively. There were no shares of Preferred Stock,
par value $.01 per share, outstanding at March 15, 2001.

DOCUMENTS INCORPORATED BY REFERENCE:

PART III incorporates information by reference from the Registrant's
definitive Proxy Statement for its Annual Meeting of Stockholders' to be filed
with the Commission within 120 days of February 3, 2001.

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PART I

ITEM 1. BUSINESS

GENERAL

The Wet Seal, Inc., a Delaware corporation ("Wet Seal" or the "Company"),
founded in 1962, is a nationwide specialty retailer of fashionable and
contemporary apparel and accessory items designed for consumers with a young,
active lifestyle. As of March 15, 2001, the Company operated 552 retail stores
in 42 states, Washington D.C. and Puerto Rico, including 101 in California, 53
in Florida, and 38 in Texas. Of the 552 stores, 242 operate under the "CONTEMPO
CASUALS" trademark, 225 operate under the "WET SEAL" trademark, and 85 operate
under the "ARDEN B." trademark. Arden B. was introduced as a retail concept by
the Company in November 1998, and offers a collection of fashion separates and
accessories for all parts of the fashionable, sophisticated, contemporary
customer's lifestyle. Limbo Lounge was discontinued as a retail concept by the
Company at the end of fiscal 2000. The Company introduced a catalog in fiscal
1998 and continued it through fiscal 1999. In fiscal 2000, the Company did not
mail any catalogs. The Company introduced an e-commerce web-site, which includes
on-line shopping in August 1999.

On March 25, 2001, the Company acquired the leases, merchandise inventory
and furniture and fixtures for 18 Zutopia stores from Gymboree, Inc. Zutopia is
a "tween" retail concept which caters to the female customer ages 5 to 12. The
Company intends to continue to operate the acquired store locations under the
Zutopia name.

PRODUCTS AND MERCHANDISING

Both Wet Seal and Contempo Casuals stores target the same fashion-conscious
junior customer. The Company merchandises both stores similarly. In duplicate
locations (stores located in malls where the Company operates both a Wet Seal
and a Contempo Casuals store), the Company differentiates the locations by
displaying the merchandise differently in each of the stores, by differentiating
the marketing and will occasionally differentiate some of the merchandise mix.
In fiscal 2001, the company plans to convert the majority of the Contempo
Casuals stores to the Wet Seal name in order to build a stronger brand presence
for the Wet Seal brand. The Company provides a balance of moderately priced
fashionable brand name and Company-developed apparel and accessories that appeal
to consumers with young, active lifestyles. The Company believes that
Company-developed apparel differentiates it from its competitors.

In the fourth quarter of fiscal 1998, the Company opened the first Arden B.
store. Arden B. caters to the fashionable, sophisticated, contemporary customer.
Arden B. stores offer a collection of fashion separates and accessories for all
parts of our customer's lifestyle; everyday, wear-to-work, special occasion and
casual, all under the "Arden B." brand name. The Company currently operates 85
Arden B. stores nationwide.

In the fourth quarter of fiscal 1996, the Company introduced a store concept
called Limbo Lounge. The Company closed the Limbo Lounge division at the end of
fiscal 2000 and is in the process of converting the majority of the 26 store
locations to Wet Seal or Contempo Casuals stores.

With respect to each of the retail concepts, the Company frequently updates
its product offerings to provide a regular flow of fresh, new fashionable
merchandise. Management carefully monitors pricing and markdowns to expedite
sales of slower-moving inventory, facilitate the introduction of new merchandise
and maintain an updated fashion image.

Generally, the Company's stores display merchandise within a current fashion
trend which reflects a color statement and key items related to that trend.
Rather than always displaying garments together by type (blouses with blouses,
for example), the Company combines items of apparel and accessories,

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which the customer might buy as an ensemble. Store displays are designed to
enable customers to create ensembles within a current fashion statement or trend
group. Management believes that the trend grouping concept strengthens the
fashion image of the merchandise offered in the stores and enables the customer
to locate combinations of blouses, skirts, pants and accessories in a manner
which enhances the Company's opportunity to make multiple unit sales. From time
to time, certain key items are merchandised together on tables or wall shelf
sections in order to emphasize those particular items. The general layout of
merchandise in the stores is planned by the Company's management. The Company
makes use of in-store image posters and signage to help focus customers on
particular fashion themes. The Company frequently changes the visual display of
the merchandise in its stores to reflect the changing tastes of the Company's
target customer.

DESIGN, BUYING AND PRODUCT DEVELOPMENT

The Company's experienced design and buying teams are responsible for
identifying evolving fashion trends and then developing themes to guide the
Company's merchandising strategy. Each retail concept has a separate buying
team. The merchandising team for each retail concept develops a fashion theme
and strategy through the references of fashion services and publications,
shopping the European market, shopping the appropriate domestic vendor base and
through customer response to current trends in each division. After selecting a
fashion theme to promote, the design and buying teams work closely with vendors
to modify colors, materials and designs and create an image consistent with the
theme for the Company's product offerings. Additionally, the Company has
increased its focus on developing exclusive designs and brands to reinforce the
fashion statements of its merchandise offerings as well as to increase the
perception of Wet Seal, Contempo Casuals and Arden B. as destination stores for
the customer.

SOURCING AND VENDOR RELATIONSHIPS

The Company purchases its merchandise from numerous domestic vendors and a
number of foreign vendors. Although in fiscal 2000 no single vendor accounted
for more than 10% of the Company's merchandise and only one vendor accounted for
more than 5%, management believes the Company is the largest customer of many of
its smaller vendors. Management believes the Company's importance to these
vendors allows it to provide significant input into their design, manufacturing
and distribution processes, and has enabled the Company to negotiate favorable
terms with such vendors. Quality control is monitored carefully at the
distribution points of its largest vendors and manufacturers, and all
merchandise is inspected upon arrival at the Company's Foothill Ranch,
California distribution center. The Company does not have any long-term or
exclusive contracts with any particular manufacturer or supplier for either
brand name or Company developed apparel.

ALLOCATION AND DISTRIBUTION

The Company's merchandising effort primarily focuses on maintaining a
regular flow of fresh, fashionable merchandise into its stores. Successful
execution depends in large part on the Company's integrated planning, allocation
and distribution functions. By working closely with District and Regional
Directors and merchandise buyers, the team of planners and allocators manage
inventory levels and coordinate the allocation of merchandise to each of the
Company's stores based on sales volume, climate and other factors that may
influence individual stores' product mix.

All merchandise for retail stores is received from vendors at the Company's
Foothill Ranch, California distribution facility, where items are inspected for
quality and fit and prepared for shipping to the Company's stores. Merchandise
for the e-commerce web-site is distributed through a third party fulfillment
house. The Company ships all of its merchandise by common carrier. Consistent
with the Company's goal of maintaining the freshness of its product offerings,
the Company ships new merchandise to each store daily.

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In keeping with the Company's policy of introducing new merchandise,
markdowns are taken regularly to effect a rapid sale of slow-moving inventory.
Merchandise, which remains unsold, is periodically shipped to the Company's
clearance stores where further markdowns are taken as needed in order to move
the merchandise. Sales of merchandise at these stores aggregated $6.8 million
for the fiscal year ended February 3, 2001. These stores operate under the Wet
Seal, Contempo Casuals and Arden B. names.

MARKETING, ADVERTISING AND PROMOTION

The Company believes that the highly visible locations of its stores within
regional shopping malls, broad selection of fashionable merchandise and dynamic,
entertaining in-store environments have contributed significantly to the
Company's reputation as a destination store addressing the lifestyle of
fashion-conscious young consumers. Consequently, the Company has historically
relied more heavily on these factors and "word-of-mouth" advertising than more
traditional forms of advertising such as print, radio and television.

The Company utilizes a variety of advertising and promotional programs that
allow the Company to gain exposure in a cost-effective manner. By introducing
frequent shopper cards in its Wet Seal and Contempo Casuals stores, the Company
has developed a marketing database that helps to track customers. The cards,
which are sold for $20 each, entitle customers to a standard 10% discount on
purchases made within a one-year period. As part of these programs, sales
representatives call selected cardholders personally to notify customers of
special in-store promotions, such as preferred customer sales during which
cardholders receive additional incentives. Management believes these promotions
foster customer loyalty and encourage frequent visits and multiple item
purchases. The Company also sponsors special events that focus on the interests
and active lifestyles of its target customers.

STORE OPERATIONS

The Company's Wet Seal and Contempo Casuals stores are divided into seven
geographic regions. Each region is managed by a Regional Director who reports to
the Company's Senior Vice President of Store Operations. Each region is further
divided into districts consisting of approximately 10 stores that are managed by
a District Director. The Arden B. stores are divided into seven geographic
districts consisting of approximately 12 stores each. Each district is managed
by a District Director who reports to the Arden B. Director of Store Operations,
who in turn reports to the Company's Senior Vice President of Store Operations.
The Company delegates substantial authority to regional, district and
store-level employees, while taking advantage of economies of scale by
centralizing functions such as finance, data processing, merchandise purchasing
and allocation, human resources and real estate at the corporate level.

The Company encourages communication between and among its Regional and
District Directors and senior management. Each of the Company's District
Directors provides weekly reports to senior management concerning overall
business conditions and specific aspects of their stores' operations. These
reports are used to identify competitive trends and store level concerns in a
timely manner. Store performance is also evaluated by senior management through
the use of a "secret shopper" service that shops each store at least once a
month.

Stores are typically staffed with one full-time manager, one or two
full-time co-managers, one full-time customer service leader and 12 customer
service representatives and cashiers, most of who are part-time. During peak
seasons, stores may increase staffing levels to accommodate the additional
in-store traffic. The Company seeks to hire store-level employees who are
energetic, fashionable and friendly and who can identify with its targeted
customers. The Company's policy is to promote store managers from within while
also hiring from outside. Highly regarded store managers are often given
opportunities to move to higher-volume stores. The Company sets weekly sales
goals for each store and

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devises incentives to reward stores that meet or exceed their sales targets. In
addition, from time to time the Company runs sales contests to encourage its
store level employees to maximize sales volume.

Most of the Company's stores are, and the Company expects that most of its
new stores will be, located in regional, high-traffic shopping malls which
contain at least one "anchor" department store. The Company places great
emphasis on its location within a mall and attempts to locate stores in the
higher-traffic areas of a mall and to obtain the greatest amount of frontage
possible. The Company's average store size is approximately 3,970 square feet.
Store hours are determined by the mall in which the store is located.

INFORMATION AND CONTROL SYSTEMS

In order to accommodate future growth the Company converted and upgraded to
a state of the art client server based merchandising system in fiscal 2000.
Prior to the purchase of the new system and hardware the Company obtained
assurance from the vendors that the products purchased are Year 2000 compliant.

All of the Company's stores have a point-of-sale system operating on
in-store computer hardware and internally developed software. The system
features bar-coded ticket scanning, dial-out check and credit authorization and
provides nightly polling transmittal of sales and inventory data between the
stores and the Company's corporate office. The Company plans to convert to a new
point-of-sale software program in fiscal 2001 in order to enhance customer
service capabilities at the store level.

EXPANSION STRATEGY

The Company currently plans to open approximately 30 new stores in fiscal
2001 and plans to continue to grow in the following year. The Company may, in
limited instances and to the extent it deems advisable, seek to acquire
additional businesses which complement or enhance the Company's operations. The
Company currently has no commitments or understandings with respect to such
business opportunities.

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The following table sets forth the number of stores in each state as of
March 15, 2001:

STATE # OF STORES
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Alabama.............. 1
Arizona.............. 9
Arkansas............. 1
California........... 101
Colorado............. 8
Connecticut.......... 13
Delaware............. 2
Florida.............. 53
Georgia.............. 15
Hawaii............... 7
Illinois............. 34
Indiana.............. 9
Iowa................. 3
Kansas............... 3
Kentucky............. 5

STATE # OF STORES
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Louisiana............ 4
Maine................ 2
Maryland............. 13
Massachusetts........ 20
Michigan............. 15
Minnesota............ 11
Missouri............. 3
Nebraska............. 2
Nevada............... 6
New Hampshire........ 3
New Jersey........... 32
New Mexico........... 3
New York............. 33
North Carolina....... 6
Ohio................. 16

STATE # OF STORES
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Oklahoma............. 5
Oregon............... 1
Pennsylvania......... 21
Rhode Island......... 2
South Carolina....... 5
Tennessee............ 5
Texas................ 38
Utah................. 6
Virginia............. 17
Washington........... 7
West Virginia........ 1
Wisconsin............ 6
Washington D.C....... 2
Puerto Rico.......... 3

Management does not believe there are significant geographic constraints on
the locations of future stores. The Company's strategy is to enter a particular
geographic region with a base of two or three solid stores, and then continue
expansion in such geographic regions while simultaneously entering new markets
in a similar manner, thereby increasing the recognition of the Company's name.
When deciding whether to open a new store, the Company typically targets
regional malls as well as prime street locations in select markets. In making
its selection, the Company evaluates, among other factors, market area,
demographics, "anchor stores," store location, the volume of consumer traffic,
rent payments and other costs associated with opening a new store. The average
store size the Company intends to consider is between 3,000 and 4,500 square
feet depending on the chain selected for the particular location and concept.
However, in making its decision, management reviews all leases in order to match
closely the store size to the sales potential of the store.

The Company's ability to expand in the future will depend, in part, on
general business conditions, the demand for the Company's merchandise, the
ability to find suitable malls or other locations with acceptable sites on
satisfactory terms, and the continuance of satisfactory cash flows from existing
operations.

TRADEMARKS

The Company's primary trademarks and service marks are WET SEAL, CONTEMPO
CASUALS, and LIMBO LOUNGE, which are registered in the U.S. Trademark Office.
The Company has pending registrations in a number of classes for the trademark,
ARDEN B., which are being opposed by Agnes Trouble. Agnes Trouble contends that
its trademark and style agnes b. are infringed by Arden B. which the Company
denies. Trial is likely to occur in calendar year 2001. If the Company were to
lose at trial and is ordered to change the Arden B. name or logo it could have a
negative impact on the business of the Arden B. division. The Company also uses
and has registered, or has pending applications, for a number of other United
States marks, including A. AUBREY, ACCESSORIES FOR LIFE, ACCOMPLICE, BLUE
ASPHALT, CEMENT, CLUB CONTEMPO, EVOLUTION NOT REVOLUTION, FORMULA X, MEOW GENES,
UNCIVILIZED, URBAN LIFE and URBAN VIBE. In general, the registrations for these
trademarks and service marks are renewable indefinitely as long as the Company
continues to use the marks as required by applicable trademark law. The Company
is the owner of an allowed and currently pending service mark application for
the mark

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SEAL PUPS. The Company is not aware of any adverse claims or infringement
actions relating to its trademarks or service marks other than those noted
above.

COMPETITION

The women's retail apparel industry is highly competitive, with fashion,
quality, price, location, in-store environment and service being the principal
competitive factors. The Company competes with specialty apparel retailers,
department stores and certain other apparel retailers, including Charlotte
Russe, Gadzooks, Pacific Sunwear, Forever 21, Express, bebe and Rampage. Many
competitors are large national chains which have substantially greater
financial, marketing and other resources than the Company. While the Company
believes it competes effectively for favorable site locations and lease terms,
competition for prime locations within a mall is intense.

EMPLOYEES

As of February 3, 2001, the Company had 8,901 employees, consisting of 2,321
full-time employees and 6,580 part-time employees. Full-time personnel consisted
of 1,213 salaried and 1,108 hourly employees. All part-time personnel are hourly
employees. Of the total employees, 8,541 were sales personnel and 360 were
administrative and distribution center personnel. Personnel at all levels of
store operations are provided with cash incentives based upon various individual
store sales targets.

All of the Company's employees are non-union and, in management's opinion,
are paid competitively with current standards in the industry. The Company
considers its relationship with its employees to be satisfactory.

ITEM 2. PROPERTIES

The Company's corporate headquarters is located at 26972 Burbank, Foothill
Ranch, California, consisting of 283,200 square feet of leased office and
distribution facility space (including 74,500 square feet of merchandise
handling and storage mezzanine space in the distribution facility and 20,500
square feet of second floor office space). This lease expires on December 4,
2007. The Company's former distribution facility located in Los Angeles,
California was subleased beginning in fiscal 1998 for the remainder of the lease
term. The Los Angeles lease was acquired with the acquisition of Contempo
Casuals and expires on July 31, 2002.

The Company leases all of its stores. Lease terms for the Company's stores
are typically 10 years in length and generally do not contain renewal options.
The leases generally provide for a fixed minimum rental and a rental based on a
percent of sales once a minimum sales level has been reached. As a lease
expires, the Company generally renews such lease at current market terms.
However, each renewal is based upon an analysis of the individual store's
profitability and sales potential.

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The following table sets forth information with respect to store openings
and closings since fiscal 1996:

FISCAL YEARS
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2000 1999 1998 1997 1996
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Stores open at beginning of year............................ 548 454 389 364 364
Stores acquired during period(1)............................ 0 78 19 0 0
Stores opened during period................................. 36 31 67 34 10
Stores closed during period................................. 32 15 21 9 10
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Stores open at end of period................................ 552 548 454 389 364
=== === === === ===

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(1) The Company acquired 19 stores on December 1, 1998 from Mothers Work, Inc.
and 78 stores on February 1, 1999 from Britches of Georgetowne, Inc.

ITEM 3. LEGAL PROCEEDINGS

The Company is a defendant in a lawsuit entitled Agnes Trouble vs The Wet
Seal, Inc. pending in the United States District Court for the Southern District
of New York. The plaintiff seeks money damages in an unspecified amount and an
injunction against the Company's use of the trademark Arden B. Plaintiff
contends that its trademark and style agnes b. are infringed by Arden B. which
the Company denies. Trial is likely to occur in calendar year 2001. If the
Company were to lose at trial and is ordered to change the Arden B. name or logo
it could have a negative impact on the business of the Arden B. division and the
Company would incur costs to comply with the orders of the Court.

In addition, from time to time, the Company is involved in litigation
relating to claims arising out of its operations in the normal course of
business. Management believes that, in the event of a settlement or an adverse
judgment of any of the pending litigations, the Company is adequately covered by
insurance. As of March 15, 2001, the Company was not engaged in any legal
proceedings which are expected, individually or in the aggregate, to have a
material adverse effect on the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders through solicitations of
proxies or otherwise.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

The Company's Class A Common Stock ("Common Stock") is listed on The NASDAQ
Stock Market ("NASDAQ") under the symbol "WTSLA." As of March 15, 2001, there
were 290 shareholders of record of the Company's Class A Common Stock.
Additionally, the number of beneficial owners of the Company's Common Stock was
estimated to be in excess of 4,500. The closing price of the Common Stock on
March 15, 2001 was $27 11/16.

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The following table reflects the high and low sale prices of the Company's
Common Stock as reported by Nasdaq for the last two fiscal years.

FISCAL 2000 FISCAL 1999
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HIGH LOW HIGH LOW
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First Quarter............................................... $19 15/16 $10 1/8 $44 5/8 $32 1/2
Second Quarter.............................................. 18 3/8 10 3/4 46 3/8 24
Third Quarter............................................... 16 7/8 11 1/16 23 3/8 13 3/16
Fourth Quarter.............................................. 31 7/8 17 1/2 14 3/4 11

The Company has reinvested earnings in the business and has never paid any
cash dividends to holders of the Company's Common Stock. The declaration and
payment of future dividends, which are subject to the terms and covenants
contained in the Company's bank line of credit, are at the sole discretion of
the Board of Directors and will depend upon the Company's profitability,
financial condition, cash requirements, future prospects and other factors
deemed relevant by the Board of Directors.

ITEM 6. SELECTED FINANCIAL DATA

The following table of certain selected data regarding the Company should be
read in conjunction with the consolidated financial statements and notes thereto
and with the "Management's Discussion and Analysis of Financial Condition and
Results of Operations." The data for the fiscal years ended January 31, 1998 and
February 1, 1997 are derived from the Company's consolidated financial
statements for such years that are not included herein.

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FIVE YEAR FINANCIAL SUMMARY

FISCAL YEAR 2000 1999 1998 1997 1996
- ----------- ----------- ----------- ----------- ----------- -----------
FEBRUARY 3, JANUARY 29, JANUARY 30, JANUARY 31, FEBRUARY 1,
FISCAL YEAR ENDED 2001 (1) 2000 1999 1998 1997
- ----------------- ----------- ----------- ----------- ----------- -----------
(THOUSANDS EXCEPT PER SHARE AND PER SQUARE FOOT AMOUNTS,
RATIOS, SHARE DATA AND SQUARE FOOTAGE DATA)

Operating Results
Sales............................. $ 580,182 $ 524,407 $ 485,389 $ 412,463 $ 374,942
Income before provision for income
taxes........................... $ 31,727 $ 23,842 $ 42,202 $ 36,325 $ 26,217
Net income........................ $ 19,512 $ 14,183 $ 25,954 $ 21,250 $ 15,252
Per Share Data
Net income, basic................. $ 1.56 $ 1.14 $ 1.98 $ 1.57 $ 1.15
Net income, diluted............... $ 1.54 $ 1.11 $ 1.91 $ 1.53 $ 1.13
Weighted average shares
outstanding, basic.............. 12,484,409 12,425,704 13,085,587 13,552,502 13,219,284
Weighted average shares
outstanding, diluted............ 12,662,307 12,813,338 13,581,233 13,899,877 13,459,810
Other Financial Information
Net income as a percentage of
sales........................... 3.4% 2.7% 5.3% 5.2% 4.1%
Return on average stockholders'
equity.......................... 12.92% 10.97% 22.3% 20.8% 20.5%
Cash and marketable securities.... $ 108,200 $ 78,603 $ 91,506 $ 95,873 $ 89,183
Working capital (2)............... $ 44,213 $ 47,707 $ 21,856 $ 66,452 $ 59,791
Ratio of current assets to current
liabilities..................... 1.7 1.8 1.3 2.1 2.1
Total assets...................... $ 243,911 $ 213,009 $ 197,490 $ 184,223 $ 154,752
Long-term debt.................... $ $ $ 1,264 $ 1,264 $ 3,264
Total stockholders' equity........ $ 163,793 $ 138,233 $ 120,278 $ 112,994 $ 91,120
Number of stores open at year
end............................. 552 548 454 389 364
Number of stores acquired during
the year........................ 78 19
Number of stores opened during the
year............................ 36 31 67 34 10
Number of stores closed during the
year............................ 32 15 21 9 10
Square footage of leased store
space at year end............... 2,191,522 2,182,606 1,848,513 1,637,347 1,539,777
Percentage of increase in leased
square footage.................. 0.4% 18.1% 12.9% 6.3% 0.6%
Average sales per square foot of
leased space (3)................ $ 256 $ 247 $ 271 $ 263 $ 244
Average sales per store (3)....... $ 1,020 $ 988 $ 1,132 $ 1,112 $ 1,030
Comparable store sales increase
(decrease) (4).................. 3.9% (9.8)% 2.1% 5.8% 8.8%

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(1) Fiscal 2000 consisted of 53 weeks.

(2) The decrease in working capital in fiscal 1998 was due to the classification
of $37,973,000 of cash investments as long-term in fiscal 1998.

(3) In fiscal 2000, the 53rd week of sales was excluded from "Sales" for
purposes of calculating "Average sales per square foot" and "Average sales
per store" in order to make fiscal 2000 comparable to prior years.

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(4) In fiscal 2000, "Comparable store sales" were calculated using 52 weeks
compared to the same 52 weeks in fiscal 1999. In fiscal 1996, "Comparable
store sales" were calculated by excluding sales during the first week of
fiscal 1995 (a 53 week year) in order to make fiscal 1995 comparable to
fiscal 1996. Up through fiscal 1998 "Comparable store sales" are defined as
sales in stores that were open throughout the full fiscal year and
throughout the full prior fiscal year. "Comparable store sales" for fiscal
1999 and fiscal 2000 are defined as sales in stores that were open at least
14 months.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

INTRODUCTION

The Company is one of the largest national mall-based specialty retailers
focusing primarily on young women's apparel, and currently operates 552 retail
stores in 42 states, Washington D.C. and Puerto Rico. The Company operates the
stores under the names "Wet Seal," "Contempo Casuals" and "Arden B." The Company
initiated a catalog in fiscal 1998 and an e-commerce web-site in August 1999. In
fiscal 2000, the Company did not mail any catalogs, but continued its e-commerce
initiatives. Limbo Lounge was discontinued as a retail concept by the Company at
the end of fiscal 2000. The majority of the 26 Limbo Lounge stores were
converted or are in the process of converting to Wet Seal or Contempo Casuals
stores.

On December 1, 1998, the Company acquired the leases and furniture and
fixtures for 19 store locations from Mothers Work, Inc. The purchase price of
$1,911,000 was allocated to leasehold improvements and furniture, fixtures and
equipment. The majority of the locations acquired were converted to Arden B.
stores.

On February 1, 1999, the Company acquired the leases and furniture and
fixtures for 78 store locations from Britches of Georgetowne, Inc. for
$15,704,000. Based upon a third-party appraisal, the purchase price was
allocated to leasehold improvements, lease rights, and furniture, fixtures and
equipment. Excess of cost over net assets acquired (goodwill) totaling
$6,972,000 is being amortized on the straight-line method over 20 years. The
majority of the locations acquired were converted to Arden B. stores.

As of February 3, 2001, the Company operated 552 stores compared to 548
stores as of January 29, 2000, the end of fiscal 1999. The Company opened 36
stores during fiscal 2000 and closed 32 stores.

Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the Company's consolidated
financial statements and the notes thereto.

RESULTS OF OPERATIONS

Fiscal 2000 consists of the 53 week period ended February 3, 2001, fiscal
1999 consists of the 52 week period ended January 29, 2000 and fiscal 1998
consists of the 52 week period ended January 30, 1999. Comparable store sales
for fiscal 2000 and fiscal 1999 are defined as sales in stores that were open at
least 14 months. Comparable store sales for fiscal 1998 are defined as sales in
stores that were open throughout the full fiscal year and throughout the full
prior fiscal year. The change in the method of calculating comparable store
sales in fiscal 1999 would not have resulted in any material change to the
results of fiscal 1998 if applied retroactively to that fiscal year.

11

The following table sets forth selected income statement data of the Company
expressed as a percent of sales for the years indicated:

AS A PERCENTAGE OF SALES
FISCAL YEAR ENDED
---------------------------------------
FEBRUARY 3, JANUARY 29, JANUARY 30,
2001 2000 1999
----------- ----------- -----------

Sales (including frequent buyer sales income, catalog and
web-site sales)........................................... 100.0% 100.0% 100.0%
Cost of sales (including buying, distribution and occupancy
costs).................................................... 72.3 72.5 69.3
----- ----- -----
Gross margin................................................ 27.7 27.5 30.7
Selling, general and administrative expenses................ 23.1 23.8 22.8
----- ----- -----
Operating income............................................ 4.6 3.7 7.9
Other income................................................ -- 0.2 --
Interest income, net........................................ 0.9 0.6 0.8
----- ----- -----
Income before provision for income taxes.................... 5.5 4.5 8.7
Provision for income taxes.................................. 2.1 1.8 3.4
----- ----- -----
Net income.................................................. 3.4% 2.7% 5.3%
===== ===== =====

FISCAL 2000 COMPARED TO FISCAL 1999

Sales in fiscal 2000 were $580,182,000 for the 53 week fiscal year compared
to sales in fiscal 1999 of $524,407,000 for the 52 week fiscal year, an increase
of $55,775,000, or 10.6%. The dollar increase in sales in fiscal 2000 compared
to fiscal 1999 was due to the impact of the 36 new store openings in fiscal 2000
and the full year impact in 2000 of the 94 net new store openings in fiscal
1999. The increase in sales was also due to the increase in comparable store
sales of 3.9 percent for the 52 weeks ended January 27, 2001 compared to the 52
weeks ended January 29, 2000. These increases were somewhat offset by the
closing of 32 stores in fiscal 2000.

Cost of sales, including buying, distribution and occupancy costs, was
$419,310,000 in fiscal 2000 compared to $380,012,000 in fiscal 1999, an increase
of $39,298,000, or 10.3%. As a percentage of sales, cost of sales decreased to
72.3% in fiscal 2000, from 72.5% in fiscal 1999, a decrease of 0.2%. The dollar
increase in cost of sales in fiscal 2000 compared to fiscal 1999 was due
primarily to the increase in the number of new stores and the increase in total
sales. The decrease in cost of sales as a percentage of sales related primarily
to a decrease in markdowns from the prior year. The prior year markdowns were
higher due to the need to clear excess merchandise. Offsetting this decrease in
the cost of sales were increases in buying costs, distribution costs and, to a
lesser extent, occupancy costs. The increase in buying costs as a percentage of
sales was due to additional headcount added to support the new divisions and
further augment current infrastructure. Occupancy costs as a percentage of sales
increased slightly as a result of an increase in depreciation.

Selling, general and administrative expenses were $134,002,000 in fiscal
2000 compared to $124,712,000 in fiscal 1999, an increase of $9,290,000, or
7.4%. As a percentage of sales, selling, general and administrative expenses was
23.1% in fiscal 2000 compared to 23.8% in fiscal 1999, a decrease of 0.7%. The
dollar increase in selling, general and administrative expenses in fiscal 2000
compared to fiscal 1999 was primarily due to leveraging expenses against the
increase in total sales. The decrease as a percentage of sales was related to a
decrease in advertising from the prior year, a decrease in costs related to the
catalog which was discontinued and a decrease in the merchandise delivery cost.
Offsetting this decrease to selling, general and administrative expenses as a
percentage of sales was an increase in executive salaries due to the separation
payment to the former president of the company and an increase in office wages
related to the additional headcount added to support a larger

12

organization. Included in selling, general and administrative expenses was the
loss on disposal of the assets for the Limbo Lounge division of $2.0 million and
the income derived from the reversal of a reserve for self insurance (see
Note 11 of Notes To Consolidated Financial Statements).

The Company had no other income, net, in fiscal 2000 compared to $1,154,000
in fiscal 1999. Other income, net, for fiscal 1999 was related to the sale of
one store lease.

Interest income, net, was $4,857,000 in fiscal 2000 compared to $3,005,000
in fiscal 1999, an increase of $1,852,000. This increase was due primarily to an
increase in the average cash balance invested during the year as well as an
increase in the effective interest rates for the year.

Income tax provision was $12,215,000 in fiscal 2000 compared to $9,659,000
in fiscal 1999. The effective income tax rate in fiscal 2000 was 38.5% compared
to 40.5% in fiscal 1999. The decrease in the effective tax rate in fiscal 2000
compared to fiscal 1999 was due to an increase in income generated from states
with lower effective tax rates.

Based on the factors noted above, net income was $19,512,000 in fiscal 2000
compared to $14,183,000 in fiscal 1999, an increase of $5,329,000, or 37.6%. As
a percentage of sales, net income was 3.4% in fiscal 2000 compared to 2.7% in
fiscal 1999.

FISCAL 1999 COMPARED TO FISCAL 1998

Sales in fiscal 1999 were $524,407,000 compared to sales in fiscal 1998 of
$485,389,000, an increase of $39,018,000, or 8.0%. The dollar increase in sales
in fiscal 1999 compared to fiscal 1998 was due to the impact of the 109 new
store openings in fiscal 1999 and the full year impact in 1999 of the net 65 new
store openings in fiscal 1998. These increases were somewhat offset by the
closing of 15 stores in fiscal 1999 and by the decrease in comparable store
sales of 9.8%.

Cost of sales, including buying, distribution and occupancy costs, was
$380,012,000 in fiscal 1999 compared to $336,527,000 in fiscal 1998, an increase
of $43,485,000 or 12.9%. As a percentage of sales, cost of sales increased to
72.5% in fiscal 1999, from 69.3% in fiscal 1998, an increase of 3.2%. The dollar
increase in cost of sales in fiscal 1999 compared to fiscal 1998 was due
primarily to the increase in the number of stores. The increase in cost of sales
as a percentage of sales related primarily to an increase in occupancy costs as
a percent of sales due to the decrease in comparable store sales. To a lesser
extent, the increase was due to an increase in buying costs as a percentage of
sales due to additional headcount added in fiscal 1999 to support the increase
in the number of stores. Offsetting these increases was a decrease in
distribution costs related primarily to the decrease in the unit cost of
processing in the current year and to leveraging of fixed costs, such as rent
and depreciation due to the increase in total sales. The cost of merchandise as
a percent of sales was the same as the prior year. There was an improvement in
the initial mark up and the shrink rate in fiscal 1999 compared to fiscal 1998,
which was offset by an increase in markdowns. The increase in markdowns was
related primarily with the need to clear merchandise due to the decrease in
comparable store sales, particularly in the fourth quarter.

Selling, general and administrative expenses were $124,712,000 in fiscal
1999 compared to $110,554,000 in fiscal 1998, an increase of $14,158,000, or
12.8%. As a percentage of sales, selling, general and administrative expenses
was 23.8% in fiscal 1999 compared to 22.8% in fiscal 1998, an increase of 1%.
The dollar increase in selling, general and administrative expenses in fiscal
1999 compared to fiscal 1998 was primarily due to the increase in total sales.
The increase as a percentage of sales was primarily related to the increases in
selling wages and advertising expenses in the current year as a percentage of
sales offset somewhat by a decrease in the fixed costs associated with catalog
production as a percentage of sales. Without the impact of the catalog
operation, selling, general and administrative expenses increased 1.8%. This
increase related primarily to the increase in selling expense as a percentage of
sales due to the impact of the decrease in the comparable store sales on the

13

fixed portion of store wages. Also contributing to the increase as a percentage
of sales was an increase in advertising expense related to a national
advertising campaign in fiscal 1999 for both the Blue Asphalt and Arden B.
brands.

Other income, net, was $1,154,000, or 0.2% of sales in fiscal 1999. Other
income, net, was related to the sale of one store lease.

Interest income, net, was $3,005,000 in fiscal 1999 compared to $3,894,000
in fiscal 1998, a decrease of $889,000. This decrease was due primarily to a
decrease in the average cash balance invested during the year.

Income tax provision was $9,659,000 in fiscal 1999 compared to $16,248,000
in fiscal 1998. The effective income tax rate in fiscal 1999 was 40.5% compared
to 38.5% in fiscal 1998. The increase in the effective tax rate in fiscal 1999
compared to fiscal 1998 was due to the impact of the lower pretax income in
fiscal 1999 and the permanent timing differences between book and tax, as well
as to the decrease in tax exempt securities.

Based on the factors noted above, net income was $14,183,000 in fiscal 1999
compared to $25,954,000 in fiscal 1998, a decrease of $11,771,000, or 45.4%. As
a percentage of sales, net income was 2.7% in fiscal 1999 compared to 5.3% in
fiscal 1998.

LIQUIDITY AND CAPITAL RESOURCES

Working capital at the end of fiscal 2000, 1999 and 1998 was $44,213,000,
$47,707,000 and $21,856,000, respectively. The decrease in working capital in
fiscal 2000 compared to fiscal 1999 was primarily due to a net increase in
long-term investments of $32,731,000, as current year excess cash has been
invested in long-term investments with maturities of more than one year. This
decrease was offset to some extent by the increase in prepaid expenses and the
decrease in the current portion of long-term debt. Net cash provided by
operating activities in fiscal 2000, 1999 and 1998 was $46,395,000, $28,795,000
and $43,950,000, respectively. The increase in net cash provided by operating
activities in fiscal 2000 compared to fiscal 1999 was due primarily to the
increase in net earnings. Further contributing to the increase was the increase
in income taxes payable and the decrease in merchandise inventories. This was
offset to some extent by the increase in prepaid rent expenses and net deferred
taxes. The increase in income taxes payable was due to the increase in taxable
income, particularly in the fourth quarter. The decrease in inventory over the
prior year was related to the planned decrease in inventory levels.

In fiscal 2000, 1999 and 1998 the Company invested $18,134,000, $26,819,000
and $26,503,000, respectively, in property and equipment and leasehold
improvements. These expenditures related primarily to new store openings and
remodels. In fiscal 2000, the Company opened 36 stores and remodeled 20 stores.
In fiscal 1999, the Company acquired the leases and equipment and leasehold
improvements for 78 store locations from Britches of Georgetowne, Inc. for
$15,704,000, of which $6,972,000 was classified as goodwill. In fiscal 1998, the
Company acquired the leases and equipment and leasehold improvements for 19
store locations from Mothers Work, Inc. for $1,911,000. The majority of the
locations acquired were converted to Arden B. stores. Capital expenditures for
fiscal 2001 are currently estimated to be $44,000,000, related primarily to
planned new store openings and remodels.

On March 25, 2001, the Company acquired the leases, merchandise inventory
and furniture and fixtures for 18 Zutopia stores from Gymboree, Inc. Zutopia is
a "tween" retail concept which caters to the female customer ages 5 to 12. The
Company intends to continue to operate the acquired store locations under the
Zutopia name.

In September 1998, the Company's Board of Directors authorized the
repurchase of up to 20% of the outstanding shares of the Company's Class A
Common Stock. As of February 3, 2001, 1,367,600

14

shares had been repurchased at a cost of $20,349,000. Such repurchased shares
are reflected as treasury stock in the accompanying consolidated financial
statements.

The Company has a secured revolving line of credit arrangement with Bank of
America National Trust and Savings Association ("Bank of America") in an
aggregate principal amount of $50,000,000, maturing on July 1, 2001. The Company
also had a five year amortizing unsecured term loan with Bank of America in an
amount up to $10,000,000. This loan was repaid in full on May 24, 2000. At
February 3, 2001, there were no outstanding borrowings under the credit
arrangement and there were $5,512,000 open letters of credit related to imported
inventory orders. The Company was in compliance with all terms and covenants of
the credit arrangement. The Company invests its excess funds primarily in a
short-term investment grade money market fund, investment grade commercial paper
and U.S. Treasury and Agency obligations. Management believes the Company's
working capital, investments and cash flows from operating activities will be
sufficient to meet the Company's operating and capital requirements in the
foreseeable future.

SEASONALITY AND INFLATION

The Company's business is seasonal by 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 the first week of September), historically accounting for the largest
percentage of sales volume. In the Company's three fiscal years ended
February 3, 2001, the Christmas and back-to-school seasons together accounted
for an average of approximately 31% of the Company's annual sales, after
adjusting for sales increases related to new stores. The Company does not
believe that inflation has had a material effect on the results of operations
during the past three years. However, there can be no assurance that the
Company's business will not be affected by inflation in the future.

STATEMENT REGARDING FORWARD LOOKING DISCLOSURE

The preceding "Business" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" sections may contain various
forward looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act"), and Section 21E of the
Securities Exchange Act of 1934, as amended, which represent the Company's
expectations or beliefs concerning future events. The Company cautions that
these statements are further qualified by important factors that could cause
actual results to differ materially from those in the forward looking
statements, including, without limitation, the retention by the Company of
suppliers for both brand name and Company-developed merchandise, the ability of
the Company to expand and to continue to increase comparable store sales, and
the sufficiency of the Company's working capital and cash flows from operating
activities. In addition, these statements are further qualified by important
factors that could cause actual results to differ materially from those in the
forward looking statements, including, without limitation, a decline in demand
for the merchandise offered by the Company, the ability of the Company to locate
and obtain acceptable store sites and lease terms or renew existing leases, the
ability of the Company to obtain adequate merchandise supply, the ability of the
Company to hire and train employees, the ability of the Company to gauge the
fashion tastes of its customers and provide merchandise that satisfies customer
demand, management's ability to manage the Company's expansion, the effect of
economic conditions, the effect of severe weather or natural disasters and the
effect of competitive pressures from other retailers. The Company disclaims any
obligation or undertaking to disseminate any updates or revisions to any forward
looking statement contained herein or to reflect any change in the expectations
of the Company after the date hereof or any change in events, conditions or
circumstances on which any statement is based.

15

NEW ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 133 establishes
accounting and reporting standards for derivative instruments and for hedging
activities. In July 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date of
FASB Statement No. 133," which delays the effective date of SFAS No. 133 to
fiscal years beginning after June 15, 2000. The Company adopted SFAS No. 133
effective February 4, 2001. The adoption of SFAS No. 133 will not have a
material effect on the Company's consolidated results of operations or financial
condition.

In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements". SAB No. 101 summarizes the staff's views in applying accounting
principles generally accepted in the United States of America to revenue
recognition in financial statements. The Company adopted SAB No. 101 in the
fourth quarter of fiscal year 2000. The adoption of SAB No. 101 did not have a
material impact on the Company's consolidated results of operations or equity.

In March 2000, the FASB issued Interpretation ("FIN") No. 44, "Accounting
for Certain Transactions involving Stock Compensation." FIN No. 44 is an
interpretation of Accounting Principal Board's ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees". Among other matters, FIN No. 44
clarifies the application of APB Opinion No. 25 regarding the definition of
employee for purposes of applying APB Opinion No. 25, the criteria for
determining whether a plan qualifies as non compensatory and the accounting
consequences of modifications to the terms of a previously issued stock options
or similar awards. The Company adopted the provisions of FIN No. 44 in the third
quarter of fiscal 2000. The adoption of FIN No. 44 did not have a material
impact on the Company's consolidated results of operations or financial
condition.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

To the extent the Company borrows under its credit facility, the Company
would be exposed to market risk related to changes in interest rates. At
February 3, 2001 no borrowings were outstanding under the Company's credit
facility. See Notes 1 and 3 to the Company's Consolidated Financial Statements
for further discussion of the Company's accounting policies for financial
instruments. The Company is not a party with respect to derivative financial
instruments.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Filed under Item 14.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not Applicable.

16

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

ITEM 11. EXECUTIVE COMPENSATION

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

All of the information called for by Part III (Items 10 through 13) is
incorporated by reference from the Company's definitive Proxy Statement in
connection with its Annual Meeting of Stockholders to be held May 30, 2001,
filed pursuant to Regulation 14A.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) The following documents are filed as part of this report:

1. Financial Statements See "Index to Consolidated Financial
Statements and Financial Statement Schedules".

2. Financial Statement Schedules See "Index to Consolidated
Financial Statements and Financial Statement Schedules".

3. Exhibits See "Exhibit Index".

(b) Reports on Form 8-K.

No reports on Form 8-K were filed during the last quarter of the fiscal year
ended February 3, 2001.

17

SIGNATURES

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.

THE WET SEAL, INC.
(REGISTRANT)

By: /s/ KATHY BRONSTEIN
------------------------------------------
Kathy Bronstein
VICE CHAIRMAN AND CHIEF EXECUTIVE OFFICER

By: /s/ ANN CADIER KIM
------------------------------------------
Ann Cadier Kim
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated and on the dates indicated.

SIGNATURES TITLE DATE SIGNED
- -------------------------------------- -------------------------------------- -------------

/s/ IRVING TEITELBAUM Chairman of the Board and Director April 5, 2001
- -------------------------------------
Irving Teitelbaum

/s/ KATHY BRONSTEIN Vice Chairman and Chief Executive April 5, 2001
- ------------------------------------- Officer and Director (Principal
Kathy Bronstein Executive Officer)

/s/ STEPHEN GROSS Secretary and Director April 5, 2001
- -------------------------------------
Stephen Gross

/s/ ANN CADIER KIM Executive Vice President of Finance April 5, 2001
- ------------------------------------- and Chief Financial Officer (Principal
Ann Cadier Kim Financial and Accounting Officer)

/s/ GEORGE H. BENTER JR. Director April 5, 2001
- -------------------------------------
George H. Benter Jr.

/s/ WALTER F. LOEB Director April 5, 2001
- -------------------------------------
Walter F. Loeb

/s/ WILFRED POSLUNS Director April 5, 2001
- -------------------------------------
Wilfred Posluns

/s/ GERALD RANDOLPH Director April 5, 2001
- -------------------------------------
Gerald Randolph

/s/ ALAN SIEGEL Director April 5, 2001
- -------------------------------------
Alan Siegel

18

THE WET SEAL, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES

PAGE
--------

INDEPENDENT AUDITORS' REPORT:

Report of Deloitte & Touche LLP............................. F-2

FINANCIAL STATEMENTS:

Consolidated balance sheets as of February 3, 2001 and
January 29, 2000.......................................... F-3

Consolidated statements of income for the fiscal years ended
February 3, 2001, January 29, 2000 and January 30, 1999... F-4

Consolidated statements of comprehensive income for the
fiscal years ended February 3, 2001, January 29, 2000 and
January 30, 1999.......................................... F-5

Consolidated statements of stockholders' equity for the
fiscal years ended February 3, 2001, January 29, 2000 and
January 30, 1999.......................................... F-6

Consolidated statements of cash flows for the fiscal years
ended February 3, 2001, January 29, 2000 and January 30,
1999...................................................... F-7

Notes to consolidated financial statements.................. F-8

FINANCIAL STATEMENT SCHEDULES:

All schedules are omitted as they are not required, or the
required information is shown in the consolidated
financial statements or the notes thereto.

F-1

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders
The Wet Seal, Inc.:

We have audited the accompanying consolidated balance sheets of The Wet
Seal, Inc. (the Company) as of February 3, 2001 and January 29, 2000 and the
related consolidated statements of income, comprehensive income, stockholders'
equity and cash flows for each of the three fiscal years in the period ended
February 3, 2001. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The Wet
Seal, Inc. as of February 3, 2001 and January 29, 2000 and the results of its
operations and its cash flows for each of the three fiscal years in the period
ended February 3, 2001, in conformity with accounting principles generally
accepted in the United States of America.

Deloitte & Touche LLP
Costa Mesa, California
March 16, 2001

F-2

THE WET SEAL, INC.
CONSOLIDATED BALANCE SHEETS

FEBRUARY 3, 2001 JANUARY 29, 2000
---------------- ----------------
(IN THOUSANDS)

ASSETS
Current Assets:
Cash and cash equivalents (Note 1).......................... $ 30,122 $ 44,921
Short-term investments (Note 3)............................. 38,060 26,395
Other receivables........................................... 2,412 3,909
Merchandise inventories (Note 1)............................ 30,102 33,288
Prepaid expenses, including prepaid rent of $8,856 as of
February 3, 2001 (Note 1)................................. 9,463 --
Deferred tax charges (Note 4)............................... 1,094 1,560
-------- --------
Total current assets.................................... 111,253 110,073
-------- --------
Equipment and Leasehold Improvements (Note 1):
Leasehold improvements...................................... 99,873 99,679
Furniture, fixtures and equipment........................... 54,048 47,488
Leasehold rights............................................ 2,944 2,944
-------- --------
156,865 150,111
Less accumulated depreciation............................... (85,483) (73,167)
-------- --------
Net equipment and leasehold improvements................ 71,382 76,944
Long-Term Investments (Note 3).............................. 40,018 7,287
OTHER ASSETS:
Deferred tax charges and other assets (Notes 4 and 12)...... 14,541 11,594
Goodwill, net of accumulated amortization of $1,386,000 and
$992,000 as of February 3, 2001 and January 29, 2000,
respectively (Note 1)..................................... 6,717 7,111
-------- --------
Total other assets...................................... 21,258 18,705
-------- --------
$243,911 $213,009
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable............................................ $ 43,681 $ 39,448
Accrued liabilities (Note 11)............................... 17,811 20,611
Income taxes payable (Note 4)............................... 5,548 543
Current portion of long-term debt........................... -- 1,764
-------- --------
Total current liabilities............................... 67,040 62,366
-------- --------
Long-Term Liabilities:
Deferred rent (Note 1)...................................... 9,191 8,501
Other long-term liabilities (Note 12)....................... 3,887 3,909
-------- --------
Total long-term liabilities............................. 13,078 12,410
-------- --------
Total liabilities....................................... 80,118 74,776
-------- --------
Commitments and Contingencies (Note 7)
Stockholders' Equity (Notes 5 and 6):
Preferred Stock, $.01 par value, authorized, 2,000,000
shares; none issued and outstanding....................... -- --
Common Stock, Class A, $.10 par value, authorized 20,000,000
shares; 11,236,879 and 10,900,023 shares issued and
outstanding at February 3, 2001 and January 29, 2000,
respectively.............................................. 1,124 1,090
Common Stock, Class B convertible, $.10 par value,
authorized 10,000,000 shares; 2,912,665 shares issued and
outstanding at February 3, 2001 and January 29, 2000...... 291 291
Paid-in capital............................................. 68,658 62,493
Retained earnings........................................... 114,069 94,557
Other comprehensive loss (Note 12).......................... -- (139)
Treasury stock, 1,367,600 and 1,347,600 shares, at cost, at
February 3, 2001 and January 29, 2000, respectively....... (20,349) (20,059)
-------- --------
Total stockholders' equity.............................. 163,793 138,233
-------- --------
$243,911 $213,009
======== ========

See accompanying notes to consolidated financial statements.

F-3

THE WET SEAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE DATA)

FEBRUARY 3, 2001 JANUARY 29, 2000 JANUARY 30, 1999
---------------- ---------------- ----------------

SALES............................................ $ 580,182 $ 524,407 $ 485,389
COST OF SALES (including buying, distribution and
occupancy costs)............................... 419,310 380,012 336,527
---------- ---------- ----------
GROSS MARGIN..................................... 160,872 144,395 148,862
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES..... 134,002 124,712 110,554
---------- ---------- ----------
OPERATING INCOME................................. 26,870 19,683 38,308
OTHER INCOME..................................... -- 1,154 --
INTEREST INCOME, NET............................. 4,857 3,005 3,894
---------- ---------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES......... 31,727 23,842 42,202
PROVISION FOR INCOME TAXES (Note 4).............. 12,215 9,659 16,248
---------- ---------- ----------
NET INCOME....................................... $ 19,512 $ 14,183 $ 25,954
========== ========== ==========
NET INCOME PER SHARE, BASIC (Note 13)............ $ 1.56 $ 1.14 $ 1.98
========== ========== ==========
NET INCOME PER SHARE, DILUTED (Note 13).......... $ 1.54 $ 1.11 $ 1.91
========== ========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING, BASIC (Note
1)............................................. 12,484,409 12,425,704 13,085,587
========== ========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING, DILUTED
(Note 1)....................................... 12,662,307 12,813,338 13,581,233
========== ========== ==========

See accompanying notes to consolidated financial statements.

F-4

THE WET SEAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FEBRUARY 3, 2001 JANUARY 29, 2000 JANUARY 30, 1999
---------------- ---------------- ----------------

NET INCOME....................................... $19,512 $14,183 $25,954
------- ------- -------
OTHER COMPREHENSIVE INCOME (LOSS):
SUPPLEMENTAL EMPLOYEE RETIREMENT PLAN ADJUSTMENT
(Note 12)...................................... 139 -- (139)
------- ------- -------
COMPREHENSIVE INCOME............................. $19,651 $14,183 $25,815
======= ======= =======

See accompanying notes to consolidated financial statements.

F-5

THE WET SEAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

COMMON STOCK
----------------------------------------------
CLASS A CLASS B
---------------------- ---------------------
PAID-IN RETAINED
SHARES PAR VALUE SHARES PAR VALUE CAPITAL EARNINGS
---------- --------- --------- --------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Balance at January 31,
1998................ 10,656,578 $1,066 2,912,665 $291 $57,217 $54,420
Stock issued pursuant
to long-term
incentive plan
(Note 6)............ 12,308 1 -- -- 462 --
Exercise of stock
options (Note 6).... 36,000 4 -- -- 269 --
Tax benefit related to
exercise of stock
options (Note 6).... -- -- -- -- 408 --
Repurchase of common
stock (Note 5)...... -- -- -- -- -- --
Supplemental Employee
Retirement Plan
adjustment
(Note 12)........... -- -- -- -- -- --
Net income............ -- -- -- -- -- 25,954
---------- ------ --------- ---- ------- --------
Balance at January 30,
1999................ 10,704,886 1,071 2,912,665 291 58,356 80,374
Stock issued pursuant
to long-term
incentive plan
(Note 6)............ 10,137 1 -- -- 110 --
Exercise of stock
options (Note 6).... 185,000 18 -- -- 1,691 --
Tax benefit related to
exercise of stock
options (Note 6).... -- -- -- -- 2,336 --
Repurchase of common
stock (Note 5)...... -- -- -- -- -- --
Net income............ -- -- -- -- -- 14,183
---------- ------ --------- ---- ------- --------
Balance at January 29,
2000................ 10,900,023 1,090 2,912,665 291 62,493 94,557
Stock issued pursuant
to long-term
incentive plan
(Note 6)............ 12,756 1 -- -- 394 --
Exercise of stock
options (Note 6).... 324,100 33 -- -- 3,846 --
Tax benefit related to
exercise of stock
options (Note 6).... -- -- -- -- 1,925 --
Repurchase of common
stock (Note 5)...... -- -- -- -- -- --
Supplemental Employee
Retirement Plan
adjustment
(Note 12)........... -- -- -- -- -- --
Net income............ -- -- -- -- -- 19,512
---------- ------ --------- ---- ------- --------
Balance at February 3,
2001................ 11,236,879 $1,124 2,912,665 $291 $68,658 $114,069
========== ====== ========= ==== ======= ========

OTHER TOTAL
COMPREHEN- TREASURY STOCKHOLDERS'
SIVE LOSS STOCK EQUITY
-------------- -------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Balance at January 31,
1998................ $ -- $ -- $112,994
Stock issued pursuant
to long-term
incentive plan
(Note 6)............ -- -- 463
Exercise of stock
options (Note 6).... -- -- 273
Tax benefit related to
exercise of stock
options (Note 6).... -- -- 408
Repurchase of common
stock (Note 5)...... -- (19,675) (19,675)
Supplemental Employee
Retirement Plan
adjustment
(Note 12)........... (139) -- (139)
Net income............ -- -- 25,954
---- -------- --------
Balance at January 30,
1999................ (139) (19,675) 120,278
Stock issued pursuant
to long-term
incentive plan
(Note 6)............ -- -- 111
Exercise of stock
options (Note 6).... -- -- 1,709
Tax benefit related to
exercise of stock
options (Note 6).... -- -- 2,336
Repurchase of common
stock (Note 5)...... -- (384) (384)
Net income............ -- -- 14,183
---- -------- --------
Balance at January 29,
2000................ (139) (20,059) 138,233
Stock issued pursuant
to long-term
incentive plan
(Note 6)............ -- -- 395
Exercise of stock
options (Note 6).... -- -- 3,879
Tax benefit related to
exercise of stock
options (Note 6).... -- -- 1,925
Repurchase of common
stock (Note 5)...... -- (290) (290)
Supplemental Employee
Retirement Plan
adjustment
(Note 12)........... 139 -- 139
Net income............ -- -- 19,512
---- -------- --------
Balance at February 3,
2001................ $ -- $(20,349) $163,793
==== ======== ========

See accompanying notes to consolidated financial statements.

F-6

THE WET SEAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

FEBRUARY 3, 2001 JANUARY 29, 2000 JANUARY 30, 1999
---------------- ---------------- ----------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 19,512 $14,183 $25,954
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 22,284 18,771 13,039
Loss on disposal of equipment and leasehold
improvements............................................ 2,295 546 --
Stock issued pursuant to long-term incentive plan......... 395 111 463
Deferred tax, net......................................... (2,742) 271 (1,124)
Changes in operating assets and liabilities:
Other receivables..................................... 1,497 (244) (456)
Merchandise inventories............................... 3,186 (5,286) (1,118)
Prepaid expenses...................................... (9,463) -- 330
Other assets.......................................... 261 43 (594)
Accounts payable and accrued liabilities.............. 1,433 2,114 1,517
Income taxes payable.................................. 6,930 (3,311) 4,045
Deferred rent......................................... 690 1,043 1,204
Other long-term liabilities........................... 117 554 690
-------- ------- -------
Net cash provided by operating activities............. 46,395 28,795 43,950
-------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in equipment and leasehold improvements.......... (18,134) (26,819) (26,503)
Acquisition of store leases and store assets................ -- (15,704) (1,911)
Investment in marketable securities......................... (103,221) (4,452) (83,018)
Proceeds from sale of marketable securities................. 58,336 30,686 43,418
-------- ------- -------
Net cash used in investing activities................. (63,019) (16,289) (68,014)
-------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt........................ (1,764) (500) (1,000)
Purchase of treasury stock.................................. (290) (384) (19,675)
Proceeds from issuance of common stock...................... 3,879 1,709 273
-------- ------- -------
Net cash provided by (used in) financing activities... 1,825 825 (20,402)
-------- ------- -------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS........ (14,799) 13,331 (44,466)
CASH AND CASH EQUIVALENTS, beginning of year................ 44,921 31,590 76,056
-------- ------- -------
CASH AND CASH EQUIVALENTS, end of year...................... $ 30,122 $44,921 $31,590
======== ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest.................................................. $ 38 $ 146 $ 194
Income taxes, net......................................... $ 8,108 $12,902 $13,326

SCHEDULE OF NONCASH TRANSACTIONS:

During the fifty-three weeks ended February 3, 2001 and fifty-two weeks
ended January 29, 2000 and January 30, 1999, the Company recorded an
increase to paid-in capital and a decrease to income taxes payable of
$1,925,000, $2,336,000 and $408,000, respectively, related to tax benefits
associated with the exercise of non-qualified stock options.

During the fifty-three weeks ended February 3, 2001, the Company
recorded an increase to other comprehensive income of $139,000 and a
corresponding decrease to other long-term liabilities of $139,000, related
to the Supplemental Employee Retirement Plan (see note 13).

During the fifty-two weeks ended January 30, 1999, the Company recorded
a decrease to other comprehensive income of $139,000 and a corresponding
decrease to other long-term liabilities and other assets of $65,000 and
$204,000, respectively, related to the Supplemental Employee Retirement Plan
(see note 13).

See accompanying notes to consolidated financial statements.

F-7

THE WET SEAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED FEBRUARY 3, 2001, JANUARY 29, 2000 AND JANUARY 30, 1999

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF THE BUSINESS

The Wet Seal, Inc. (the "Company") is a nationwide specialty retailer of
fashionable and contemporary apparel and accessory items designed for consumers
with a young, active lifestyle. The Company's success is largely dependent upon
its ability to gauge the fashion tastes of its customers and to provide
merchandise that satisfies customer demand. The Company's failure to anticipate,
identify or react to changes in fashion trends could adversely affect its
results of operations.

Approximately 32% of the voting stock of the Company is held by a group of
companies directly or indirectly controlled by two directors of the Company, one
of whom is the Chairman of the Board.

The Company's fiscal year ends on the Saturday closest to the end of
January. The reporting period includes 53 weeks in fiscal 2000 and 52 weeks in
each of the fiscal years 1999 and 1998.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of The Wet
Seal, Inc. and its wholly owned subsidiary, The Wet Seal Retail, Inc. All
significant intercompany balances and transactions have been eliminated in
consolidation.

BASIS OF PRESENTATION

The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America.

CASH AND CASH EQUIVALENTS

The Company considers all highly-liquid debt instruments purchased with an
initial maturity of three months or less to be cash equivalents.

MERCHANDISE INVENTORIES

Merchandise inventories are stated at the lower of cost (first-in,
first-out) or market. Cost is determined using the retail inventory method.

EQUIPMENT AND LEASEHOLD IMPROVEMENTS

Equipment and leasehold improvements are stated at cost. Expenditures for
betterment or improvement are capitalized, while expenditures for repairs that
do not significantly increase the life of the asset are expensed as incurred.

Depreciation is provided using primarily the straight-line method over the
estimated useful lives of the assets. Furniture, fixtures and equipment are
typically depreciated over three to five years. Leasehold improvements and the
cost of acquiring leasehold rights are depreciated over the lesser of the term
of the lease or 10 years.

F-8

THE WET SEAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED FEBRUARY 3, 2001, JANUARY 29, 2000 AND JANUARY 30, 1999

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LONG-LIVED ASSETS

The Company accounts for the impairment and disposition of long-lived assets
in accordance with Statement of Financial Accounting Standards ("SFAS"),
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of". In accordance with SFAS No. 121, long-lived assets to
be held are reviewed for events or changes in circumstances which indicate that
their carrying value may not be recoverable. At February 3, 2001, the Company
believes there has been no impairment of the value of such assets.

INTANGIBLE ASSETS

Excess of cost over net assets acquired (goodwill), which resulted from the
acquisition of certain store assets in 1990 and 1999 is being amortized on the
straight-line method over 20 years for the 1999 acquisition and over 25 years
for the 1990 acquisition. The Company assesses the recoverability of goodwill at
each balance sheet date by determining whether the amortization of the balance
over its remaining useful life can be recovered through projected undiscounted
future operating cash flows from the acquired assets. At February 3, 2001 the
Company determined the goodwill was recoverable.

REVENUE RECOGNITION

Sales are recognized upon purchase by customer.

RENTAL EXPENSE

Any defined rental escalation is averaged over the term of the related lease
in order to provide level recognition of rental expense.

STORE PRE-OPENING COSTS

Store opening and pre-opening costs are charged to expense as they are
incurred.

ADVERTISING COSTS

Costs for advertising related to retail operations consisting of magazine
ads, in-store signage and promotions are expensed as incurred. Total advertising
expenses related primarily to retail operations in fiscal 2000, 1999 and 1998
were $2,788,000, $5,567,000, and $1,993,000. In fiscal 1999, approximately
$2,872,000 was related to a print media advertising campaign.

INCOME TAX

The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes" ("SFAS No. 109"). Deferred tax charges are
provided on items, principally depreciation and rent, for which there are
temporary differences in recording such items for financial reporting purposes
and for income tax purposes.

F-9

THE WET SEAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED FEBRUARY 3, 2001, JANUARY 29, 2000 AND JANUARY 30, 1999

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET INCOME PER SHARE

In accordance with SFAS No. 128, "Earnings Per Share", net income per share,
basic, is computed based on the weighted-average number of common shares
outstanding for the period. Net income per share, diluted, is computed based on
the weighted-average number of common and potentially dilutive common equivalent
shares outstanding for the period (see note 13).

NEW ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 133 establishes
accounting and reporting standards for derivative instruments and for hedging
activities. In July 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date of
FASB Statement No. 133," which delays the effective date of SFAS No. 133 to
fiscal years beginning after June 15, 2000. The Company adopted SFAS No. 133
effective February 4, 2001. The adoption of SFAS No. 133 will not have a
material effect on the Company's consolidated results of operations or financial
condition.

In December 1999, the Security and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements". SAB No. 101 summarizes the staff's views in applying accounting
principles generally accepted in the United States of America to revenue
recognition in financial statements. The Company adopted SAB No. 101 in the
fourth quarter of fiscal year 2000. The adoption of SAB No. 101 did not have a
material impact on the Company's consolidated results of operations or equity.

In March 2000, the FASB issued Interpretation ("FIN") No. 44, "Accounting
for Certain Transactions involving Stock Compensation." FIN No. 44 is an
interpretation of Accounting Principal Board's ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees". Among other matters, FIN No. 44
clarifies the application of APB Opinion No. 25 regarding the definition of
employee for purposes of applying APB Opinion No. 25, the criteria for
determining whether a plan qualifies as non compensatory and the accounting
consequences of modifications to the terms of a previously issued stock options
or similar awards. The Company adopted the provisions of FIN No. 44 in the third
quarter of fiscal 2000. The adoption of FIN No. 44 did not have a material
impact on the Company's consolidated results of operations or financial
condition.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Management believes the carrying amounts of cash and cash equivalents, other
receivables and accounts payable approximate fair value due to the short
maturity of these financial instruments.

F-10

THE WET SEAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED FEBRUARY 3, 2001, JANUARY 29, 2000 AND JANUARY 30, 1999

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Long-term investments consist of highly liquid interest bearing securities that
are carried at amortized cost plus accrued income, which management believes
approximates market.

STOCK-BASED COMPENSATION

The Company accounts for stock-based awards to employees using the intrinsic
value method in accordance with APB Opinion No. 25, "Accounting for Stock Issued
to Employees" (see note 6).

SEGMENT INFORMATION

In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information". This statement establishes standards for
the way companies report information about operating segments in financial
statements. It also establishes standards for related disclosures about products
and services, geographic areas, and major customers. In accordance with the
provisions of SFAS No. 131, the Company has determined that it does not
currently have any separately reportable operating segments.

NOTE 2. ACQUISITION

On December 1, 1998, the Company acquired the leases and furniture and
fixtures for 19 store locations from Mothers Work, Inc. The purchase price of
$1,911,000 was allocated to leasehold improvements and furniture, fixtures and
equipment in the accompanying consolidated financial statements. The majority of
the locations acquired were converted to Arden B. stores.

On February 1, 1999, the Company acquired the leases and furniture and
fixtures for 78 store locations from Britches of Georgetowne, Inc. for
$15,704,000. Based upon a third-party appraisal, the purchase price was
allocated to leasehold improvements, lease rights, and furniture, fixtures and
equipment in the accompanying consolidated financial statements. Excess of cost
over net assets acquired (goodwill) totaling $6,972,000 is being amortized on
the straight-line method over 20 years. The majority of the locations acquired
were converted to Arden B. stores.

F-11

THE WET SEAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED FEBRUARY 3, 2001, JANUARY 29, 2000 AND JANUARY 30, 1999

NOTE 3. INVESTMENTS

Short-term investments consist of highly liquid interest bearing deposits
purchased with an initial maturity exceeding three months with a remaining
maturity at February 3, 2001 less than 12 months. Long-term investments consist
of highly liquid interest bearing securities that mature beyond 12 months from
the balance sheet date. It is management's intent to hold short-term and
long-term investments to maturity. Short-term and long-term investments are
carried at amortized cost plus accrued income, which approximates market at
February 3, 2001.

Investments are comprised of the following (in thousands):

GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
DESCRIPTION MATURITY DATES COST GAINS LOSSES VALUE
- ----------- ---------------- --------- ---------- ---------- ---------

FEBRUARY 3, 2001

Corporate bonds.................... Within one year $ 6,480 $ 30 $ -- $ 6,510
Municipal bonds.................... Within one year 26,884 16 -- 26,900
Government obligations............. Within one year 3,946 4 -- 3,950
Floating rate/Adjustable Notes..... Within one year 750 -- -- 750
Corporate bonds.................... One to two years 25,782 315 -- 26,097
Municipal bonds.................... One to two years 14,236 131 -- 14,367
------- ---- ---- -------
$78,078 $496 $ -- $78,574
======= ==== ==== =======

GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
DESCRIPTION MATURITY DATES COST GAINS LOSSES VALUE
- ----------- ---------------- --------- ---------- ---------- ---------

JANUARY 29, 2000
Corporate bonds.................... Within one year $ 3,588 $ -- $ 90 $ 3,498
Municipal bonds.................... Within one year 10,507 -- 236 10,271
Government obligations............. Within one year 10,800 -- 103 10,697
Floating rate/Adjustable Notes..... Within one year 1,500 -- -- 1,500
Municipal bonds.................... One to two years 7,287 -- 108 7,179
------- ---- ---- -------
$33,682 $ -- $537 $33,145
======= ==== ==== =======

NOTE 4. PROVISION FOR INCOME TAXES

SFAS No. 109 requires the recognition of deferred tax assets and liabilities
for the future consequences of events that have been recognized in the Company's
consolidated financial statements or tax returns. The measurement of deferred
items is based on enacted tax laws. In the event that the future consequences of
differences between financial reporting bases and the tax bases of the Company's
assets and liabilities result in a deferred tax asset, SFAS No. 109 requires an
evaluation of the probability of being able to realize the future benefits
indicated by such asset. A valuation allowance related to a deferred tax asset
is recorded when it is more likely than not that some portion or all of the
deferred tax assets will not be realized.

F-12

THE WET SEAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED FEBRUARY 3, 2001, JANUARY 29, 2000 AND JANUARY 30, 1999

NOTE 4. PROVISION FOR INCOME TAXES (CONTINUED)
The components of the income tax provision are as follows (in thousands):

FEBRUARY 3, 2001 JANUARY 29, 2000 JANUARY 30, 1999
---------------- ---------------- ----------------

CURRENT:
Federal................................ $12,375 $7,067 $13,442
State.................................. 2,582 2,321 3,930
------- ------ -------
14,957 9,388 17,372

DEFERRED:
Federal................................ (2,352) (47) (1,126)
State.................................. (390) 318 2
------- ------ -------
(2,742) 271 (1,124)
------- ------ -------
$12,215 $9,659 $16,248
======= ====== =======

A reconciliation of the income tax provision to the amount of the provision
that would result from applying the federal statutory rate (35%) to income
before taxes is as follows:

FEBRUARY 3, 2001 JANUARY 29, 2000 JANUARY 30, 1999
---------------- ---------------- ----------------

Provision for income taxes at federal
statutory rate......................... 35.0% 35.0% 35.0%
State income taxes, net of federal income
tax benefit............................ 4.5 7.2 5.6
Tax exempt interest...................... (0.9) (1.7) (1.5)
Inventory contributions.................. (1.5) (2.0) --
Other.................................... 1.4 2.0 (0.6)
---- ---- ----
Effective tax rate....................... 38.5% 40.5% 38.5%
==== ==== ====

As of February 3, 2001 and January 29, 2000 the Company's net deferred tax
asset was $13,180,000 and $10,438,000 respectively. The major components of the
Company's net deferred taxes at February 3, 2001 and January 29, 2000 are as
follows (in thousands):

FEBRUARY 3, 2001 JANUARY 29, 2000
---------------- ----------------

Deferred rent............................ $ 3,602 $ 3,316
Acquisition related reserves............. -- 608
Inventory cost capitalization............ 1,006 919
Difference between book and tax basis of
fixed assets........................... 7,180 4,022
State income taxes....................... (428) (279)
Supplemental Employee Retirement Plan.... 1,224 860
Other.................................... 596 992
------- -------
$13,180 $10,438
======= =======

F-13

THE WET SEAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED FEBRUARY 3, 2001, JANUARY 29, 2000 AND JANUARY 30, 1999

NOTE 5. STOCKHOLDERS' EQUITY

The 2,912,665 shares of the Company's Class B Common Stock outstanding as of
February 3, 2001 are convertible on a share-for-share basis into shares of the
Company's Class A Common Stock at the option of the holder. The Class B Common
Stock has two votes per share while Class A Common Stock has one vote per share.

During the year ended January 30, 1999, the Company's Board of Directors
authorized the repurchase of up to 20% of the outstanding shares of the
Company's Class A Common Stock. As of February 3, 2001, 1,367,600 shares had
been repurchased at a cost of $20,349,000. Such repurchased shares are reflected
as treasury stock in the accompanying consolidated financial statements. As of
February 3, 2001 there were 767,716 shares remaining that are authorized for
repurchase.

NOTE 6. LONG-TERM INCENTIVE PLAN

Under the Company's long-term incentive plans (the "Plans"), the Company may
grant stock options which are either incentive stock options within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
non-qualified stock options. The Plans provide that the per share exercise price
of an incentive 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. Options become
exercisable over periods of up to five years and generally expire 10 years from
the date of grant or 90 days after employment or services are terminated. The
Plans also provide that the Company may grant restricted stock and other
stock-based awards. An aggregate of 2,425,000 shares of the Company's Class A
Common Stock may be issued pursuant to the Plans. As of February 3, 2001,
406,652 shares were available for future grants.

Stock option activity for each of the three years in the period ended
February 3, 2001 was as follows:

NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
--------- ----------------

Outstanding at January 31, 1998.................... 967,500 $14.53
Granted.......................................... 130,000 16.93
Canceled......................................... (12,000) 13.57
Exercised........................................ (36,000) 7.58
---------
Outstanding at January 30, 1999.................... 1,049,500 14.42
Granted.......................................... 705,500 15.13
Canceled......................................... (58,000) 16.17
Exercised........................................ (185,000) 9.24
---------
Outstanding at January 29, 2000.................... 1,512,000 15.32
Granted.......................................... 661,500 13.38
Canceled......................................... (284,800) 15.57
Exercised........................................ (324,100) 11.97
---------
Outstanding at February 3, 2001.................... 1,564,600 $15.14
=========

F-14

THE WET SEAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED FEBRUARY 3, 2001, JANUARY 29, 2000 AND JANUARY 30, 1999

NOTE 6. LONG-TERM INCENTIVE PLAN (CONTINUED)
At February 3, 2001, January 29, 2000 and January 30, 1999 there were
355,300, 380,500 and 283,500 outstanding options exercisable at a weighted
average exercise price of $16.24, $11.71 and $8.42, respectively.

The following table summarizes information on outstanding and exercisable
stock options as of February 3, 2001:

OPTIONS EXERCISABLE
OPTIONS OUTSTANDING ----------------------
------------------------------------------ NUMBER
NUMBER WEIGHTED WEIGHTED EXERCISABLE WEIGHTED
OUTSTANDING AVERAGE AVERAGE AS OF AVERAGE
RANGE OF AS OF REMAINING EXERCISE FEB. 3, EXERCISE
EXERCISE PRICES FEB. 3, 2001 CONTRACTUAL LIFE PRICE 2001 PRICE
- --------------- ------------ ---------------- -------- ----------- --------

$ 3.00 - $ 3.63....................... 14,000 3.34 $ 3.54 14,000 $ 3.54
4.13 - 5.13....................... 33,500 3.48 4.40 33,500 4.40
8.00 - 12.02....................... 427,500 9.16 11.54 7,000 8.00
13.94 - 16.88....................... 748,600 8.37 15.44 126,800 15.92
19.31 - 27.63....................... 341,000 6.92 20.56 174,000 20.11
--------- -------
$ 3.00 - $27.63....................... 1,564,600 8.12 $15.14 355,300 $16.24
========= =======

During the years ended February 3, 2001, January 29, 2000 and January 30,
1999, the Company recognized tax benefits of $1,925,000, $2,336,000 and
$408,000, respectively, resulting from the exercise of certain non-qualified
stock options.

ADDITIONAL LONG-TERM INCENTIVE PLAN INFORMATION

As discussed in Note 1, the Company continues to account for its stock-based
awards using the intrinsic value method in accordance with APB No. 25,
"Accounting for Stock Issued to Employees," and its related interpretations.
Accordingly, no compensation expense has been recognized in the consolidated
financial statements for employee incentive stock options or non-qualified stock
options.

SFAS No. 123, "Accounting for Stock-Based Compensation," requires the
disclosure of pro forma net income and earnings per share had the Company
adopted the fair value method as of the beginning of fiscal 1995. Under SFAS
No. 123, the fair value of stock-based awards to employees is calculated through
the use of option pricing models, even though such models were developed to
estimate the fair value of freely tradable, fully transferable options without
vesting restrictions, which significantly differ from the Company's stock option
awards. These models also require subjective assumptions, including future stock
price volatility and expected time to exercise, which greatly affect the
calculated values.

F-15

THE WET SEAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED FEBRUARY 3, 2001, JANUARY 29, 2000 AND JANUARY 30, 1999

NOTE 6. LONG-TERM INCENTIVE PLAN (CONTINUED)
The Company's calculations were made using the Black-Scholes option-pricing
model with the following weighted average assumptions:

FISCAL 2000 FISCAL 1999 FISCAL 1998
----------- ----------- -----------

Dividend Yield............................... 0.00% 0.00% 0.00%
Expected Volatility.......................... 78.16% 62.74% 49.93%
Risk-Free Interest Rate...................... 4.84% 5.81% 4.74%
Expected Life of Option following Vesting (in
Months).................................... 48 48 48

The Company's calculations are based on a valuation approach and forfeitures
are recognized as they occur. If the computed fair values of the fiscal 2000,
fiscal 1999 and fiscal 1998 awards had been amortized to expense over the
vesting period of the awards, net income (in thousands) and earnings per share
would have been reduced to the pro forma amounts indicated below:xxxx

FISCAL 2000 FISCAL 1999 FISCAL 1998
----------- ----------- -----------

Net Income...................... As reported $19,512 $14,183 $25,954
Pro forma $17,480 $12,759 $24,804

Net Income Per Share, Basic..... As reported $ 1.56 $ 1.14 $ 1.98
Pro forma $ 1.40 $ 1.03 $ 1.90

Net Income Per Share, Diluted... As reported $ 1.54 $ 1.11 $ 1.91
Pro forma $ 1.38 $ 1.00 $ 1.83

The impact of outstanding non-vested stock options granted prior to 1995 has
been excluded from the pro forma calculation; accordingly, the above pro forma
adjustments are not indicative of future period pro forma adjustments, when the
calculation will apply to all applicable stock options.

As of February 3, 2001, the Company has granted an aggregate of 98,639
shares of Class A Common Stock, net of forfeitures, to a group of its key
employees under the performance grant award plan which was instituted pursuant
to the Company's Plans. Under the performance grant award plan, key employees of
the Company receive Class A Common Stock in proportion to their salary. These
bonus shares vest at the rate of 33.33% per year and non-vested shares are
subject to forfeiture if the participant terminates employment. Compensation
expense, equal to the market value of the shares as of the issue date, is being
charged to earnings over the period that the employees provide service. In each
of the years ended February 3, 2001, January 29, 2000, and January 30, 1999,
12,756, 10,137, and 12,308 shares, respectively, were fully vested and issued.
In connection with the issuance of these shares, the Company recorded
compensation expense of $395,000, $111,000, and $463,000 for the years ended
February 3, 2001, January 29, 2000, and January 30, 1999, respectively.

F-16

THE WET SEAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED FEBRUARY 3, 2001, JANUARY 29, 2000 AND JANUARY 30, 1999

NOTE 7. COMMITMENTS AND CONTINGENCIES

LEASES

The Company leases retail stores, automobiles, computers and corporate
office and warehouse facilities under operating lease agreements expiring at
various times through 2013. Substantially all of the leases require the Company
to pay maintenance, insurance, property taxes and percentage rent based on sales
volume over certain minimum sales levels. Effective February 1998, the Company
entered into a sublease agreement for its former warehouse facility which
expires in August 2002.

Minimum annual rental commitments under non-cancelable leases, including the
corporate office and warehouse facility lease, are as follows (in thousands):

MINIMUM LEASE SUBLEASE NET LEASE
COMMITMENTS INCOME COMMITMENTS
------------- -------- -----------

Fiscal year ending: 2001................ $ 63,150 $ 677 $ 62,473
2002................ 51,303 395 50,908
2003................ 47,888 -- 47,888
2004................ 41,737 -- 41,737
2005................ 35,992 -- 35,992
Thereafter.......... 103,903 -- 103,903
-------- ------ --------
$343,973 $1,072 $342,901
======== ====== ========

Rental expense, including common area maintenance, was $98,543,000,
$90,613,000, and $72,533,000, of which $32,000, $28,000, and $295,000 was paid
as percentage rent based on sales volume, for the years ended February 3, 2001,
January 29, 2000 and January 30, 1999, respectively.

EMPLOYMENT CONTRACTS

The Company has an employment contract with one officer, which provides for
minimum annual salary, customary benefits and allowances, and incentive bonus if
specified Company earnings levels are achieved. The agreement provides this same
officer with severance benefits which approximate three years' salary if the
agreement is terminated without cause before expiration of its term or if the
individual's duties materially change following a change in control of the
Company.

LITIGATION

The Company is a defendant in a lawsuit entitled Agnes Trouble vs The Wet
Seal, Inc. pending in the United States District Court for the Southern District
of New York. The plaintiff seeks money damages in an unspecified amount and an
injunction against the Company's use of the trademark Arden B. Plaintiff
contends that its trademark and style agnes b. are infringed by Arden B. which
the Company denies. Trial is likely to occur in calendar year 2001. If the
Company were to lose at trial and is ordered to change the Arden B. name or logo
it could have a negative impact on the business of the Arden B. division and the
Company would incur costs to comply with the orders of the Court.

Additionally, the Company is a defendant in various lawsuits arising in the
ordinary course of its business. While the ultimate liability, if any, arising
from these claims cannot be predicted with

F-17

THE WET SEAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED FEBRUARY 3, 2001, JANUARY 29, 2000 AND JANUARY 30, 1999

NOTE 7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
certainty, the Company is of the opinion that their resolution will not likely
have a material adverse effect on the Company's financial statements.

LETTERS OF CREDIT

At February 3, 2001, the Company had outstanding letters of credit amounting
to $5,512,000.

NOTE 8. REVOLVING CREDIT ARRANGEMENT

Under a secured revolving line of credit arrangement with a bank, the
Company may borrow up to a maximum of $50,000,000 on a revolving basis through
July 2001. The cash borrowings under the arrangement bear interest at the bank's
prime rate or, at the Company's option, LIBOR plus 1.5%.

The credit arrangement imposes quarterly and annual financial covenants
requiring the Company to maintain certain financial ratios and achieve certain
levels of annual income. In addition, the credit arrangement requires that the
bank approve the payment of dividends and restrict the level of capital
expenditures. At February 3, 2001, the Company was in compliance with these
covenants. The Company had no borrowings outstanding under the credit
arrangement at February 3, 2001.

NOTE 9. RELATED PARTY TRANSACTIONS

Certain officers of Suzy Shier, Inc., a shareholder, provide management
services to the Company. For these services, the officers earned in the
aggregate a management fee of $500,000 in the year ended February 3, 2001,
$437,500 in the year ended January 29, 2000 and $375,000 in the year ended
January 30, 1999. The Company has entered into an agreement with these officers,
requiring annual payments of $575,000 through 2002.

NOTE 10. RETIREMENT PLAN

Effective June 1, 1993, the Company established a qualified defined
contribution retirement plan under the Internal Revenue Code, Section 401(k).
The Wet Seal Retirement Plan (the "Plan") is available to all employees who meet
the Plan's eligibility requirements. The Plan is funded by employee
contributions, and additional contributions may be made by the Company at its
discretion. As of February 3, 2001, the Company had accrued $145,000 as its
fiscal 2000 contribution to the Plan.

NOTE 11. ACCRUED LIABILITIES

Accrued liabilities consist of the following (in thousands):

FEBRUARY 3, 2001 JANUARY 29, 2000
---------------- ----------------

Reserve for self-insurance..................... $ 384 $ 2,672
Accrued wages, bonuses and benefits............ 5,116 5,570
Gift certificate and credit memo liability..... 4,273 4,261
Sales tax payable.............................. 2,489 2,376
Other.......................................... 5,549 5,732
------- -------
$17,811 $20,611
======= =======

F-18

THE WET SEAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED FEBRUARY 3, 2001, JANUARY 29, 2000 AND JANUARY 30, 1999

NOTE 11. ACCRUED LIABILITIES (CONTINUED)
In connection with the acquisition of Contempo Casuals, Inc. in fiscal 1995,
the Company assumed certain accruals, including the reserve for self-insurance,
which were estimated by the seller. In fiscal 2000 the Company reversed
$1,900,000 of the reserve for self-insurance based upon management's estimate of
its remaining liability.

NOTE 12. SUPPLEMENTAL EMPLOYEE RETIREMENT PLAN

The Company maintains a defined benefit Supplemental Employee Retirement
Plan (the "SERP") for certain of its key employees and a director. The SERP
provides for preretirement death benefits through life insurance and for
retirement benefits. The Company funded the SERP in 1998 and 1997 through
contributions to a trust fund known as a "Rabbi" trust. Assets held in the Rabbi
trust ($1,024,000 and $1,292,000 at February 3, 2001 and January 29, 2000,
respectively) are subject to claims of the Company's creditors but otherwise
must be used only for purposes of providing benefits under the SERP.

In accordance with SFAS No. 132, "Employers' Disclosures about Pensions and
other Postretirement Benefits." the following presents a reconciliation of the
SERP's funded status (in thousands):

CHANGE IN BENEFIT OBLIGATION
FEBRUARY 3, 2001 JANUARY 29, 2000
---------------- ----------------

Benefit obligation at beginning of year........ $3,909 $3,355
Service cost................................. 350 328
Interest cost................................ 264 226
Actuarial loss............................... (488) --
Benefits paid................................ (148) --
------ ------
Benefit obligation at end of year.............. $3,887 $3,909
====== ======

CHANGE IN PLAN ASSETS
FEBRUARY 3, 2001 JANUARY 29, 2000
---------------- ----------------

Fair value of plan assets at beginning of
year......................................... $ -- $ --
Actual return on assets -- --
Employer contribution........................ 148 --
Benefits paid................................ (148) --
------- -------
Fair value of plan assets at end of year....... $ -- $ --
======= =======
Funded status.................................. $(3,887) $(3,909)
Unrecognized transition (asset)/obligation... -- --
Unrecognized prior service cost.............. 1,641 1,804
Unrecognized net loss........................ (349) 139
------- -------
Net amount recognized.......................... $(2,595) $(1,966)
======= =======
Weighted average assumptions:
Discount rate................................ 6.75% 6.75%
Expected return on plan assets............... 0.00% 0.00%
Rate of compensation increase................ n/a n/a

F-19

THE WET SEAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED FEBRUARY 3, 2001, JANUARY 29, 2000 AND JANUARY 30, 1999

NOTE 12. SUPPLEMENTAL EMPLOYEE RETIREMENT PLAN (CONTINUED)

AMOUNTS RECOGNIZED IN BALANCE SHEET
FEBRUARY 3, 2001 JANUARY 29, 2000
---------------- ----------------

Prepaid pension cost........................................ $ -- $ --
Accrued benefit liability................................. (3,887) (3,909)
Intangible asset (unrecognized prior service cost)........ 1,292 1,804
Accumulated other comprehensive loss...................... -- 139
------- -------
Net amount recognized....................................... $(2,595) $(1,966)
======= =======

COMPONENTS OF NET PERIODIC PENSION COST
FEBRUARY 3, 2001 JANUARY 29, 2000
---------------- ----------------
Service cost--benefits earned during the period. $ 350 $ 328

Interest cost on projected benefit obligation............. 264 226
Expected return on plan assets............................ -- --
Amortization of unrecognized prior service cost........... 163 164
------- -------
Net periodic pension cost................................... $ 777 $ 718
======= =======

NOTE 13. NET INCOME PER SHARE

A reconciliation of the numerators and denominators used in basic and
diluted net income per share is as follows (in thousands, except for share
data):

FEBRUARY 3, 2001 JANUARY 29, 2000 JANUARY 30, 1999
---------------- ---------------- ----------------

Net income....................................... $ 19,512 $ 14,183 $ 25,954
========== ========== ==========
Weighted average number of common shares:
Basic............................................ 12,484,409 12,425,704 13,085,587
Effect of dilutive securities--stock options..... 177,898 387,634 495,646
---------- ---------- ----------
Diluted.......................................... 12,662,307 12,813,338 13,581,233
========== ========== ==========
Net income per share:
Basic............................................ $ 1.56 $ 1.14 $ 1.98
Effect of dilutive securities--stock options..... 0.02 0.03 0.07
---------- ---------- ----------
Diluted.......................................... $ 1.54 $ 1.11 $ 1.91
========== ========== ==========

F-20

THE WET SEAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED FEBRUARY 3, 2001, JANUARY 29, 2000 AND JANUARY 30, 1999

NOTE 14. SHAREHOLDER RIGHTS PLAN

On August 19, 1997, the Company's Board of Directors adopted a Shareholder
Rights Plan (the "Rights Plan") designed to protect Company stockholders in the
event of takeover action that would deny them the full value of their
investment. Terms of the Rights Plan provide for a dividend distribution of one
right for each share of common stock to holders of record at the close of
business on August 29, 1997. The rights become exercisable only in the event,
with certain exceptions, an acquiring party accumulates 12 percent or more of
the Company's voting stock, or if a party announces an offer to acquire
20 percent or more of the Company's voting stock. Unless earlier redeemed, the
rights will expire on August 29, 2007. Each right will entitle the holder to buy
one one-hundredth of a share of a new series of preferred stock at a price of
$73.00, subject to adjustment upon the occurrence of certain events. The Company
will be entitled to redeem the rights at $0.01 per right at any time until the
tenth day following the acquisition of a 12 percent position in its voting
stock.

NOTE 15. UNAUDITED QUARTERLY FINANCIAL DATA

FISCAL YEAR ENDED FEBRUARY 3, 2001

NET INCOME PER NET INCOME PER
QUARTER SALES GROSS MARGIN NET INCOME SHARE, BASIC SHARE, DILUTED
- ------- -------- ------------ ---------- -------------- --------------
(IN THOUSANDS EXCEPT FOR SHARE DATA)

First Quarter................... $130,600 $ 33,717 $ 2,217 $ .18 $ .18
Second Quarter.................. 128,194 29,992 461 .04 .04
Third Quarter................... 144,858 40,193 3,955 .32 .31
Fourth Quarter.................. 176,530 56,970 12,879 1.03 .98
-------- -------- -------
For the Year.................... $580,182 $160,872 $19,512 $1.56 $1.54
======== ======== =======

FISCAL YEAR ENDED JANUARY 29, 2000

NET INCOME PER NET INCOME PER
QUARTER SALES GROSS MARGIN NET INCOME SHARE, BASIC SHARE, DILUTED
- ------- -------- ------------ ---------- -------------- --------------
(IN THOUSANDS EXCEPT FOR SHARE DATA)

First Quarter................... $122,835 $ 35,843 $ 4,399 $ .36 $ .34
Second Quarter.................. 126,904 35,965 3,686 .30 .29
Third Quarter................... 131,465 36,843 2,747 .22 .22
Fourth Quarter.................. 143,203 35,744 3,351 .27 .27
-------- -------- -------
For the Year.................... $524,407 $144,395 $14,183 $1.14 $1.11
======== ======== =======

Net income per share is computed independently for each of the quarters
presented and therefore may not sum to the totals for the year.

During the quarter ended February 3, 2001 the Company recorded a $2,000,000
loss on disposal of certain store assets and income of $1,900,000 associated
with the reversal of a reserve for self-insurance (see note 11).

F-21

EXHIBIT INDEX

EXHIBIT NO. DESCRIPTION
- --------------------- ------------------------------------------------------------

*3.1 Restated Certificate of Incorporation of the Company.
*3.2 Bylaws of the Company.
*4.1 Specimen Certificate of the Class A Stock, par value $.10
per share.
*4.2 Specimen Certificate of the Class B Stock, par value $.10
per share.
*******4.3 Shareholder Rights Plan.
********10.1 Lease between the Company and Foothill-Parkstone I, LLC,
dated November 21, 1996.
*10.3 Services Agreement, dated December 30, 1988, and First
amendment to Services Agreement, dated June 1, 1990, between
the Company and Kathy Bronstein.
**10.3.1 Second amendment to Services Agreement between the Company
and Kathy Bronstein, dated March 23, 1992.
***10.3.2 Services Agreement between the Company and Edmond Thomas,
dated June 22, 1992.
****10.3.3 Third amendment to Services Agreement between the Company
and Kathy Bronstein, dated November 17, 1994.
****10.3.4 First amendment to Services Agreement between the Company
and Edmond Thomas, dated November 17, 1994.
****10.3.5 Fourth amendment to Services Agreement between the Company
and Kathy Bronstein, dated January 13, 1995.
****10.3.6 Second amendment to Services Agreement between the Company
and Edmond Thomas, dated January 13, 1995.
*****10.3.7 Fifth amendment to Services Agreement between the Company
and Kathy Bronstein, dated January 30, 1995.
*****10.3.8 Sixth amendment to Services Agreement between the Company
and Kathy Bronstein, dated February 2, 1996.
*****10.3.9 Third amendment to Services Agreement between the Company
and Edmond Thomas, dated February 2, 1996.
*********10.3.9.1 Fourth amendment to Services Agreement between the Company
and Edmond Thomas, dated January 1, 1995.
**********10.3.9. Fifth amendment to Services Agreement between the Company
and Edmond Thomas, dated March 31, 1999.
**********10.3.9. Sixth amendment to Services Agreement between the Company
and Edmond Thomas, dated April 16, 1999.
**********10.3.9. Seventh amendment to Services Agreement between the Company
and Kathy Bronstein, dated April 16, 1999.
*10.4 1990 Long-Term Incentive Plan.
**10.5 Credit Agreement between the Company and Bank of America,
dated as of April 20, 1992.
***10.5.1 Credit Agreement between the Company and Bank of America,
dated June 23, 1993, as amended.
****10.5.2 Amendments No. 1 and No. 2 to Credit Agreement between the
Company and Bank of America, dated January 25, 1994 and June
1, 1994, respectively.
*****10.5.3 Business Loan Agreement between the Company and Bank of
America, containing Term Loan and Revolving Line of Credit,
dated June 30, 1995.
*****10.5.4 Business Loan Agreement between the Company and Bank of
America, containing Revolving Line of Credit for Contempo
Casuals, Inc. dated June 30, 1995.
*********10.5.5 Amendment No. 1 to Business Loan Agreement between the
Company and Bank of America, containing Term Loan and
Revolving Line of Credit, dated May 7, 1998.

EXHIBIT NO. DESCRIPTION
- --------------------- ------------------------------------------------------------

*********10.5.6 Amendment No. 2 to Business Loan Agreement between the
Company and Bank of America, containing Term Loan and
Revolving Line of Credit, dated June 12, 1998.
*********10.5.7 Amendment No. 3 to Business Loan Agreement between the
Company and Bank of America, containing Term Loan and
Revolving Line of Credit, dated November 6, 1998.
*********10.5.8 Amendment No. 4 to Business Loan Agreement between the
Company and Bank of America, containing Term Loan and
Revolving Line of Credit, dated March 31, 1999.
***********10.5.9 Business Loan Agreement between the Company and Bank of
America, containing Loan and Revolving Line of Credit; Term
dated October 29, 1999.
******10.6.1 "Key Man" life insurance policy for Edmond Thomas.
*********10.6.2 "Key Man" life insurance policy for Kathy Bronstein.
***10.7 1994 Long-Term Incentive Plan.
*10.8 Stock Purchase and Stock Transfer Restriction Agreement
among Kathy Bronstein, Suzy Shier, Inc. and the Company
dated December 30, 1988.
****10.9 Indemnification Agreement between the Company and various
Executives and Directors, dated January 3, 1995, and
schedule listing all parties thereto.
******10.10 1996 Long-Term Incentive Plan.
********10.11 Supplemental Employee Retirement Plan.
10.12 2000 Stock Incentive Plan.
*****21.1 Subsidiaries of the Registrant.
23.1 Consent of Deloitte & Touche LLP, independent auditors.

- ------------------------

* Denotes exhibits incorporated by reference to the Company's
Registration Statement File No. 33-34895.

** Denotes exhibits incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended January 30, 1993.

*** Denotes exhibits incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended January 29, 1994.

**** Denotes exhibits incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended January 28, 1995.

***** Denotes exhibits incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended February 3, 1996.

****** Denotes exhibits incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended February 1, 1997.

******* Denotes exhibits incorporated by reference to the Company's Current
Report on Form 8-K filed on August 25, 1997.

******** Denotes exhibits incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended January 31, 1998.

********* Denotes exhibits incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended January 30, 1999.

********** Denotes exhibits incorporated by reference to the Company's Proxy
Statement dated May 4, 1999.

*********** Denotes exhibits incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended January 29, 2000.