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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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Form 10-K



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(Mark One)



|x |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- |  | ------------------------------------------------------------------------------------



For the fiscal year ended January 31, 2004



OR



| ̈ |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- |  | ----------------------------------------------------------------------------------------



Commission file number 0-18632



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.    Yes  x    No ̈



Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act)    Yes  x    No ̈



The aggregate market value of voting stock
held by non-affiliates as of August 1, 2003 was approximately $281,796 based on the closing sale price of $11.24 per share as reported on the NASDAQ National Market on August 1, 2003, the last business day of the registrants most recently
completed second fiscal quarter. Solely for the purpose of this calculation and for no other purpose, the non-affiliates of the registrant are assumed to be all stockholders of the registrant other than (i) directors of the registrant, (ii)
executive officers of the registrant who are identified as named executive officers pursuant to Item 11 of this Form 10-K, which is incorporated by reference to the information set forth in the registrants proxy statement for the
registrants 2004 annual meeting of stockholders, (iii) any stockholder that beneficially owned 10% or more of the registrants common stock as of such dated based solely on the filings of such persons with the Securities and Exchange
Commission and (iv) any stockholder that has one or more of its affiliates on the registrants board of directors. Such exclusion is not intended, nor shall it be deemed, to be an admission that such persons are affiliates of the registrant.



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 11, 2004 was 25,606,951 and 4,502,833, respectively. There were no shares of Preferred Stock, par value $.01 per share, outstanding at March 11, 2004.



DOCUMENTS INCORPORATED BY REFERENCE:



PART III of this Annual Report 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 January 31, 2004.



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PART I



Item 1.    Business



General



We are a national specialty retailer operating stores selling fashionable and contemporary apparel and accessory items designed for female customers. We operate two nationwide, primarily mall-based chains of retail
stores under the names Wet Seal (includes the remaining Contempo Casuals stores) and Arden B. We will be closing the Zutopia chain by the end of the first quarter or early in the second quarter of
fiscal 2004. As of January 31, 2004, we operated 604 retail stores in 47 states, Puerto Rico and Washington D.C. Of the 604 stores, there were 474 locations within the Wet Seal chain, 99 were Arden B. locations and 31 were Zutopia locations. All
references to we, our, us, and the Company in this Annual Report mean The Wet Seal, Inc. and its wholly owned subsidiaries.



Store Formats



Wet Seal.    Founded in 1962, Wet Seal targets the fashion-conscious junior customer by providing a balance of
moderately priced fashionable brand name and company-developed apparel and accessories. While the Wet Seal targets fashion-forward teens of all ages, we believe that our core customer is between the ages of 17 and 19 years old. The Wet Seal stores
average approximately 4,000 square feet in size. As of the fiscal 2003 year end, there were 474 stores within the Wet Seal chain, comprised of 458 Wet Seal stores and 16 Contempo Casuals stores. During fiscal 2003, we converted three of the Contempo
Casuals stores to the Wet Seal name in our continued effort to build a stronger brand presence for Wet Seal. We believe that our company-developed apparel differentiates us from our competitors.



Arden B.    In the fourth quarter of fiscal
1998, we opened the first Arden B. location. Arden B. stores cater to the fashionable, sophisticated contemporary woman. With a unique mix of high quality European and custom in-house designs, Arden B. delivers a hip, sophisticated wardrobe of
fashion separates and accessories for all facets of the customers lifestyle: everyday, wear-to-work, special occasion and casual, predominantly under the Arden B. brand name. The 99 Arden B. stores at of the end of fiscal 2003
averaged approximately 3,200 square feet in size.



Zutopia.    In the first quarter of fiscal 2001, we acquired the Zutopia brand name and 18 retail stores. Zutopia caters to the tween customer, those between the ages of 5 and 12 years old. The
Zutopia concept was further expanded with the opening of 12 new stores in the fall of fiscal 2001. This concept was believed to be a natural progression to the Wet Seal concept as tweens develop into teenagers. One final store was opened
in early fiscal 2003. In January 2004, we announced our strategic decision to close all Zutopia stores by the end of the first quarter or early in the second quarter of fiscal 2004, due to Zutopias poor financial results and its limited
ability to become profitable in the future in a highly competitive market. The Zutopia business is treated as discontinued operations in the accompanying financial statements.



Other Formats



In 1999, we established Wet Seal online, a web-based store located at www.wetseal.com offering Wet Seal merchandise
to customers over the Internet. The online store was designed as an extension of the in-store experience, and offers a wide selection of our merchandise. Our online business was expanded in August of 2002 with www.ardenb.com offering Arden B.
apparel and accessories comparable to those carried in the store collections. These web-sites also provide information about our Company.



During fiscal 2002, we launched the Wet Seal catalog for the back-to-school season and again in the fourth quarter for the holiday season in an effort to
further build the Wet Seal brand. However, due to relatively high costs and disappointing sales results, we did not produce or distribute a catalog during fiscal 2003, and do not plan on pursuing this type of marketing in the near future.



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Except where otherwise noted, the financial information contained in this Annual Report herein represents
our continuing operations, excluding the discontinued Zutopia chain.



Design, Buying and Product Development



Our
experienced design and buying teams are responsible for identifying evolving fashion trends, and then developing themes to guide our merchandising strategy. Each retail concept has a separate buying team. The merchandising team for each retail
concept develops fashion themes and strategies through the references of fashion services and publications, shopping the European market, shopping the appropriate domestic vendor base and through customer responses to current trends in each
division. After selecting fashion themes to promote, the design and buying teams work closely with vendors to modify colors, materials and designs and create images consistent with the themes for our product offerings. Additionally, we have
increased our focus on the in-house development of exclusive designs to reinforce the fashion statements of our merchandise offerings, as well as to increase the favorable perception of Wet Seal and Arden B. stores for the customer.



Sourcing and Vendor Relationships



We purchase our merchandise from both domestic and foreign vendors.
Approximately 22% of our retail receipts are directly imported from foreign vendors. Although, in fiscal 2003, no single vendor provided more than 4% of our merchandise, management believes we are the largest customer of many of our smaller vendors.
Quality control is monitored at the distribution points of our largest vendors and manufacturers, and all merchandise is inspected upon arrival at our Foothill Ranch, California distribution center.



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



Allocation and Distribution



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



All merchandise for retail stores is received from vendors at our Foothill Ranch, California distribution facility, where items are inspected for quality and fit and prepared for shipping to our stores. We ship all of our merchandise to our
stores by common carrier. Consistent with our goal of maintaining the freshness of our product offerings, we ship new merchandise to stores daily, and markdowns are taken regularly to effect the rapid sale of slow-moving inventory. Marked-down
merchandise that remains unsold is either sold to an outside clearance company or given to charity in order to move the merchandise. The fulfillment process and distribution of merchandise for the e-commerce web-site was moved to our Foothill Ranch
distribution center during fiscal 2003 in order to streamline the process and reduce costs associated with the use of a third party fulfillment center.



Marketing, Advertising and Promotion



We believe that our core brands, Wet Seal and Arden B., are among our most important assets. Our ability to successfully increase brand awareness is
dependent upon our ability to address the changing needs and priorities of each brands target customers. We continue to invest in the development of our brands through customer research, print advertising, in-store marketing and the
maintenance of an internet presence.



During fiscal 2003, 2002
and 2001, we spent 1.0%, 1.5% and 1.0% respectively, of sales on marketing. We reduced our advertising expenditures for fiscal 2003 in an effort to curtail costs, given the decline in sales for the



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year. There was further reduction in advertising costs due to our decision to not produce and distribute a catalog during the year.



We offer a frequent shopper card in our Wet Seal and Contempo Casuals stores
in order to develop an in-house loyalty program. As part of this loyalty program, sales representatives telephone selected cardholders personally to notify them of special in-store promotions, such as preferred customer sales during which
cardholders receive additional incentives. Our management believes these promotions foster customer loyalty and encourage frequent visits and multiple item purchases.



In the spring of 2002, we launched Seal TV, our in-house fashion and entertainment network designed to broadcast original
programming, exclusive video footage, music videos and red carpet interviews from todays hottest music, film and television stars in Wet Seal stores nationwide.



In fiscal 2002, Wet Seal also introduced a catalog for the back-to-school season and again in November for the holiday
season as a tool to further enhance brand awareness. Due to relatively high costs and disappointing sales results, we did not produce or distribute a catalog during fiscal 2003, and we do not plan on pursuing this type of marketing in the near
future.



In fiscal 2003, our primary marketing focus was on
in-store promotion programs for the Wet Seal division and print media for Arden B., which included publications in Vogue throughout the year. In addition, the Wet Seal division advertised key brands for back-to-school on MTV.



Information and Control Systems



Our merchandise, financial and store computer systems are fully integrated
and operate using primarily Oracle technology. We have invested in a large data warehouse that provides management, buyers and planners comprehensive data that helps them identify emerging trends and manage inventories. The core merchandise system
is provided by the nations leading retail enterprise resource planning ERP software company, and is frequently upgraded and enhanced to support strategic business initiatives.



All of our stores have a point-of-sale system operating on software provided
by a leading provider of specialty retailing point-of-sale systems. The system features bar-coded ticket scanning, automatic price look-up and centralized credit authorizations. All stores are networked to the corporate office via a centrally
managed virtual private network. In the fall of fiscal 2003, we developed and are currently installing a store portal that is integrated with the corporate merchandise ERP system to provide the stores with real-time information regarding sales,
promotions, inventory and shipments, and enables more efficient communications with the corporate office.



Stores and Expansion Strategy



We make investments in the opening of new stores and the renovation of existing stores to enhance our customers experience.



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The following table sets forth our 604 stores by state or territory as of March 11, 2004:



|            |  |             |  |                |  |             |  |                 |  |            
|----------- |  | ----------- |  | -------------- |  | ----------- |  | --------------- |  | -----------
|State       |  | # of Stores |  | State          |  | # of Stores |  | State           |  | # of Stores
|Alabama     |  | 4           |  | Louisiana      |  | 6           |  | Ohio            |  | 23         
|Alaska      |  | 1           |  | Maine          |  | 2           |  | Oklahoma        |  | 4          
|Arizona     |  | 12          |  | Maryland       |  | 13          |  | Oregon          |  | 5          
|Arkansas    |  | 2           |  | Massachusetts  |  | 17          |  | Pennsylvania    |  | 24         
|California  |  | 83          |  | Michigan       |  | 17          |  | Rhode Island    |  | 3          
|Colorado    |  | 12          |  | Minnesota      |  | 15          |  | South Carolina  |  | 6          
|Connecticut |  | 5           |  | Mississippi    |  | 1           |  | Tennessee       |  | 10         
|Delaware    |  | 2           |  | Missouri       |  | 8           |  | Texas           |  | 45         
|Florida     |  | 53          |  | Montana        |  | 2           |  | Utah            |  | 8          
|Georgia     |  | 15          |  | Nebraska       |  | 3           |  | Virginia        |  | 21         
|Hawaii      |  | 8           |  | Nevada         |  | 7           |  | Washington      |  | 9          
|Idaho       |  | 1           |  | New Hampshire  |  | 3           |  | West Virginia   |  | 1          
|Illinois    |  | 35          |  | New Jersey     |  | 29          |  | Wisconsin       |  | 9          
|Indiana     |  | 11          |  | New Mexico     |  | 2           |  | Washington D.C. |  | 2          
|Iowa        |  | 3           |  | New York       |  | 31          |  | Puerto Rico     |  | 3          
|Kansas      |  | 6           |  | North Carolina |  | 13          |  |                 |  |            
|Kentucky    |  | 7           |  | North Dakota   |  | 2           |  |                 |  |            



During fiscal 2004, we
intend to scale back our earlier plans to open new stores in an effort to limit capital expenditures and concentrate our efforts on our core business. However, due to commitments made early in the year, we still anticipate opening approximately 10
new stores and closing approximately 20 to 25 stores. Of the approximately 10 new stores, it is anticipated that about four will be Arden B. stores and the remainder will be Wet Seal stores. We believe that the new Wet Seal stores will average
approximately 3,800 square feet and the new Arden B. stores will average approximately 2,800 square feet.



During fiscal 2004, we also plan to renovate approximately 11 stores. Of these, approximately seven will be Wet Seal stores in which completely new store
frontage, flooring, wall and light fixtures and video displays will be installed. The remaining renovations will be for Arden B. stores, which will upgrade the interiors to mirror new stores in appearance.



Our strategy for geographic expansion is to establish a presence in a
particular geographic region with a base of two or three well-performing stores. Once we have established two or three well-performing stores, we may continue expansion in that geographic region. When deciding whether to open a new store, we
typically target regional malls as well as prime street locations in select markets. In making our selection, we evaluate, among other factors, market area, demographics, anchor stores, location, the volume of consumer traffic, rent
payments and other costs associated with opening a store. In making our decision, management carefully considers whether the store size matches the sales potential of the store.



Our ability to expand in the future will depend, in part, on general business conditions, the demand for our merchandise,
our ability to find suitable mall or other locations with acceptable sites on satisfactory terms, and continued satisfactory cash flows from existing operations. Our management does not believe there are significant geographic constraints on the
locations of future stores. Our expansion plans for fiscal 2004 have been scaled back in order to concentrate on existing stores.



We may, in limited instances and to the extent we deem advisable, seek to acquire additional businesses that complement or enhance our operations. We
currently have no commitments or understandings with respect to any business opportunities of this type.



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Seasonal



Our 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 a large percentage of sales volume. For the past three fiscal years, the Christmas and back-to-school seasons together
accounted for an average of slightly less than 30% of our annual sales, after adjusting for sales increases related to new stores. Our profitability depends, to a significant degree, on the sales generated during these peak periods. Any decrease in
sales or margins during these periods, whether as a result of economic conditions, poor weather or other factors, could have a material adverse effect on our company.



Trademarks



Our primary trademarks and service marks are WET SEAL®, ARDEN B® (registered in the retail store services class; pending in others), CONTEMPO CASUALS®, and ZUTOPIA®, which are registered in the U.S. Trademark Office. We also use and have registered, or have applications pending for, a number of other U.S. trademarks, including, but not limited
to, A. AUBREY®, ACCOMPLICE®, BLUE ASPHALT®, EVOLUTION, NOT REVOLUTION®, FORMULA X®, MEOW GENES®, SEAL, SEAL GLAMOUR, SEAL PUPS, SEAL
MAGAZINE, SEAL TV, UNCIVILIZED®, URBAN VIBE®, ARDEN B SPORT, ENR EVOLUTION NOT REVOLUTION®, LIMBO LOUNGE®, PANTIES FOR LIFE®, SOCKS FOR LIFE®,
TIGHTS FOR LIFE® and NEXT® (State of California only). In general, the
registrations for these trademarks and service marks are renewable indefinitely, as long as we continue to use the marks as required by applicable trademark laws. We are not aware of any adverse claims or infringement actions relating to our
trademarks or service marks.



Competition



The womens retail apparel industry is highly competitive, with
fashion, quality, price, location, in-store environment and service being the principal competitive factors. We compete with specialty apparel retailers, department stores and certain other apparel retailers such as American Eagle, Banana Republic,
BCBG, bebe, Charlotte Russe, Express, Forever 21, Gap, H&M, Old Navy, Pacific Sunwear, and Urban Oufitters. Many of our competitors are large national chains that have substantially greater financial, marketing and other resources than we do.
While we believe we compete effectively for favorable site locations and lease terms, competition for prime locations within malls, in particular, and other locations is intense, and we cannot ensure that we will be able to obtain new locations on
terms favorable to us, if at all.



Employees



As of January 31, 2004, our continuing operations had 6,656 employees,
consisting of 2,508 full-time employees and 4,148 part-time employees. Full-time personnel consisted of 1,032 salaried employees and 1,476 full-time hourly employees. All part-time personnel are hourly employees. Of all employees, 6,329 were sales
personnel and 327 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. The discontinued Zutopia operations as of
January 31, 2004 had a total of 306 store employees.



All of
our employees are non-union, and, in managements opinion, are paid competitively with current standards in the industry. We believe that our relationship with our employees is good.



Available Information



Our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports and the proxy statement
for our annual meeting of stockholders are made available,



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free of charge, on our web site, http://www.wetsealinc.com, as soon as reasonably practicable after such reports have been filed with or furnished to the
Securities and Exchange Commission. The content of our website is not intended to be incorporated by reference in this Annual Report.



Statement Regarding Forward Looking Disclosure and Risk Factors



Certain sections of this Annual Report on Form 10-K, including Item 1. Business and Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations, 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 (the Exchange Act), which represent our expectations or beliefs concerning future events.



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



Actual events and results may differ from those expressed in any forward-looking statements due to a number of factors. Factors that could cause our
actual performance, future results and actions to differ materially from any forward-looking statements include, but are not limited to, those discussed in Exhibit 99.1 attached to this report and discussed elsewhere in this report. We strongly
urge you to review and consider the risk factors set forth in Exhibit 99.1.



Item 2.    Properties



Our
corporate headquarters is located at 26972 Burbank, Foothill Ranch, California, and has 301,408 square feet of leased office and distribution facility space, including 215,192 square feet of merchandise handling and storage mezzanine space in the
distribution facility and 86,216 square feet of office space. The initial ten year term of this lease expires on December 4, 2007. The lease allows for one five-year option to extend.



We lease all of our stores. Lease terms for our stores typically are 10 years in length and generally do not contain renewal
options. The leases generally provide for a fixed minimum rental and additional rental based on a percentage of sales once a minimum sales level has been reached. When a lease expires, we generally renew that lease at current market terms. However,
each renewal is based upon an analysis of the individual stores profitability and sales potential. Due to poor performance we chose to close 11 Wet Seal stores and 7 Arden B. stores when their leases expired during the fourth quarter of fiscal
year 2003. At the end of fiscal 2003, we had 2,191,468 square feet of leased space for continuing operations, not including our corporate headquarters.



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The following table sets forth information with respect to store openings and closings since fiscal 1999:



|                                 |  |              |  |      |  |      |  |      |  |     
|-------------------------------- |  | ------------ |  | ---- |  | ---- |  | ---- |  | ----
|                                 |  | Fiscal Years
|                                 |  | 2003         |  | 2002 |  | 2001 |  | 2000 |  | 1999
|Stores open at beginning of year |  | 606          |  | 571  |  | 552  |  | 548  |  | 454 
|Stores acquired during period(1) |  |             |  |     |  | 18   |  |     |  | 78  
|Stores opened during period      |  | 31           |  | 69   |  | 51   |  | 36   |  | 31  
|Stores closed during period      |  | 33           |  | 34   |  | 50   |  | 32   |  | 15  
|                                 |  |              |  |      |  |      |  |      |  |     
|Stores open at end of period     |  | 604          |  | 606  |  | 571  |  | 552  |  | 548 
|                                 |  |              |  |      |  |      |  |      |  |     

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|(1) |  | 2001:    We acquired 18 Zutopia stores on March 25, 2001 from Gymboree, Inc.
|--- |  | ----------------------------------------------------------------------------

| |  | 1999:    We acquired 78 stores on February 1, 1999 from Britches of Georgetowne, Inc.
| |  | -------------------------------------------------------------------------------------



Item 3.    Legal Proceedings



We were served with a class-action lawsuit in the Orange County Superior Court by previously employed store managers
alleging non-exempt status under California state labor laws. Through non-binding mediation, we agreed to settle the litigation and pay approximately $1.3 million which has been provided for in our accompanying financial statements for fiscal
2003. Upon approval by the court and all parties, we will proceed with the process to administer the notice of settlement to class members, and determine the claims to award. We anticipate this process, including payments to the class members, will
be finalized by the summer of 2004. To mitigate future related complaints, we have converted all of our California store managers to non-exempt status.



We have filed a lawsuit in the Superior Court of California to seek injunctive relief and damages against Greg Scott, previous Arden B. president, and
bebe stores, inc., alleging violation of the non-compete, non-solicitation and other provisions of Mr. Scotts employment agreement.



From time to time, we are involved in litigation relating to claims arising out of our operations in the normal course of business. Our management
believes that, in the event of a settlement or an adverse judgment of any of the pending litigations, we are adequately covered by insurance. As of March 11, 2004, we were not engaged in any legal proceedings that are expected, individually or in
the aggregate, to have a material adverse effect on us.



Item
4.    Submission of Matters to a Vote of Security Holders



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



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PART II



Item 5.    Market for the Registrants Common Equity and Related Stockholder Matters



We have two classes of common stock: Class A and Class B. Our Class A Common
Stock is listed on The NASDAQ Stock Market under the symbol WTSLA. As of March 11, 2004, there were 249 stockholders of record of the Class A Common Stock. The number of beneficial owners of our Class A Common Stock was estimated to be
approximately 4,000. The closing price of our Class A Common Stock on March 11, 2004 was $9.03. No established public trading market exists for our Class B Common Stock. As of March 11, 2004, there were four stockholders of record of our Class B
Common Stock.



The following table reflects the high and low
sale prices of our Class A Common Stock as reported by NASDAQ for the last two fiscal years. Fiscal 2002 prices have been adjusted for the three-for-two stock split effective May 9, 2002.



|               |  |             |       |             |   |       |  |     |       |  |   |      
|-------------- |  | ----------- | ----- | ----------- | - | ----- |  | --- | ----- |  | - | -----
|               |  | Fiscal 2003 |       | Fiscal 2002
|Quarter        |  | High        |       | Low         |   | High  |  | Low
|First Quarter  |  | $           | 10.24 |             | $ | 6.44  |  | $   | 25.73 |  | $ | 17.17
|Second Quarter |  | $           | 12.88 |             | $ | 8.73  |  | $   | 24.90 |  | $ | 11.55
|Third Quarter  |  | $           | 12.15 |             | $ | 10.00 |  | $   | 12.97 |  | $ | 8.40 
|Fourth Quarter |  | $           | 11.62 |             | $ | 7.65  |  | $   | 12.27 |  | $ | 8.18 



We have reinvested
earnings in the business and have never paid any cash dividends to holders of our Common Stock. The declaration and payment of future dividends, which are subject to the terms and covenants contained in our bank line of credit, are at the sole
discretion of the Board of Directors and will depend upon our profitability, financial condition, cash requirements, future prospects and other factors deemed relevant by the Board of Directors. Our bank line of credit does not allow us to declare
or pay any dividends on any of our shares, and it does not allow us to purchase, redeem or otherwise acquire for value any of our shares, except we may pay dividends in capital stock and repurchase up to three million shares of Class A Common Stock
during any year, not to exceed $40 million in value.



Securities Authorized
for Issuance Under Equity Compensation Plans



The
following table provides information as of January 31, 2004 about the Companys Common Stock that may be issued upon the exercise of options, warrants and rights granted to employees, consultants or members of the Board of Directors under all
of the Companys existing equity compensation plans, including the Companys 1996 Long-Term Incentive Plan, each as amended.



|                                                           |  |                                                                                             |  |                                                                             |       |                                                                                                                                             |          
|---------------------------------------------------------- |  | ------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------- | ----- | ------------------------------------------------------------------------------------------------------------------------------------------- | ---------
|                                                           |  | (a)                                                                                         |  | (b)                                                                         |       | (c)                                                                                                                                        
|Plan category                                              |  | Number of securities to be issued upon exercise of outstanding options, warrants and rights |  | Weighted-average exercise price of outstanding options, warrants and rights |       | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
|Equity compensation plans approved by security holders     |  | 3,462,227                                                                                   |  | $                                                                           | 11.21 |                                                                                                                                             | 2,369,151
|Equity compensation plans not approved by security holders |  | 0                                                                                           |  |                                                                             | NA    |                                                                                                                                             | NA       
|                                                           |  |                                                                                             |  |                                                                             |       |                                                                                                                                             |          
|Total                                                      |  | 3,462,227                                                                                   |  | $                                                                           | 11.21 |                                                                                                                                             | 2,369,151
|                                                           |  |                                                                                             |  |                                                                             |       |                                                                                                                                             |          



There were no
purchases of shares of Class A Common Stock or Class B Common Stock by the Company or affiliated purchasers during the fourth quarter ended January 31, 2004.



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Item 6.    Selected Financial Data



The following table of certain selected data should be read in conjunction
with the consolidated financial statements and notes thereto and with Managements Discussion and Analysis of Financial Condition and Results of Operations. The data for the fiscal years ended January 31, 2004 and February 1, 2003,
and the income statement for the fiscal year ended February 2, 2002 are derived from the financial statements included herein. The data (other than store, square footage and related data) for the fiscal years ended February 3, 2001 and January 29,
2000, and the balance sheet data for the fiscal year ended February 2, 2002 are derived from our consolidated financial statements for such years, which are not included herein. The selected financial data for all periods have been restated to
reflect Zutopia as a discontinued operation.



Five-Year
Financial Summary

(In thousands, except per share and per square foot amounts, ratios, share data and square footage data)



|                                                                      |  |                 |            |    |                  |   |            |                  |  |   |                     |   |  |                  |            |   |  |   |            |   
|--------------------------------------------------------------------- |  | --------------- | ---------- | -- | ---------------- | - | ---------- | ---------------- |  | - | ------------------- | - |  | ---------------- | ---------- | - |  | - | ---------- | --
|Fiscal Year                                                           |  | 2003            |            |    | 2002             |   |            | 2001             |  |   | 2000                |   |  | 1999             |           
|Fiscal Year Ended                                                     |  | January 31,2004 |            |    | February 1, 2003 |   |            | February 2, 2002 |  |   | February 3, 2001(1) |   |  | January 29, 2000 |           
|Operating Results                                                     |  |                 |            |    |                  |   |            |                  |  |   |                     |   |  |                  |            |   |  |   |            |   
|Net Sales                                                             |  | $               | 517,644    |    |                  | $ | 590,322    |                  |  | $ | 589,885             |   |  | $                | 580,182    |   |  | $ | 524,407    |   
|Cost of sales                                                         |  | $               | 420,799    |    |                  | $ | 413,660    |                  |  | $ | 396,867             |   |  | $                | 419,310    |   |  | $ | 380,012    |   
|Gross margin                                                          |  | $               | 96,845     |    |                  | $ | 176,662    |                  |  | $ | 193,018             |   |  | $                | 160,872    |   |  | $ | 144,395    |   
|Selling, general and administrative expenses                          |  | $               | 158,955    |    |                  | $ | 166,818    |                  |  | $ | 146,379             |   |  | $                | 134,002    |   |  | $ | 124,712    |   
|Operating income (loss)                                               |  | $               | (62,110    | )  |                  | $ | 9,844      |                  |  | $ | 46,639              |   |  | $                | 26,870     |   |  | $ | 19,683     |   
|Income (loss) before provision (benefit) for income taxes             |  | $               | (60,560    | )  |                  | $ | 12,958     |                  |  | $ | 51,766              |   |  | $                | 31,727     |   |  | $ | 23,842     |   
|Net income (loss) from continuing operations                          |  | $               | (38,953    | )  |                  | $ | 8,417      |                  |  | $ | 32,088              |   |  | $                | 19,512     |   |  | $ | 14,183     |   
|Net income (loss) from discontinued operations(5)                     |  | $               | (8,327     | )  |                  | $ | (4,178     | )                |  | $ | (1,073              | ) |  |                  |            |   |  |   |            |   
|Net income (loss)                                                     |  | $               | (47,280    | )  |                  | $ | 4,239      |                  |  | $ | 31,015              |   |  | $                | 19,512     |   |  | $ | 14,183     |   
|Per Share Data from Continuing Operations                             |  |                 |            |    |                  |   |            |                  |  |   |                     |   |  |                  |            |   |  |   |            |   
|Net income (loss), basic(2)                                           |  | $               | (1.31      | )  |                  | $ | 0.28       |                  |  | $ | 1.08                |   |  | $                | 0.69       |   |  | $ | 0.51       |   
|Net income (loss), diluted(2)                                         |  | $               | (1.31      | )  |                  | $ | 0.27       |                  |  | $ | 1.05                |   |  | $                | 0.68       |   |  | $ | 0.49       |   
|Weighted average shares outstanding, basic(2)                         |  |                 | 29,748,888 |    |                  |   | 30,044,673 |                  |  |   | 29,601,368          |   |  |                  | 28,089,921 |   |  |   | 27,957,834 |   
|Weighted average shares outstanding, diluted(2)                       |  |                 | 29,748,888 |    |                  |   | 31,078,549 |                  |  |   | 30,514,802          |   |  |                  | 28,490,192 |   |  |   | 28,830,011 |   
|Other Financial Information                                           |  |                 |            |    |                  |   |            |                  |  |   |                     |   |  |                  |            |   |  |   |            |   
|Net income (loss) from continuing operations as a percentage of sales |  |                 | (7.5       | )% |                  |   | 1.4        | %                |  |   | 5.4                 | % |  |                  | 3.4        | % |  |   | 2.7        | % 
|Return on average stockholders equity                                |  |                 | (24.9      | )% |                  |   | 2.0        | %                |  |   | 16.7                | % |  |                  | 12.9       | % |  |   | 11.0       | % 
|Cash and investments                                                  |  | $               | 63,457     |    |                  | $ | 94,845     |                  |  | $ | 132,301             |   |  | $                | 108,200    |   |  | $ | 78,603     |   
|Working capital                                                       |  | $               | 38,567     |    |                  | $ | 64,509     |                  |  | $ | 77,191              |   |  | $                | 44,213     |   |  | $ | 47,707     |   
|Ratio of current assets to current liabilities                        |  |                 | 1.7        |    |                  |   | 2.1        |                  |  |   | 2.0                 |   |  |                  | 1.7        |   |  |   | 1.8        |   
|Total assets                                                          |  | $               | 237,337    |    |                  | $ | 284,625    |                  |  | $ | 295,717             |   |  | $                | 243,911    |   |  | $ | 213,009    |   
|Long-term debt                                                        |  | $               |           |    |                  | $ |           |                  |  | $ |                    |   |  | $                |           |   |  | $ |           |   
|Total stockholders equity                                            |  | $               | 168,943    |    |                  | $ | 211,323    |                  |  | $ | 207,610             |   |  | $                | 163,793    |   |  | $ | 138,233    |   
|Number of stores open at year end                                     |  |                 | 604        |    |                  |   | 606        |                  |  |   | 571                 |   |  |                  | 552        |   |  |   | 548        |   
|Number of stores acquired during the year                             |  |                 |           |    |                  |   |           |                  |  |   | 18                  |   |  |                  |           |   |  |   | 78         |   
|Number of stores opened during the year                               |  |                 | 31         |    |                  |   | 69         |                  |  |   | 51                  |   |  |                  | 36         |   |  |   | 31         |   
|Number of stores closed during the year                               |  |                 | 33         |    |                  |   | 34         |                  |  |   | 50                  |   |  |                  | 32         |   |  |   | 15         |   
|Square footage of leased store space at year end                      |  |                 | 2,273,349  |    |                  |   | 2,279,517  |                  |  |   | 2,212,146           |   |  |                  | 2,191,522  |   |  |   | 2,182,606  |   
|Percentage increase (decrease) in leased square footage               |  |                 | (0.3       | )% |                  |   | 3.0        | %                |  |   | 0.9                 | % |  |                  | 0.4        | % |  |   | 18.1       | % 
|Average sales per square foot of leased space(3)                      |  | $               | 228        |    |                  | $ | 267        |                  |  | $ | 269                 |   |  | $                | 256        |   |  | $ | 247        |   
|Average sales per store(3)                                            |  | $               | 861        |    |                  | $ | 1,027      |                  |  | $ | 1,043               |   |  | $                | 1,020      |   |  | $ | 988        |   
|Comparable store sales continuing operations increase (decrease)(5)   |  |                 | (16.4      | )% |                  |   | (5.5       | )%               |  |   | 4.7                 | % |  |                  | 3.9        | % |  |   | (9.8       | )%



10



---

---

|1) |  | Fiscal 2000 consisted of 53 weeks.
|-- |  | ----------------------------------

|2) |  | Per share data, net income (loss) per share and the weighted average shares have been adjusted to account for the three-for-two stock split effected as of July 24, 2001 and
subsequent three-for-two split on May 9, 2002.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3) |  | Sales during the 53rd week of fiscal 2000 were excluded from Sales for purposes of calculating Average sales per square foot and Average sales per
store in order to make fiscal 2000 comparable.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4) |  | Comparable store sales for fiscal 2001 were calculated by excluding sales during the last week of fiscal 2000 (a 53-week year) in order to make fiscal 2000 comparable to
fiscal 2001. Comparable store sales are defined as sales in stores that were open at least 14 months.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5) |  | The Zutopia division was designated as a discontinued operation which had an insignificant impact to the comparable store sales.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------



Item 7.    Managements Discussion and Analysis of Financial
Condition and Results of Operations



The following
discussion should be read in conjunction with our consolidated financial statements and notes thereto included elsewhere in this Form 10-K. The following discussion contains forward-looking statements which involve risks and uncertainties, and our
actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under the heading Statement Regarding Forward Looking Disclosure and Risk Factors
included elsewhere in this Form 10-K.



Current Trends and Outlook



Lower than expected sales in the fourth quarter of fiscal
2003 were a disappointment, given the progressively improving sales trend seen through the third quarter of fiscal 2003. The comparable store sales decrease in the fourth quarter was due to declining transaction counts, primarily in the Wet Seal
division, which was a direct reflection of our inability to provide the fashions needed to win back our core customer. We believe that our December product was too holiday-specific, and did not provide enough transitional styles to lead us into the
pre-spring months. In January we were not prepared for the continued cold weather in some parts of the country, and we did not have enough sweaters and jackets to adequately re-supply the stores. In addition, in January, the average dollar sale in
the stores were depressed downward by the many promotions in place to move the goods remaining from the holiday season.



We believe that our available cash and investments aggregating $63.5 million at January 31, 2004 and other working capital and cash flows from operating
activities will be sufficient to meet our operating and capital requirements for the next 12 months. However, we believe that if our sales do not improve, we may not be able to finance our inventory purchases pursuant to letters of credit issued
under our existing bank credit facility, but instead may be required to obtain alternative financing at significantly higher costs. At the end of fiscal 2003, we had working capital of $38.6 million, including cash, cash equivalents, and short term
investments of $44.3 million. This compares with working capital of $64.5 million, including cash, cash equivalents and short-term investments of $61.2 million at the end of fiscal 2002. The primary reason for these decreases is our loss from
continuing operations of $39.0 million for fiscal 2003. (See Liquidity and Capital Resources).



During the past six months we have been focused on rebuilding an effective team for the Wet Seal brand and, in doing so, we have completely rebuilt our management structure. After the addition of our new chief
executive officer who joined in July, many key management changes were made in strategic areas to assemble and build the creative, buying and planning teams necessary to execute the successful selection and presentation of fashion to gain consumer
acceptance. A key strategy was the decision to hire an in-house designer for the Wet Seal division in order to have more control over our fashions and to develop more unique clothing. These individuals are highly qualified for the positions for
which they were hired and bring with them extensive cross-functional management skills.



We believe that the benefits of these strategic efforts will begin to be seen with the Wet Seal customer during the 2004 back-to-school season.



11



---

The performance of the Arden B. division gained momentum during the year with sequential improvement in
comparable store sales each quarter resulting in comparable stores sales increases in the third and fourth quarters with corresponding increases in transaction counts and average unit retails. We attribute these results to our efforts to refocus on
a more sophisticated offering. We concentrated on fashion jackets, coats, outerwear and cashmere sweaters. Arden B. has also delivered a fresh new gift-giving assortment of handbags and accessories that is adding to the complete wardrobe of their
target customer.



We believe that our inventory position is
good as we head into the first quarter of fiscal 2004 as a result of the aggressive markdowns taken in the Wet Seal division in the fourth quarter of fiscal 2003.



While we are evaluating our cost structure, we are continuing to make prudent investments in our management team in order to
rebuild the Wet Seal business. Cost saving initiatives are also under way to reduce selling, general and administrative and distribution costs.



During fiscal 2004, we intend to scale back the number of new store openings to approximately 10 new locations, consisting of six Wet Seal locations and
four Arden B. locations. Total capital expenditures anticipated for Fiscal 2004 are expected to be less than $12.0 million. This capital expenditure estimate includes the anticipated costs of renovating 11 stores, the leases for which will be
renewed this year.



The Company will record a reserve in the
first and second quarters of 2004 for all applicable charges associated with the closure of the Zutopia stores which primarily includes the buyout of leases.



Critical Accounting Policies and Estimates



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



Our accounting policies are set forth further in Note 1 of the consolidated financial statements included herein. Inventory valuation, recovery of deferred tax and long lived assets require significant management judgments and estimates.



Inventory valuation



Merchandise inventories are stated at the lower of cost (first in, first
out) or market. Cost is calculated using the retail inventory method. The retail inventory method is used to estimate the ending inventory at cost by employing a cost to retail (selling price) ratio. The ending inventory is first determined at
selling price and then converted to cost. Purchases, sales, net markdowns (less mark-ups), charitable donations of merchandise, discounts and estimated shrink are considered in arriving at the cost to retail ratio. Inventories include items that
have been marked down to managements best estimate of their fair market value. Managements decision to mark down merchandise is based on maintaining the freshness of our product offering. Markdowns are taken regularly to effect the rapid
sale of slow moving inventory and to make room for new merchandise arriving daily in the stores.



To the extent that managements estimates of markdowns necessary to rapidly sell inventory differ from actual results, additional markdowns may be
required that could reduce our gross margin, operating income and the carrying value of inventories. Our success is largely dependent upon our ability to anticipate the changing fashion tastes of our customers and to respond to those changing tastes
in a timely manner. If we fail to anticipate, identify or react appropriately to changing styles, trends or brand preferences of our customers, we may experience lower sales, excess inventories and more frequent and extensive markdowns, which would
adversely affect our operating results.



12



---

We believe the application of our accounting policies, and the estimates inherently required therein, are
reasonable. Our accounting policies and estimates are reevaluated on an ongoing basis, and adjustments are made when facts and circumstances dictate a change. Our accounting policies are more fully described in Note 1 to the consolidated financial
statements and in Managements Discussion and Analysis of Financial Condition and Results of Operations, respectively, included herein.



Long-lived assets



During the normal course of business, we acquire tangible long-lived assets. We periodically evaluate the recoverability of the carrying amount of these
assets. An impairment is assessed when the undiscounted expected future cash flows derived from an asset are less than its carrying amount. Impairments are recognized in operating income as they are realized. Management uses its best judgment, based
upon the most current facts and circumstances surrounding the specific assets, when applying these impairment rules. Changes in the assumptions used could have a significant impact on managements assessments of the recoverability. Many
factors, including changes to the companys business and consumer preferences, could significantly impact managements decision to retain or dispose of certain of its long-lived assets.



Deferred income taxes



We evaluate the reliability of our deferred tax assets and assess the need for a valuation allowance quarterly. We record a
valuation allowance to reduce our deferred tax assets to the net amount that is more likely than not to be realized. Our assessment of the need for a valuation allowance is based upon our expectations of future taxable income and the ongoing prudent
and feasible tax planning strategies available to us. In the event that we determine that we will not be able to realize all or part of our deferred tax assets in the future, an adjustment to the deferred tax assets would be charged against income
in the period such determination is made.



Results of Operations



Except as otherwise noted, the following discussion of
our financial position and results of operations excludes our discontinued Zutopia division, which is expected to be closed by the end of the first quarter or early in the second quarter of fiscal 2004.



The following table sets forth selected income statement data as a
percentage of net sales for the fiscal year indicated. The discussion that follows should be read in conjunction with the table below:



|                                                                                         |  |                                            |    |  |                  |   |  |                  |  
|---------------------------------------------------------------------------------------- |  | ------------------------------------------ | -- |  | ---------------- | - |  | ---------------- | -
|                                                                                         |  | As a Percentage of Sales Fiscal Year Ended |   
|Fiscal Year                                                                              |  | 2003                                       |    |  | 2002             |   |  | 2001             |  
|Fiscal Year Ended                                                                        |  | January 31,2004                            |    |  | February 1, 2003 |   |  | February 2, 2002 |  
|Net sales                                                                                |  | 100.0                                      | %  |  | 100.0            | % |  | 100.0            | %
|Cost of sales (including buying, merchandise planning, distribution and occupancy costs) |  | 81.3                                       |    |  | 70.1             |   |  | 67.3             |  
|                                                                                         |  |                                            |    |  |                  |   |  |                  |  
|Gross margin                                                                             |  | 18.7                                       |    |  | 29.9             |   |  | 32.7             |  
|Selling, general and administrative expenses                                             |  | 30.7                                       |    |  | 28.3             |   |  | 24.8             |  
|                                                                                         |  |                                            |    |  |                  |   |  |                  |  
|Operating income (loss)                                                                  |  | (12.0                                      | )  |  | 1.6              |   |  | 7.9              |  
|Interest income, net                                                                     |  | 0.3                                        |    |  | 0.5              |   |  | 0.9              |  
|                                                                                         |  |                                            |    |  |                  |   |  |                  |  
|Income before provision (benefit) for income taxes                                       |  | (11.7                                      | )  |  | 2.1              |   |  | 8.8              |  
|Provision (benefit) for income taxes                                                     |  | (4.2                                       | )  |  | 0.8              |   |  | 3.3              |  
|                                                                                         |  |                                            |    |  |                  |   |  |                  |  
|Net income (loss) from continuing operations                                             |  | (7.5                                       | )  |  | 1.3              |   |  | 5.5              |  
|Loss from discontinued operations, net of income taxes                                   |  | (1.6                                       | )  |  | (0.7             | ) |  | (0.2             | )
|                                                                                         |  |                                            |    |  |                  |   |  |                  |  
|Net income (loss)                                                                        |  | (9.1                                       | )% |  | 0.6              | % |  | 5.3              | %
|                                                                                         |  |                                            |    |  |                  |   |  |                  |  



13



---

Fiscal 2003 compared to Fiscal 2002



Net sales



|                                  |  |               |       |                               |   |       |      |  |       |   |  |   |      
|--------------------------------- |  | ------------- | ----- | ----------------------------- | - | ----- | ---- |  | ----- | - |  | - | -----
|                                  |  | 2003          |       | Change From Prior Fiscal Year |   |       | 2002
|                                  |  | (in millions)
|Net sales                         |  | $             | 517.6 |                               | $ | (72.7 | )    |  | -12.3 | % |  | $ | 590.3
|Comparable store sales percentage |  |               |       |                               |   |       |      |  | -16.4 | % |  |   |      





The decrease in sales in fiscal 2003 was due to the comparable store sales decline of 16.4% compared to a comparable store sales decrease of 5.5% in
fiscal 2002. The overall decline in comparable store sales was due to a reduction in the number of transactions per store, a lower average dollar sale, and a reduction in the average unit retail price compared to the prior year. The average dollar
sale in the stores was driven downward by the many promotions put in place in reaction to slow-selling merchandise. The average unit retail declined as a result of the aggressive markdowns taken during the year as well as deterioration in the
initial markup after allowances, primarily in our Wet Seal division.



Cost
of sales (including buying, merchandise planning/allocation, distribution and occupancy)



|                                                                                             |  |               |       |   |                               |   |     |      |      |   |  |   |       |  
|-------------------------------------------------------------------------------------------- |  | ------------- | ----- | - | ----------------------------- | - | --- | ---- | ---- | - |  | - | ----- | -
|                                                                                             |  | 2003          |       |   | Change From Prior Fiscal Year |   |     | 2002 |     
|                                                                                             |  | (in millions) |      
|Cost of Sales (including buying, merchandise planning/allocation, distribution and occupany) |  | $             | 420.8 |   |                               | $ | 7.1 |      | 1.7  | % |  | $ | 413.7 |  
|Percent of net sales                                                                         |  |               | 81.3  | % |                               |   |     |      | 11.2 | % |  |   | 70.1  | %





Our cost of sales, in addition to the direct merchandise cost, also includes our buying, merchandise planning/allocation, distribution and occupancy
costs. The increase as a percentage of sales in fiscal 2003 compared to fiscal 2002 was the result of several key factors:



| |  |  | The merchandise cost portion of cost of sales represented approximately 50% of the total increase. This increase was primarily the result of a significant increase in the amount of
goods sold at markdown prices, and also includes a substantial markdown reserve at year-end to reduce the value of remaining inventory. In addition, the initial mark-up of selected merchandise was lower, contributing to a lower merchandise margin,
which translated into more merchandise cost as a percentage of sales compared to the prior year.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Because of lower sales, occupancy, buying and merchandise planning/allocation costs as a percentage of sales impacted the margin by almost 6% compared to the prior year.
Additionally, the buying and merchandise planning/allocation costs increased slightly over the prior year due to our investment in buying and merchandise planning/allocation management as a strategic objective to revitalize the Wet Seal division.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Slightly offsetting these increases, our distribution center costs decreased, reflecting greater efficiencies developed over the past year.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------



Selling, general and administrative expenses



|                                           |  |               |       |   |                               |   |      |      |  |      |   |  |   |       |  
|------------------------------------------ |  | ------------- | ----- | - | ----------------------------- | - | ---- | ---- |  | ---- | - |  | - | ----- | -
|                                           |  | 2003          |       |   | Change From Prior Fiscal Year |   |      | 2002 | 
|                                           |  | (in millions) |      
|Selling, general & administrative expenses |  | $             | 159.0 |   |                               | $ | (7.9 | )    |  | -4.7 | % |  | $ | 166.8 |  
|Percent of net sales                       |  |               | 30.7  | % |                               |   |      |      |  | 2.4  | % |  |   | 28.3  | %



14



---

Our selling, general and administrative (SG&A) expenses are comprised of two components. The selling
expense component includes store and field support costs including personnel, advertising, and merchandise delivery costs as well as internet/catalog processing costs. The general and administrative (G&A) expense component includes the cost of
corporate functions such as legal, accounting, information systems, human resources, real estate, and other centralized services.



The SG&A expense included the following:



| |  |  | Store payroll as a percentage of sales increased. The level of actual payroll dollars spent per store during fiscal 2003 was almost flat compared to fiscal 2002, due to the
tightening of store payroll hours in concert with lower sales per store, but was higher as a percentage of sales due to same store sales decline.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Other selling related expenses decreased primarily by eliminating catalog distribution in fiscal 2003, by reducing advertising expenditures, and by achieving lower merchandise
delivery costs (using ground freight to the stores rather than air freight).
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | G&A expenses declined compared to the prior year as the prior year expenses included a one-time $4 million reserve established for a settlement with the previous chief executive
officer. However, in fiscal 2003, there was a one-time $1.7 million net charge for the settlement of and the legal fees associated with previously employed store managers who alleged non-exempt pay status under California state labor laws.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Lower employee benefit costs in fiscal 2003 associated with reductions in retirement plan costs and in accrued bonus expense compared to the prior year.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------



Net interest income



|                     |  |               |     |   |                               |   |      |      |  |       |   |  |   |     |  
|-------------------- |  | ------------- | --- | - | ----------------------------- | - | ---- | ---- |  | ----- | - |  | - | --- | -
|                     |  | 2003          |     |   | Change From Prior Fiscal Year |   |      | 2002 | 
|                     |  | (in millions) |    
|Net interest income  |  | $             | 1.6 |   |                               | $ | (1.5 | )    |  | -48.4 | % |  | $ | 3.1 |  
|Percent of net sales |  |               | 0.3 | % |                               |   |      |      |  | -0.2  | % |  |   | 0.5 | %





The decrease in net interest income was primarily due to a decrease in the invested balance compared to the prior year. Total cash and investments were
$63.5 million at the end of fiscal 2003 compared to $94.8 million at the end of fiscal 2002. In addition, there was a reduction in market interest rates on the invested balance.



Income taxes



|                                 |  |               |       |   |                              |   |       |      |  |        |   |  |   |      |  
|-------------------------------- |  | ------------- | ----- | - | ---------------------------- | - | ----- | ---- |  | ------ | - |  | - | ---- | -
|                                 |  | 2003          |       |   | Change FromPrior Fiscal Year |   |       | 2002 | 
|                                 |  | (in millions) |      
|Income taxesprovision (benefit) |  | $             | (21.6 | ) |                              | $ | (26.1 | )    |  | -580.0 | % |  | $ | 4.5  |  
|Effective tax rate               |  |               | 35.7  | % |                              |   |       |      |  | 0.7    | % |  |   | 35.0 | %



The income tax benefit
of $21.6 million for fiscal 2003 compares to a $4.5 million provision for fiscal 2002, reflecting a benefit on pre-tax losses this year compared to a charge on pre-tax income last year. The effective income tax rate for fiscal 2003 was 35.7% and 35%
for fiscal 2002.



15



---

Discontinued Operations



Discontinued operations is comprised of two components; the net loss from the Zutopia division operations for the year, net of income taxes, and the
loss on disposal, net of income taxes, which is derived from the $5.4 million pre-tax write off of the Zutopia assets.



Fiscal 2002 compared to Fiscal 2001



Net sales



|                                  |  |               |       |                              |   |     |      |      |   |  |   |      
|--------------------------------- |  | ------------- | ----- | ---------------------------- | - | --- | ---- | ---- | - |  | - | -----
|                                  |  | 2002          |       | Change FromPrior Fiscal Year |   |     | 2001
|                                  |  | (in millions)
|Net sales                         |  | $             | 590.3 |                              | $ | 0.4 |      | 0.1  | % |  | $ | 589.9
|Comparable store sales percentage |  |               |       |                              |   |     |      | -5.5 | % |  |   |      





Comparable store sales decreased 5.5% for fiscal 2002 compared to an increase of 4.7% for fiscal 2001. The comparable store sales decrease reflected the
negative sales trends in the second half of fiscal 2002, in which we did not have a dominant fashion trend to drive sales as compared to fiscal 2001. Sales in the first half of fiscal 2002 were fueled by the bohemian trend. As the
bohemian trend waned during the period leading up to the back-to-school season, we replaced it with a more sophisticated product offering.



Cost of sales (including buying, merchandise planning/allocation, distribution and occupancy)



|                                                                                             |  |               |       |   |                              |   |      |      |     |   |  |   |       |  
|-------------------------------------------------------------------------------------------- |  | ------------- | ----- | - | ---------------------------- | - | ---- | ---- | --- | - |  | - | ----- | -
|                                                                                             |  | 2002          |       |   | Change FromPrior Fiscal Year |   |      | 2001 |    
|                                                                                             |  | (in millions) |      
|Cost of Sales (including buying, merchandise planning/allocation, distribution and occupany) |  | $             | 413.7 |   |                              | $ | 16.8 |      | 4.2 | % |  | $ | 396.9 |  
|Percent of net sales                                                                         |  |               | 70.1  | % |                              |   |      |      | 2.8 | % |  |   | 67.3  | %





Our cost of sales, which encompasses merchandise cost, also includes our buying, merchandise planning/allocation, distribution and occupancy costs. The
increase as a percentage of sales in fiscal 2002 compared to fiscal 2001 was due to the following factors:



| |  |  | The increase in cost of sales as a percent of sales for fiscal 2002 was driven by an increase in markdowns and in shrink, offset partially by a slight improvement in the cumulative
mark-up.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The increased markdowns in the third and fourth quarters were the result of reacting to the declining comparable store sales, and included a substantial markdown reserve at year-end
to reduce the value of inventory subsequently marked out of stock in February 2003.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In addition, the de-leverage stemming from negative comparable store sales caused fixed costs such as buying, distribution and occupancy to rise as a percentage of sales in fiscal
2002 versus fiscal 2001.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Selling, general and administrative
expenses



|                                           |  |               |       |   |                              |   |      |      |      |   |  |   |       |  
|------------------------------------------ |  | ------------- | ----- | - | ---------------------------- | - | ---- | ---- | ---- | - |  | - | ----- | -
|                                           |  | 2002          |       |   | Change FromPrior Fiscal Year |   |      | 2001 |     
|                                           |  | (in millions) |      
|Selling, general & administrative expenses |  | $             | 166.8 |   |                              | $ | 20.4 |      | 13.9 | % |  | $ | 146.4 |  
|Percent of net sales                       |  |               | 28.3  | % |                              |   |      |      | 3.4  | % |  |   | 24.8  | %



16



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Our selling, general and administrative (SG&A) expenses are comprised of two components. The selling
expense component includes store and field support related costs including personnel, advertising, and merchandise delivery costs, as well as internet/catalog processing costs. The general and administrative (G&A) expense component includes the
cost of corporate functions such as legal, accounting, information systems, human resources, real estate, and other centralized services.



The increase in SG&A expenses are as follows:



| |  |  | The increase in selling expenses was primarily due to higher store wages and benefits. This was due to supporting more stores as well as actions taken early in the year to improve
the quality and therefore the average salary of many of the store-level employees.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The catalog business also contributed to higher selling expenses for the promotion, production and distribution support costs, reflecting our entry into the catalog business in
fiscal 2002.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We invested more in advertising costs in fiscal 2002 to support the retail locations.
| | - |  | -------------------------------------------------------------------------------------



| |  |  | Selling expenses rose, as a percent of sales, due to de-leveraging of fixed costs caused by lower sales per store than in the same stores in the prior year.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The increase was primarily caused by a reserve established for costs relating to a settlement with the prior chief executive officer.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The remaining increase was due to central office payrolls, reflecting salary increases and an increase in the number of employees.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------



| |  |  | These increases were offset partially by savings in legal fees incurred in negotiating store leases, as a result of establishing an in-house legal department.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------



Net interest income



|                     |  |               |     |   |                              |   |      |      |  |      |   |  |   |     |  
|-------------------- |  | ------------- | --- | - | ---------------------------- | - | ---- | ---- |  | ---- | - |  | - | --- | -
|                     |  | 2002          |     |   | Change FromPrior Fiscal Year |   |      | 2001 | 
|                     |  | (in millions) |    
|Net interest income  |  | $             | 3.1 |   |                              | $ | (2.0 | )    |  | 39.2 | % |  | $ | 5.1 |  
|Percent of net sales |  |               | 0.5 | % |                              |   |      |      |  | -0.4 | % |  |   | 0.9 | %





The decrease in the net interest income was due to a reduction in market interest rates on the invested balances, as well as a decrease later in the year
in the amount invested. Total cash and investments were $94.8 million at the end of fiscal 2002, compared to $132.3 million at the end of fiscal 2001.



Income taxes



|                       |  |               |      |   |                              |   |       |      |  |       |   |  |   |      |  
|---------------------- |  | ------------- | ---- | - | ---------------------------- | - | ----- | ---- |  | ----- | - |  | - | ---- | -
|                       |  | 2002          |      |   | Change FromPrior Fiscal Year |   |       | 2001 | 
|                       |  | (in millions) |     
|Income taxesprovision |  | $             | 4.5  |   |                              | $ | (15.2 | )    |  | -77.2 | % |  | $ | 19.7 |  
|Effective tax rate     |  |               | 35.0 | % |                              |   |       |      |  | -3.0  | % |  |   | 38.0 | %



The decrease in the
effective tax rate reflected the net loss during the fourth quarter, which increased the proportion of the full year net income that was in the form of tax exempt interest, as well as the proportion of income offset by charitable deductions of
merchandise.



17



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Liquidity and Capital Resources



Net cash used in operating activities for continuing operations was $17.7 million for fiscal 2003, compared to $7.3 million
net cash provided by operating activities for fiscal 2002. Fiscal 2003 operating cash flows were directly impacted by our loss from continuing operations of $39.0 million, partially offset by non-cash charges (depreciation, amortization and disposal
expense, stock compensation and deferred taxes) of $12.2 million and a net increase in the cash components of our working capital of approximately $8.2 million.



The fiscal 2003 changes in the cash components of working capital included a $2.9 million decrease in receivables, principally due to the reduction of
tenant allowances resulting from less construction of new and remodeled stores, a reduction of $8.3 million in prepaid accounts (primarily prepaid rents), a $5.1 million decrease in merchandise and other payables, and a $1.8 million increase in
income tax payable. Merchandise inventory decreased by $1.8 million.



Cash provided by investing activities of $7.4 million in fiscal 2003 included the net sales of marketable securities of $21.1 million offset by capital expenditures of $13.7 million. Cash provided by financing activities of $3.0 million due
to the exercise of stock options of $3.9 million, offset by $0.9 million paid to repurchase of company stock earlier in the year.



Net cash used in discontinued operations for the Zutopia division in fiscal 2003 was $1.2 million, which included the divisions loss of $8.3
million, largely offset by non-cash charges of $6.6 million, a net increase in the cash components of our working capital of approximately $0.8 million, and capital expenditures of $0.3 million.



The cash and investment balance for the fiscal year 2003 was $63.5 million,
$31.3 million less than at the end of fiscal 2002. This change resulted from the decline in sales and the resulting use of cash described above.

In fiscal 2003 and 2002, we invested $13.7 million and $38.2 million, respectively, in property and equipment and leasehold improvements for continuing operations. These expenditures related primarily to new store openings and remodels. In
fiscal 2003 for continuing operations, we opened 30 stores and remodeled 20 stores. In fiscal 2002 for continuing operations, we opened 62 stores and remodeled 23 stores. There were no acquisitions in either fiscal year. Capital expenditures for
fiscal 2004 are currently projected to be $12 million or less, relating primarily to new store openings and remodels.



Our working capital at January 31, 2004 was $38.6 million compared to $64.5 million at February 1, 2003. The overall reduction in our working capital
primarily reflects cash used in the continuing operations and the discontinued Zutopia division operations.



In September 1998, our Board of Directors authorized the repurchase of up to 20% of the outstanding shares of our Class A common stock. From this
authorized plan, 3,077,100 shares (split adjusted) were repurchased at a cost of $20.3 million. These repurchased shares were reflected as treasury stock in our consolidated balance sheets, until they were retired on December 2, 2002, as authorized
by the Board of Directors. On October 1, 2002, our Board of Directors authorized the repurchase of up to 5.4 million shares of our outstanding Class A common stock. This amount included the remaining shares previously authorized for repurchase by
the Board of Directors. During fiscal 2002, the Company repurchased 947,400 shares for $8.2 million and retired these shares. An additional 124,500 shares were repurchased for $0.9 million in the first quarter of fiscal 2003 and these shares were
also retired. As of January 31, 2004, there were 4,328,100 shares remaining that are authorized for repurchase. Presently, there are no plans to repurchase additional shares.



We have a revolving line-of-credit arrangement with Bank of America, N.A. under which we may borrow up to a maximum
of $50 million on a revolving basis through July 1, 2004. We renegotiated and revised certain of the covenants included in this secured line of credit on January 29, 2004, primarily as a result of the decision



18



---

to divest the Zutopia division. The amended line-of-credit arrangement is secured by our merchandise inventory. At January 31, 2004, there were no
outstanding borrowings under the credit arrangement. There were $17.2 million in open letters of credit related to imported inventory orders as well as standby letters of credit totaling $1.0 million. As of January 31, 2004, we were in compliance
with all financial covenants of the credit arrangement. We were required for the fourth fiscal quarter 2003 to meet a net worth covenant of $168.5 million adjusted for the disposition of the Zutopia division, the class action legal settlement, and
year-end markdowns. We are also required to maintain a minimum cash and investment balance under the line of credit. To the extent that our cash and investment balance falls below the $50.0 million required cash covenant, the line of credit may not
be available, and therefore we would have to rely upon our cash and investments to meet our operating requirements.



We invest our excess funds in short-term investment grade money market funds, investment grade municipal and commercial paper and U.S. Treasury and agency
obligations. Assets listed as long-term investments on our balance sheet consist of high credit quality municipal and corporate bonds with maturities extending no further than three years out.



We believe that our available cash and investments aggregating $63.5 million
at January 31, 2004 and other working capital and cash flows from operating activities will be sufficient to meet our operating and capital requirements for the next 12 months.



Seasonality and Inflation



Our business is seasonal in nature with the Christmas season, beginning the week of Thanksgiving and ending the first Saturday after Christmas, and the
back-to-school season, beginning the last week of July and ending the first week of September, historically accounting for a large percentage of sales volume. For the past three fiscal years, the Christmas and back-to-school seasons together
accounted for an average slightly less than 30% of our annual sales, after adjusting for sales increases related to new stores. We do not believe that inflation has had a material effect on the results of operations during the past three years.
However, we cannot assure that our business will not be affected by inflation in the future.



Commitments and Contingencies



Our principal contractual obligations consist of minimum annual rental commitments under non-cancelable leases for our stores, our corporate office, warehouse facility, automobiles, computer equipment and copiers. At January 31, 2004, our
contractual obligations under these leases were as follows (in thousands):



|                                           |       |                        |                 |  |           |        |           |   |               |  |   |        |  |   |       
|------------------------------------------ | ----- | ---------------------- | --------------- |  | --------- | ------ | --------- | - | ------------- |  | - | ------ |  | - | ------
|Contractual Obligations (in thousands)     |       | Payments Due By Period
|                                           | Total |                        | Less Than 1Year |  | 13 Years |        | 45 Years |   | After 5 Years
|Operating leases                           |       | $                      | 433,100         |  | $         | 69,300 |           | $ | 183,200       |  | $ | 90,100 |  | $ | 90,500
|Management Fees payable to related parties |       | $                      | 1,279           |  | $         | 640    |           | $ | 640           |  |   |        |  |   |       



Operating leases
include remaining commitments open for the Zutopia division. Negotiations of early lease buyouts are anticipated to be completed by the end of the second quarter of fiscal 2004.



19



---

Our principal commercial commitments consist primarily of open letters of credit, related to imported
inventory orders, secured by our revolving line-of-credit arrangement. At January 31, 2004, our contractual commercial commitments under these letters of credit arrangements were as follows (in thousands):



|                                            |  |                        |        |                                            |   |           |  |              |  |   |  |  
|------------------------------------------- |  | ---------------------- | ------ | ------------------------------------------ | - | --------- |  | ------------ |  | - |  | -
|Other Commercial Commitments (in thousands) |  | Total AmountsCommitted |        | Amount of Commitment Expiration Per Period
|                                            |  | Less Than1 Year        |        | 13 Years                                  |   | 45 Years |  | Over 5 Years
|Letters of credit                           |  | $                      | 18,200 |                                            | $ | 18,200    |  |             |  |  |  | 



We do not maintain any
long-term or exclusive commitments or arrangements to purchase merchandise from any single supplier.



New Accounting Pronouncements



In November 2001, the Financial Accounting Standards Board, or FASB issued SFAS No. 143 Accounting for Asset Retirement Obligations, which addresses financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated retirement costs. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. The Company adopted SFAS No. 143 without material impact on the Companys consolidated
results of operations, financial position or cash flows.



In
July 2002, the FASB issued SFAS 146, Accounting for Costs Associated with Exit or Disposal Activities, which addresses financial accounting and reporting for costs associated with exit or disposal activities and supersedes Emerging
Issues Task Force (EITF) Issue 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). SFAS 146 requires that a liability for a cost
associated with an exit or disposal activity be recognized when the liability is incurred. Under Issue 94-3, a liability for an exit cost as defined in EITF 94-3 was recognized at the date of an entitys commitment to an exit plan. SFAS 146
also establishes that the liability should initially be measured and recorded at fair value. The Company adopted the provisions of SFAS 146 for exit or disposal activities initiated after December 31, 2002. See Note 4 to consolidated financial
statements.



In November 2002, the FASB issued FASB
Interpretation (FIN) No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an interpretation of FASB Statements No. 5, 57 and 107, and
rescission of FASB Interpretation No. 34, Disclosure of Indirect Guarantees of Indebtedness of Others. FIN 45 elaborates on the disclosures to be made by the guarantor in its interim and annual financial statements about its obligations
under certain guarantees that it has issued. It also requires that a guarantor recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and measurement
provisions of this interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002 while the provisions of the disclosure requirements are effective for financial statements of interim or annual periods
ending after December 15, 2002. The adoption of this interpretation did not have a material impact on its results of operations or financial position. See Note 7 to consolidated financial statements.



In January 2003, the FASB issued FIN No. 46, Consolidation of Variable
Interest Entities and in December 2003, issued Interpretation No. 46 (revised in December 2003) Consolidation of Variable Interest EntitiesAn Interpretation of APB No. 51. In general, a variable interest entity is a
corporation, partnership, trust, or any other legal structure used for business purposes that either (a) does not have equity investors with voting rights or (b) has equity investors that do not provide sufficient financial resources for the entity
to support its activities. FIN No. 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the investors in the entity do not have the characteristics of a controlling financial interest or do
not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN No. 46 (R) clarifies the application of Accounting Research Bulletin (APB)



20



---

No. 51, Consolidated Financial Statements, to certain entities in which equity investors do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for the entity to finance its activities without subordinated financial support from other parties. The consolidation requirements of FIN No. 46 applies immediately to variable
interest entities created after January 31, 2003. The consolidation requirements apply to older entities in the first fiscal year or interim period beginning after June 15, 2003. Certain of the disclosure requirements apply in all financial
statements issued after January 31, 2003, regardless of when the variable interest entity was established. FIN No. 46(R) applies immediately to variable interest entities created after December 31, 2003, and to variable interest entities in which an
enterprise obtains an interest after that date. It applies no later than the first reporting period ending after December 15, 2004, to variable interest entities in which an enterprise holds a variable interest (other than special purpose) that it
acquired before January 1, 2004. FIN No. 46(R) applies to public enterprises as of the beginning of the applicable interim or annual period. The Company believes that the adoption of FIN No. 46 and FIN No. 46(R) will not have a material impact on
its financial position or results of operation because the Company has no variable interest entities.



In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Instruments with Characteristics of Both Liabilities and Equity, (SFAS
150) which establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS 150 requires that an issuer classify a financial instrument that is within its
scope, which may have previously been reported as equity, as a liability (or an asset in some circumstances). This statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003 for public companies. In October 2003, the FASB deferred implementation of paragraphs 9 and 10 of SFAS 150 regarding parent company treatment of minority interest for certain
limited life entities. This deferral is for an indefinite period. The adoption of SFAS 150 did not have a material impact on the Companys financial statements.



Item 7A.    Quantitative and Qualitative Disclosures About Market Risk



To the extent that we borrow under our credit facility, we are exposed to
market risk related to changes in interest rates. At January 31, 2004, no borrowings were outstanding under our credit facility. We are not a party to any derivative financial instruments. However, we are exposed to market risk related to changes in
interest rates on the investment grade interest-bearing securities in which we invest. If there are changes in interest rates, those changes would affect the investment income we earn on those investments.



Item 8.    Financial Statements and Supplementary Data



Information with respect to this item is set forth under Item 15.



Item 9.    Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure



Not
Applicable.



Item 9A.    Controls and Procedures



Disclosure Controls and Internal Controls



Our disclosure controls and procedures (as defined in Rule 13a-15(e) under
the Exchange Act) (Disclosure Controls) are controls and procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act, such as this annual report, is
recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms. Disclosure Controls are also designed with the objective of ensuring that this information is accumulated and communicated to our
management, including our Chief Executive Officer and our interim Chief Financial Officer, as appropriate to



21



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allow timely decisions regarding required disclosure. Our internal control over financial reporting (Internal Controls) is a process designed by,
or under the supervision of, our Chief Executive Officer and interim Chief Financial Officer, and effected by our Board of Directors, management and other personnel, with the objective of providing reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal Controls also include policies and procedures that:



1) pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions of the assets of our company;



2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures
of our company are being made only in accordance with authorizations of management and directors of our company; and



3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our companys assets that
could have a material effect on the financial statements.



Limitations on
the Effectiveness of Controls



Our management, including
our Chief Executive Officer and our interim Chief Financial Officer, does not expect that our Disclosure Controls or Internal Controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide
only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative
to their costs.



Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in
decision-making can be faulty and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the
control. Moreover, the design of any system of controls is also based in part upon certain assumptions about the likelihood of future events.



Notwithstanding the foregoing limitations, we believe that our Disclosure Controls and Internal Controls provide reasonable assurances that the objectives
of our control system are met.



Quarterly Evaluation of the Companys
Disclosure Controls



As of January 31, 2004, the last day
of the period covered by this report, an evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and our interim Chief Financial Officer, of the effectiveness of the design
and operation of our Disclosure Controls. Based upon that evaluation, our Chief Executive Officer and our interim Chief Financial Officer concluded, subject to the limitations noted above, that the design and operation of our Disclosure Controls
were effective to ensure that material information related to our company which is required to be disclosed in reports filed under the Securities and Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods
specified in SEC rules and forms.



22



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PART III



Item 10.    Directors and Executive Officers of the Registrant



The information required by this item is incorporated by reference to the information set forth in our proxy statement for
our 2004 annual meeting of stockholders to be filed with the Securities and Exchange Commission within 120 days after the end of our fiscal year ended January 31, 2004.



The Company has adopted a written code of ethics, The Wet Seal, Inc. Code of Conduct, which is applicable to all
directors, officers and employees of the Company, including the Companys principal executive officer, principal financial officer, principal accounting officer or controller and other executive officers identified pursuant to this Item 10 who
perform similar functions (collectively, the Selected Officers). In accordance with the rules and regulations of the SEC, a copy of the code is filed as an exhibit to this Annual Report and is available on the Companys website. The
Company will disclose any changes in or waivers from its code of ethics applicable to any Selected Officer on its website at http://www.wetsealinc.com or by filing a Form 8-K.



Item 11.    Executive Compensation



The information required by this item is incorporated by reference to the information set forth in our proxy statement for
our 2004 annual meeting of stockholders to be filed with the Securities and Exchange Commission within 120 days after the end of our fiscal year ended January 31, 2004.



Item 12.    Security Ownership of Certain Beneficial Owners and Management



The information required by this item is incorporated by reference to the
information set forth in our proxy statement for our 2004 annual meeting of stockholders to be filed with the Securities and Exchange Commission within 120 days after the end of our fiscal year ended January 31, 2004.



Item 13.    Certain Relationships and Related Transactions



The information required by this item is incorporated by
reference to the information set forth in our proxy statement for our 2004 annual meeting of stockholders to be filed with the Securities and Exchange Commission within 120 days after the end of our fiscal year ended January 31, 2004.



Item 14.    Principal Accountant Fees and Services



The information required by this item is incorporated by reference to the
information set forth in our proxy statement for our 2004 annual meeting of stockholders to be filed with the Securities and Exchange Commission within 120 days after the end of our fiscal year ended January 31, 2004.



23



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PART IV



Item 15.    Exhibits, Financial Statement Schedules and Reports on Form 8-K



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



| | 1. |  | Financial Statements: The financial statements listed in the Index to Consolidated Financial Statements and Financial Statement Schedules at F-1 are filed as part of
this report.
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2. |  | Financial Statement Schedules: All schedules are omitted as they are not required, or the required information is shown in the consolidated financial statements or notes thereto.
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3. |  | Exhibits: See Exhibit Index.
| | -- |  | ------------------------------



|(b) |  | Reports on Form 8-K during the fourth quarter of fiscal 2003.
|--- |  | -------------------------------------------------------------



On November 21, 2003, we filed a current report on Form 8-K reporting the issuance of two press releases. In the first press release, we announced that
William B. Langsdorf had resigned as Chief Financial Officer. In the second press release, we reported our financial results for the third quarter ended November 1, 2003 and announced estimated financial results for the fourth quarter of fiscal
2003.



On January 9, 2004, we filed a current report on Form
8-K reporting the issuance of two press releases. In the first press release, we announced strategic initiatives involving the potential sale or closure of all 31 Zutopia stores and that Jennifer Pritchard had been named president of the Arden B.
division, following the resignation of Greg Scott. In the second press release, we reported our net sales for the five-week period ended January 3, 2004 and announced estimated financial results for the fourth quarter of fiscal 2003.



24



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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/    PETER D.
WHITFORDPeter D.
Whitford Chief Executive OfficerBy:

/s/    JOSEPH E.
DECKOPJoseph E. Deckop
Executive Vice President and Interim 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
TEITELBAUMIrving
Teitelbaum       |  | Chairman of the Board of Directors                                                                        |  | March 26 , 2004
|                                                |  |                                                                                                          
|/s/    STEPHEN
GROSSStephen
Gross               |  | Secretary and Director                                                                                    |  | March 26 , 2004
|                                                |  |                                                                                                          
|/s/    PETER D.
WHITFORDPeter D.
Whitford       |  | Chief Executive Officer (Principal Executive Officer)                                                     |  | March 26 , 2004
|                                                |  |                                                                                                          
|/s/    JOSEPH E.
DECKOPJoseph E.
Deckop         |  | Executive Vice President and Interim Chief Financial Officer (Principal Financial and Accounting Officer) |  | March 26 , 2004
|                                                |  |                                                                                                          
|/s/    GEORGE H. BENTER
JR.George H. Benter
Jr. |  | Director                                                                                                  |  | March 26 , 2004
|                                                |  |                                                                                                          
|/s/    BARRY
ENTOUSBarry
Entous                 |  | Director                                                                                                  |  | March 26 , 2004
|                                                |  |                                                                                                          
|/s/    WALTER F.
LOEBWalter F.
Loeb             |  | Director                                                                                                  |  | March 26 , 2004
|                                                |  |                                                                                                          
|/s/    WILFRED
POSLUNSWilfred
Posluns           |  | Director                                                                                                  |  | March 26 , 2004
|                                                |  |                                                                                                          
|/s/    ALAN
SIEGELAlan Siegel                   |  | Director                                                                                                  |  | March 26 , 2004





25



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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 January 31, 2004 and February 1, 2003                                                                                 |  | F-3 
|Consolidated statements of operations for the fiscal years ended January 31, 2004, February 1, 2003, and February 2, 2002                               |  | F-4 
|Consolidated statements of stockholders equity for the fiscal years ended January 31, 2004, February 1, 2003, and February 2, 2002                     |  | F-5 
|Consolidated statements of cash flows for the fiscal years ended January 31, 2004, February 1, 2003, and February 2, 2002                               |  | F-6 
|Notes to consolidated financial statements                                                                                                              |  | F-7 
|                                                                                                                                                        | 
|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. and subsidiary (the Company) as of January 31, 2004 and February 1,
2003 and the related consolidated statements of operations, stockholders equity and cash flows for each of the three fiscal years in the period ended January 31, 2004. 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. and subsidiary as of January 31, 2004 and February 1, 2003 and the results of their operations and their cash flows for each of the three fiscal years in
the period ended January 31, 2004 in conformity with accounting principles generally accepted in the United States of America.



As discussed in Note 4 to the consolidated financial statements, on January 6, 2004 the Companys board of directors approved a plan to discontinue
the operations of the Companys Zutopia division (the Plan). The consolidated financial statements, referred to above have been restated to report the Zutopia business as a discontinued operation for all periods presented.



As discussed in Note 1 to the financial statements, the Company changed its
method of accounting for goodwill and other intangible assets during the year ended February 1, 2003 as a result of adopting Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets.



DELOITTE & TOUCHE LLP

Costa Mesa, California

March 17, 2004



F-2



---

THE WET SEAL, INC.

CONSOLIDATED BALANCE SHEETS



|                                                                                                                                                                                              |  |                 |          |   |                 |   |          |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------- | -------- | - | --------------- | - | -------- | -
|                                                                                                                                                                                              |  | January 31,2004 |          |   | February 1,2003 |  
|                                                                                                                                                                                              |  | (In thousands)  |         
|ASSETS                                                                                                                                                                                        |  |                 |          |   |                 |   |          |  
|CURRENT ASSETS:                                                                                                                                                                               |  |                 |          |   |                 |   |          |  
|Cash and cash equivalents (Note 1)                                                                                                                                                            |  | $               | 13,526   |   |                 | $ | 21,969   |  
|Short-term investments (Note 2)                                                                                                                                                               |  |                 | 30,817   |   |                 |   | 39,237   |  
|Income tax receivable                                                                                                                                                                         |  |                 | 11,195   |   |                 |   | 11,561   |  
|Other receivables                                                                                                                                                                             |  |                 | 1,364    |   |                 |   | 3,906    |  
|Merchandise inventories (Note 1)                                                                                                                                                              |  |                 | 29,054   |   |                 |   | 30,886   |  
|Prepaid expenses, including prepaid rent of $714 and $9,671, respectively                                                                                                                     |  |                 | 3,278    |   |                 |   | 11,573   |  
|Deferred tax charges (Note 3)                                                                                                                                                                 |  |                 | 3,729    |   |                 |   | 2,472    |  
|Current assets of discontinued operations (Note 4)                                                                                                                                            |  |                 | 1,067    |   |                 |   | 1,500    |  
|                                                                                                                                                                                              |  |                 |          |   |                 |   |          |  
|Total current assets                                                                                                                                                                          |  |                 | 94,030   |   |                 |   | 123,104  |  
|                                                                                                                                                                                              |  |                 |          |   |                 |   |          |  
|EQUIPMENT AND LEASEHOLD IMPROVEMENTS (Note 1):                                                                                                                                                |  |                 |          |   |                 |   |          |  
|Leasehold improvements                                                                                                                                                                        |  |                 | 124,382  |   |                 |   | 123,331  |  
|Furniture, fixtures and equipment                                                                                                                                                             |  |                 | 85,948   |   |                 |   | 82,507   |  
|Leasehold rights                                                                                                                                                                              |  |                 | 2,262    |   |                 |   | 2,350    |  
|                                                                                                                                                                                              |  |                 |          |   |                 |   |          |  
|                                                                                                                                                                                              |  |                 | 212,592  |   |                 |   | 208,188  |  
|Less accumulated depreciation                                                                                                                                                                 |  |                 | (119,798 | ) |                 |   | (104,719 | )
|                                                                                                                                                                                              |  |                 |          |   |                 |   |          |  
|Net equipment and leasehold improvements                                                                                                                                                      |  |                 | 92,794   |   |                 |   | 103,469  |  
|LONG-TERM INVESTMENTS (Note 2)                                                                                                                                                                |  |                 | 19,114   |   |                 |   | 33,639   |  
|OTHER ASSETS:                                                                                                                                                                                 |  |                 |          |   |                 |   |          |  
|Deferred tax charges and other assets (Notes 3 and 12)                                                                                                                                        |  |                 | 25,069   |   |                 |   | 11,770   |  
|Goodwill                                                                                                                                                                                      |  |                 | 6,323    |   |                 |   | 6,323    |  
|Non-current assets of discontinued operations (Note 4)                                                                                                                                        |  |                 | 7        |   |                 |   | 6,320    |  
|                                                                                                                                                                                              |  |                 |          |   |                 |   |          |  
|Total other assets                                                                                                                                                                            |  |                 | 31,399   |   |                 |   | 24,413   |  
|                                                                                                                                                                                              |  |                 |          |   |                 |   |          |  
|                                                                                                                                                                                              |  | $               | 237,337  |   |                 | $ | 284,625  |  
|                                                                                                                                                                                              |  |                 |          |   |                 |   |          |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                          |  |                 |          |   |                 |   |          |  
|CURRENT LIABILITIES:                                                                                                                                                                          |  |                 |          |   |                 |   |          |  
|Accounts payablemerchandise                                                                                                                                                                  |  | $               | 18,972   |   |                 | $ | 21,589   |  
|Accounts payableother                                                                                                                                                                        |  |                 | 10,157   |   |                 |   | 13,025   |  
|Income taxes payable                                                                                                                                                                          |  |                 | 1,752    |   |                 |   |         |  
|Accrued liabilities (Note 11)                                                                                                                                                                 |  |                 | 23,229   |   |                 |   | 22,858   |  
|Current liabilities of discontinued operations (Note 4)                                                                                                                                       |  |                 | 1,353    |   |                 |   | 1,123    |  
|                                                                                                                                                                                              |  |                 |          |   |                 |   |          |  
|Total current liabilities                                                                                                                                                                     |  |                 | 55,463   |   |                 |   | 58,595   |  
|                                                                                                                                                                                              |  |                 |          |   |                 |   |          |  
|LONG-TERM LIABILITIES:                                                                                                                                                                        |  |                 |          |   |                 |   |          |  
|Deferred rent (Note 1)                                                                                                                                                                        |  |                 | 9,251    |   |                 |   | 9,037    |  
|Other long-term liabilities (Note 12)                                                                                                                                                         |  |                 | 3,270    |   |                 |   | 5,392    |  
|Non-current liabilities of discontinued operations (Note 4)                                                                                                                                   |  |                 | 410      |   |                 |   | 278      |  
|                                                                                                                                                                                              |  |                 |          |   |                 |   |          |  
|Total long-term liabilities                                                                                                                                                                   |  |                 | 12,931   |   |                 |   | 14,707   |  
|                                                                                                                                                                                              |  |                 |          |   |                 |   |          |  
|Total liabilities                                                                                                                                                                             |  |                 | 68,394   |   |                 |   | 73,302   |  
|                                                                                                                                                                                              |  |                 |          |   |                 |   |          |  
|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 60,000,000 shares; 25,599,801 and 24,836,386 shares issued and outstanding at January 31,
2004 and February 1, 2003, respectively           |  |                 | 2,560    |   |                 |   | 2,484    |  
|Common Stock, Class B convertible, $.10 par value, authorized 10,000,000 shares; 4,502,833 and 4,804,249 shares issued and outstanding at
January 31, 2004 and February 1, 2003, respectively |  |                 | 450      |   |                 |   | 480      |  
|Paid-in capital                                                                                                                                                                               |  |                 | 63,890   |   |                 |   | 59,036   |  
|Retained earnings                                                                                                                                                                             |  |                 | 102,043  |   |                 |   | 149,323  |  
|                                                                                                                                                                                              |  |                 |          |   |                 |   |          |  
|Total stockholders equity                                                                                                                                                                    |  |                 | 168,943  |   |                 |   | 211,323  |  
|                                                                                                                                                                                              |  |                 |          |   |                 |   |          |  
|                                                                                                                                                                                              |  | $               | 237,337  |   |                 | $ | 284,625  |  
|                                                                                                                                                                                              |  |                 |          |   |                 |   |          |  



See accompanying notes
to consolidated financial statements.



F-3



---

THE WET SEAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS



|                                                                                         |  |                                   |            |   |                  |   |            |                  |  |   |            |  
|---------------------------------------------------------------------------------------- |  | --------------------------------- | ---------- | - | ---------------- | - | ---------- | ---------------- |  | - | ---------- | -
|                                                                                         |  | January 31, 2004                  |            |   | February 1, 2003 |   |            | February 2, 2002 | 
|                                                                                         |  | (In thousands, except share data) |           
|NET SALES                                                                                |  | $                                 | 517,644    |   |                  | $ | 590,322    |                  |  | $ | 589,885    |  
|COST OF SALES (including buying, merchandise planning, distribution and occupancy costs) |  |                                   | 420,799    |   |                  |   | 413,660    |                  |  |   | 396,867    |  
|                                                                                         |  |                                   |            |   |                  |   |            |                  |  |   |            |  
|GROSS MARGIN                                                                             |  |                                   | 96,845     |   |                  |   | 176,662    |                  |  |   | 193,018    |  
|SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                                             |  |                                   | 158,955    |   |                  |   | 166,818    |                  |  |   | 146,379    |  
|                                                                                         |  |                                   |            |   |                  |   |            |                  |  |   |            |  
|OPERATING INCOME (LOSS)                                                                  |  |                                   | (62,110    | ) |                  |   | 9,844      |                  |  |   | 46,639     |  
|INTEREST INCOME, NET                                                                     |  |                                   | 1,550      |   |                  |   | 3,114      |                  |  |   | 5,127      |  
|                                                                                         |  |                                   |            |   |                  |   |            |                  |  |   |            |  
|INCOME (LOSS) BEFORE PROVISION (BENEFIT) FOR INCOME TAXES                                |  |                                   | (60,560    | ) |                  |   | 12,958     |                  |  |   | 51,766     |  
|PROVISION (BENEFIT) FOR INCOME TAXES (Note 3)                                            |  |                                   | (21,607    | ) |                  |   | 4,541      |                  |  |   | 19,678     |  
|                                                                                         |  |                                   |            |   |                  |   |            |                  |  |   |            |  
|NET INCOME (LOSS) FROM CONTINUING OPERATIONS                                             |  |                                   | (38,953    | ) |                  |   | 8,417      |                  |  |   | 32,088     |  
|LOSS FROM DISCONTINUED OPERATIONS, NET OF INCOME TAXES                                   |  |                                   | (8,327     | ) |                  |   | (4,178     | )                |  |   | (1,073     | )
|                                                                                         |  |                                   |            |   |                  |   |            |                  |  |   |            |  
|NET INCOME (LOSS)                                                                        |  | $                                 | (47,280    | ) |                  | $ | 4,239      |                  |  | $ | 31,015     |  
|                                                                                         |  |                                   |            |   |                  |   |            |                  |  |   |            |  
|NET INCOME (LOSS) PER SHARE, BASIC (Note 3)                                              |  |                                   |            |   |                  |   |            |                  |  |   |            |  
|CONTINUING OPERATIONS                                                                    |  | $                                 | (1.31      | ) |                  | $ | 0.28       |                  |  | $ | 1.08       |  
|DISCONTINUED OPERATIONS (Note 4)                                                         |  | $                                 | (0.28      | ) |                  | $ | (0.14      | )                |  | $ | (0.03      | )
|                                                                                         |  |                                   |            |   |                  |   |            |                  |  |   |            |  
|NET INCOME (LOSS)                                                                        |  | $                                 | (1.59      | ) |                  | $ | 0.14       |                  |  | $ | 1.05       |  
|                                                                                         |  |                                   |            |   |                  |   |            |                  |  |   |            |  
|NET INCOME (LOSS) PER SHARE, DILUTED (Note 3)                                            |  |                                   |            |   |                  |   |            |                  |  |   |            |  
|CONTINUING OPERATIONS                                                                    |  | $                                 | (1.31      | ) |                  | $ | 0.27       |                  |  | $ | 1.05       |  
|DISCONTINUED OPERATIONS                                                                  |  | $                                 | (0.28      | ) |                  | $ | (0.13      | )                |  | $ | (0.03      | )
|                                                                                         |  |                                   |            |   |                  |   |            |                  |  |   |            |  
|NET INCOME (LOSS)                                                                        |  | $                                 | (1.59      | ) |                  | $ | 0.14       |                  |  | $ | 1.02       |  
|                                                                                         |  |                                   |            |   |                  |   |            |                  |  |   |            |  
|WEIGHTED AVERAGE SHARES OUTSTANDING, BASIC (Note 1)                                      |  |                                   | 29,748,888 |   |                  |   | 30,044,673 |                  |  |   | 29,601,368 |  
|                                                                                         |  |                                   |            |   |                  |   |            |                  |  |   |            |  
|WEIGHTED AVERAGE SHARES OUTSTANDING, DILUTED (Note 1)                                    |  |                                   | 29,748,888 |   |                  |   | 31,078,549 |                  |  |   | 30,514,802 |  
|                                                                                         |  |                                   |            |   |                  |   |            |                  |  |   |            |  



See accompanying notes
to consolidated financial statements.



F-4



---

THE WET SEAL, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY



|                                                                            |  |                                   |   |  |           |       |   |        |            |   |           |   |      |                 |  |   |                   |   |  |               |         |   |                            |   |         |   |  |   |         |  
|--------------------------------------------------------------------------- |  | --------------------------------- | - |  | --------- | ----- | - | ------ | ---------- | - | --------- | - | ---- | --------------- |  | - | ----------------- | - |  | ------------- | ------- | - | -------------------------- | - | ------- | - |  | - | ------- | -
|                                                                            |  | Common Stock                      |   |  |           |       |   |        |            |   |           |   |      |                 | 
|                                                                            |  | Class A                           |   |  | Class B   |       |   |        |            |   |           |   |      |                 |  |   |                   |  
|                                                                            |  | Shares                            |   |  | Par Value |       |   | Shares |            |   | Par Value |   |      | Paid-In Capital |  |   | Retained Earnings |   |  | TreasuryStock |         |   | Total Stockholders Equity |  
|                                                                            |  | (In thousands, except share data) |  
|Balance at February 3, 2001                                                 |  | 25,282,979                        |   |  | $         | 2,528 |   |        | 6,553,497  |   |           | $ | 655  |                 |  | $ | 66,890            |   |  | $             | 114,069 |   |                            | $ | (20,349 | ) |  | $ | 163,793 |  
|Stock issued pursuant to long-term incentive plan (Note 6)                  |  | 26,261                            |   |  |           | 3     |   |        |           |   |           |   |     |                 |  |   | 462               |   |  |               |        |   |                            |   |        |   |  |   | 465     |  
|Exercise of stock options (Note 6)                                          |  | 1,210,167                         |   |  |           | 121   |   |        |           |   |           |   |     |                 |  |   | 8,673             |   |  |               |        |   |                            |   |        |   |  |   | 8,794   |  
|Tax benefit related to exercise of stock options (Note 6)                   |  |                                  |   |  |           |      |   |        |           |   |           |   |     |                 |  |   | 3,543             |   |  |               |        |   |                            |   |        |   |  |   | 3,543   |  
|Cancellation of fractional shares due to three-for-two stock split (Note 5) |  | (198                              | ) |  |           |      |   |        |           |   |           |   |     |                 |  |   |                  |   |  |               |        |   |                            |   |        |   |  |   |        |  
|Shares converted from Class B to Class A                                    |  | 1,749,248                         |   |  |           | 175   |   |        | (1,749,248 | ) |           |   | (175 | )               |  |   |                  |   |  |               |        |   |                            |   |        |   |  |   |        |  
|Net income                                                                  |  |                                   |   |  |           |       |   |        |            |   |           |   |      |                 |  |   |                   |   |  |               | 31,015  |   |                            |   |         |   |  |   | 31,015  |  
|                                                                            |  |                                   |   |  |           |       |   |        |            |   |           |   |      |                 |  |   |                   |   |  |               |         |   |                            |   |         |   |  |   |         |  
|Balance at February 2, 2002                                                 |  | 28,268,457                        |   |  |           | 2,827 |   |        | 4,804,249  |   |           |   | 480  |                 |  |   | 79,568            |   |  |               | 145,084 |   |                            |   | (20,349 | ) |  |   | 207,610 |  
|Stock issued pursuant to long-term incentive plan (Note 6)                  |  | 23,875                            |   |  |           | 2     |   |        |           |   |           |   |     |                 |  |   | 211               |   |  |               |        |   |                            |   |        |   |  |   | 213     |  
|Exercise of stock Options (Note 6)                                          |  | 569,708                           |   |  |           | 57    |   |        |           |   |           |   |     |                 |  |   | 4,878             |   |  |               |        |   |                            |   |        |   |  |   | 4,935   |  
|Tax benefit related to exercise of stock options (Note 6)                   |  |                                  |   |  |           |      |   |        |           |   |           |   |     |                 |  |   | 2,541             |   |  |               |        |   |                            |   |        |   |  |   | 2,541   |  
|Cancellation of fractional shares due to three-for-two stock split (Note 5) |  | (1,154                            | ) |  |           |      |   |        |           |   |           |   |     |                 |  |   |                  |   |  |               |        |   |                            |   |        |   |  |   |        |  
|Repurchase/Retirement of common stock (Note 5)                              |  | (4,024,500                        | ) |  |           | (402  | ) |        |           |   |           |   |     |                 |  |   | (28,162           | ) |  |               |        |   |                            |   | 20,349  |   |  |   | (8,215  | )
|Net income                                                                  |  |                                   |   |  |           |       |   |        |            |   |           |   |      |                 |  |   |                   |   |  |               | 4,239   |   |                            |   |         |   |  |   | 4,239   |  
|                                                                            |  |                                   |   |  |           |       |   |        |            |   |           |   |      |                 |  |   |                   |   |  |               |         |   |                            |   |         |   |  |   |         |  
|Balance at February 1, 2003                                                 |  | 24,836,386                        |   |  |           | 2,484 |   |        | 4,804,249  |   |           |   | 480  |                 |  |   | 59,036            |   |  |               | 149,323 |   |                            |   |        |   |  |   | 211,323 |  
|Stock issued pursuant to long-term incentive plan (Note 6)                  |  | 13,926                            |   |  |           | 1     |   |        |           |   |           |   |     |                 |  |   | 134               |   |  |               |        |   |                            |   |        |   |  |   | 135     |  
|Stock compensation                                                          |  |                                   |   |  |           |       |   |        |            |   |           |   |      |                 |  |   | 806               |   |  |               |         |   |                            |   |         |   |  |   | 806     |  
|Exercise of stock Options (Note 6)                                          |  | 572,573                           |   |  |           | 57    |   |        |           |   |           |   |     |                 |  |   | 3,829             |   |  |               |        |   |                            |   |        |   |  |   | 3,886   |  
|Tax benefit related to exercise of stock options (Note 6)                   |  |                                  |   |  |           |      |   |        |           |   |           |   |     |                 |  |   | 927               |   |  |               |        |   |                            |   |        |   |  |   | 927     |  
|Cancellation of fractional shares due to three-for-two stock split (Note 5) |  |                                  |   |  |           |      |   |        |           |   |           |   |     |                 |  |   |                  |   |  |               |        |   |                            |   |        |   |  |   |        |  
|Repurchase/Retirement of common stock (Note 5)                              |  | (124,500                          | ) |  |           | (12   | ) |        |           |   |           |   |     |                 |  |   | (842              | ) |  |               |        |   |                            |   |        |   |  |   | (854    | )
|Shares converted from Class B to Class A                                    |  | 301,416                           |   |  |           | 30    |   |        | (301,416   | ) |           |   | (30  | )               |  |   |                   |   |  |               |         |   |                            |   |         |   |  |   |         |  
|Net income                                                                  |  |                                   |   |  |           |       |   |        |            |   |           |   |      |                 |  |   |                   |   |  |               | (47,280 | ) |                            |   |         |   |  |   | (47,280 | )
|                                                                            |  |                                   |   |  |           |       |   |        |            |   |           |   |      |                 |  |   |                   |   |  |               |         |   |                            |   |         |   |  |   |         |  
|Balance at January 31, 2004                                                 |  | 25,599,801                        |   |  | $         | 2,560 |   |        | 4,502,833  |   |           | $ | 450  |                 |  | $ | 63,890            |   |  | $             | 102,043 |   |                            | $ | 0       |   |  | $ | 168,943 |  
|                                                                            |  |                                   |   |  |           |       |   |        |            |   |           |   |      |                 |  |   |                   |   |  |               |         |   |                            |   |         |   |  |   |         |  



See accompanying notes
to consolidated financial statements.



F-5



---

THE WET SEAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS





|                                                                                         |  |                  |         |   |                  |   |         |                  |  |   |          |  
|---------------------------------------------------------------------------------------- |  | ---------------- | ------- | - | ---------------- | - | ------- | ---------------- |  | - | -------- | -
|                                                                                         |  | January 31, 2004 |         |   | February 1, 2003 |   |         | February 2, 2002 | 
|                                                                                         |  | (In thousands)   |        
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                    |  |                  |         |   |                  |   |         |                  |  |   |          |  
|Net income (loss) from continuing operations                                             |  | ($               | 38,953  | ) |                  | $ | 8,417   |                  |  | $ | 32,088   |  
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |                  |         |   |                  |   |         |                  |  |   |          |  
|Depreciation and amortization                                                            |  |                  | 25,020  |   |                  |   | 21,587  |                  |  |   | 19,688   |  
|Loss on disposal of equipment and leasehold improvements                                 |  |                  | 1,193   |   |                  |   | 561     |                  |  |   | 750      |  
|Stock issued pursuant to long-term incentive plan                                        |  |                  | 135     |   |                  |   | 213     |                  |  |   | 465      |  
|Deferred tax, net                                                                        |  |                  | (14,950 | ) |                  |   | 2,032   |                  |  |   | 170      |  
|Stock compensation                                                                       |  |                  | 806     |   |                  |   |        |                  |  |   |         |  
|Changes in operating assets and liabilities:                                             |  |                  |         |   |                  |   |         |                  |  |   |          |  
|Income tax receivable                                                                    |  |                  | 366     |   |                  |   |        |                  |  |   |         |  
|Other receivables                                                                        |  |                  | 2,542   |   |                  |   | (10,637 | )                |  |   | (2,418   | )
|Merchandise inventories                                                                  |  |                  | 1,832   |   |                  |   | 53      |                  |  |   | (2,619   | )
|Prepaid expenses                                                                         |  |                  | 8,295   |   |                  |   | (1,541  | )                |  |   | (1,555   | )
|Other assets                                                                             |  |                  | 394     |   |                  |   | (765    | )                |  |   | (52      | )
|Accounts payable and accrued liabilities                                                 |  |                  | (5,114  | ) |                  |   | (12,859 | )                |  |   | 9,408    |  
|Income taxes payable                                                                     |  |                  | 1,752   |   |                  |   | (3,834  | )                |  |   | (1,714   | )
|Tax benefit related to exercise of stock options                                         |  |                  | 927     |   |                  |   | 2,541   |                  |  |   | 3,543    |  
|Deferred rent                                                                            |  |                  | 214     |   |                  |   | 541     |                  |  |   | (700     | )
|Other long-term liabilities                                                              |  |                  | (2,122  | ) |                  |   | 954     |                  |  |   | 551      |  
|                                                                                         |  |                  |         |   |                  |   |         |                  |  |   |          |  
|Net cash provided by (used in) operating activities                                      |  |                  | (17,663 | ) |                  |   | 7,263   |                  |  |   | 57,605   |  
|                                                                                         |  |                  |         |   |                  |   |         |                  |  |   |          |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                    |  |                  |         |   |                  |   |         |                  |  |   |          |  
|Investment in equipment and leasehold improvements                                       |  |                  | (13,706 | ) |                  |   | (38,201 | )                |  |   | (34,987  | )
|Investment in marketable securities                                                      |  |                  | (16,122 | ) |                  |   | (71,348 | )                |  |   | (105,335 | )
|Proceeds from sale of marketable securities                                              |  |                  | 37,194  |   |                  |   | 95,182  |                  |  |   | 84,931   |  
|                                                                                         |  |                  |         |   |                  |   |         |                  |  |   |          |  
|Net cash provided by (used in) investing activities                                      |  |                  | 7,366   |   |                  |   | (14,367 | )                |  |   | (55,391  | )
|                                                                                         |  |                  |         |   |                  |   |         |                  |  |   |          |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                    |  |                  |         |   |                  |   |         |                  |  |   |          |  
|Proceeds from line of credit borrowings                                                  |  |                  | 21,515  |   |                  |   |        |                  |  |   |         |  
|Repayments from line of credit borrowings                                                |  |                  | (21,515 | ) |                  |   |        |                  |  |   |         |  
|Purchase of treasury stock                                                               |  |                  | (854    | ) |                  |   | (8,215  | )                |  |   |         |  
|Proceeds from issuance of common stock                                                   |  |                  | 3,886   |   |                  |   | 4,935   |                  |  |   | 8,794    |  
|                                                                                         |  |                  |         |   |                  |   |         |                  |  |   |          |  
|Net cash provided by (used in) financing activities                                      |  |                  | 3,032   |   |                  |   | (3,280  | )                |  |   | 8,794    |  
|                                                                                         |  |                  |         |   |                  |   |         |                  |  |   |          |  
|Net cash (used in) discontinued operations                                               |  |                  | (1,178  | ) |                  |   | (1,992  | )                |  |   | (6,785   | )
|                                                                                         |  |                  |         |   |                  |   |         |                  |  |   |          |  
|NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                                     |  |                  | (8,443  | ) |                  |   | (12,376 | )                |  |   | 4,223    |  
|CASH AND CASH EQUIVALENTS, beginning of year                                             |  |                  | 21,969  |   |                  |   | 34,345  |                  |  |   | 30,122   |  
|                                                                                         |  |                  |         |   |                  |   |         |                  |  |   |          |  
|CASH AND CASH EQUIVALENTS, end of year                                                   |  | $                | 13,526  |   |                  | $ | 21,969  |                  |  | $ | 34,345   |  
|                                                                                         |  |                  |         |   |                  |   |         |                  |  |   |          |  
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                                       |  |                  |         |   |                  |   |         |                  |  |   |          |  
|Cash paid during the year for:                                                           |  |                  |         |   |                  |   |         |                  |  |   |          |  
|Interestcredit facility                                                                 |  | $                | 31      |   |                  | $ | 23      |                  |  | $ | 23       |  
|Income taxes, net                                                                        |  | $                |        |   |                  | $ | 13,093  |                  |  | $ | 16,972   |  



|SCHEDULE |  | OF NONCASH TRANSACTIONS:
|-------- |  | ------------------------



During the 52 weeks ended January 31, 2004, February 1, 2003, and February 2, 2002, the Company recorded an increase to paid-in capital and a decrease to
income taxes payable of $0.9 million, $2.5 million, and $3.5 million, respectively, related to tax benefits associated with the exercise of non-qualified stock options.



During October 2002, the Company repurchased 947,400 shares for $8,215,000 and immediately retired these shares. In December
2002, the 3,077,100 shares repurchased in prior years were retired. In the first quarter of fiscal 2003, the Company repurchased an additional 124,500 shares for $854,000 and immediately retired these shares.

See accompanying notes to consolidated financial statements.



F-6



---

THE WET SEAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended January 31, 2004, February 1, 2003, and February 2, 2002



NOTE 1:    Summary of Significant Accounting Policies



Nature of the Business



The Wet Seal, Inc. (the Company) is a national specialty
retailer of fashionable and contemporary apparel and accessory items designed for female 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 26.4% 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 of Directors.



The Companys fiscal year ends on the Saturday closest to the end of January. The reporting period includes 52 weeks in fiscal 2003, fiscal 2002, and
fiscal 2001.



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 inter-company 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.
Certain amounts in the fiscal 2002 and fiscal 2001 financial statements have been reclassified to conform with the fiscal 2003 presentation.



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. Cash is held
primarily in four major financial institutions and is in excess of insured limits.



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 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-7



---

THE WET SEAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended
January 31, 2004, February 1, 2003, and February 2, 2002



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. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144, addresses financial accounting and reporting for the impairment of long-lived assets and for long-lived assets
to be disposed of either by sale or other than by sale. Long-lived assets are reviewed for impairment when events or changes in circumstances indicate that their carrying value may not be recoverable. At January 31, 2004, the Company believes there
has been no impairment of the value of such assets related to continuing operations.



On January 6, 2004, the Board of Directors authorized the Company to proceed with their strategic decision to close all Zutopia stores by the end of the first quarter or early in the second quarter of fiscal 2004, due
to their poor financial results and perceived limited ability to become profitable in the future. The Company determined that there was no estimated fair value to the Zutopias divisions fixed assets. Therefore, the financial losses generated
by this chain and the write down of its fixed assets to their estimated fair value of zero, have been identified as discontinued operations. Further detail is outlined in Note 4.



Goodwill



In June 2001, the FASB issued SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS
No. 141 requires business combinations initiated after June 30, 2001 to be accounted for using the purchase method of accounting, and broadens the criteria for recording intangible assets apart from goodwill. Under SFAS No. 142, goodwill and
intangible assets that have indefinite useful lives will no longer be amortized but will be tested at least annually for impairment. The goodwill test for impairment consists of a two-step process that begins with an estimation of the fair value of
the reporting unit. The first step of the test is a screen for potential impairment and the second step measures the amount of impairment, if any. The Company adopted SFAS No. 142 on February 3, 2002. The Company completed its transitional and
annual impairment tests and determined that there was no impairment of goodwill.



Revenue Recognition



Sales are recognized upon purchase by customers at the Companys retail store locations or through the Companys web-site. The Company has recorded reserves to estimate sales returns by customers based on historical sales return
results. Actual return rates have historically been within managements expectations and the reserves established. However, in the unlikely event that the actual rate of sales returns by customers increased significantly, the Companys
operational results could be adversely affected.



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 2003, 2002, and 2001 were
$5,537,000, $9,116,000, and $6,039,000, respectively.



F-8



---

THE WET SEAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended
January 31, 2004, February 1, 2003, and February 2, 2002



NOTE
1:    Summary of Significant Accounting Policies (Continued)



Income Tax



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.



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).



During the fiscal year ended February 1, 2003, the Company effected a
three-for-two stock split.



Comprehensive Income



For the years ended January 31, 2004, February 1, 2003
and February 2, 2002, there was no difference between the Companys net income and comprehensive income.



Insurance Coverage



The Company is partially self-insured for its workers compensation insurance coverage. Under this insurance program, the Company is liable for a
deductible of $250,000 for each individual claim and an aggregate annual liability of $1,300,000. The Company records a liability for the costs associated with reported claims and a projected estimate for unreported claims due to historical
experience and industry standards. The Company will continue to adjust the estimates as the actual experience dictates. A significant change in the number or dollar amount of claims could cause the Company to revise its estimate of potential losses
and affect its reported results.



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 their short maturity. Short-term and long-term investments consist of highly liquid interest-bearing securities that are carried at amortized cost plus accrued income, which management believes approximates fair value.



F-9



---

THE WET SEAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended
January 31, 2004, February 1, 2003, and February 2, 2002



NOTE
1:    Summary of Significant Accounting Policies (Continued)



Stock-Based Compensation



The Company accounts for stock-based awards to employees using the intrinsic value method in accordance with Accounting
Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to Employees.



Accordingly, no compensation expense has been recognized in the consolidated financial statements for employee incentive stock options or nonqualified 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.



The Companys calculations were made using the Black-Scholes option-pricing model with the following weighted average assumptions:



|                                                      |  |            |  |            |  |           
|----------------------------------------------------- |  | ---------- |  | ---------- |  | ----------
|                                                      |  | Fiscal2003 |  | Fiscal2002 |  | Fiscal2001
|Dividend Yield                                        |  | 0.00%      |  | 0.00%      |  | 0.00%     
|Expected Volatility                                   |  | 68.65%     |  | 70.85%     |  | 77.50%    
|Risk-Free Interest Rate                               |  | 3.17%      |  | 3.02%      |  | 4.30%     
|Expected Life of Option following vesting (in Months) |  | 60         |  | 60         |  | 60        



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 2003, fiscal 2002 and fiscal 2001 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:



|                                                                |  |             |  |            |         |   |            |   |            |  |   |       
|--------------------------------------------------------------- |  | ----------- |  | ---------- | ------- | - | ---------- | - | ---------- |  | - | ------
|                                                                |  |             |  | Fiscal2003 |         |   | Fiscal2002 |   | Fiscal2001
|Net Income (loss) from Continuing Operations                    |  | As reported |  | $          | (38,953 | ) |            | $ | 8,417      |  | $ | 32,088
|                                                                |  | Pro forma   |  | $          | (42,683 | ) |            | $ | 1,758      |  | $ | 28,437
|Net Income (loss) from Continuing Operations Per Share, Basic   |  | As reported |  | $          | (1.31   | ) |            | $ | 0.28       |  | $ | 1.08  
|                                                                |  | Pro forma   |  | $          | (1.43   | ) |            | $ | 0.06       |  | $ | 0.96  
|Net Income (loss) from Continuing Operations Per Share, Diluted |  | As reported |  | $          | (1.31   | ) |            | $ | 0.27       |  | $ | 1.05  
|                                                                |  | Pro forma   |  | $          | (1.43   | ) |            | $ | 0.06       |  | $ | 0.96  



F-10



---

THE WET SEAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended
January 31, 2004, February 1, 2003, and February 2, 2002



NOTE
1:    Summary of Significant Accounting Policies (Continued)



Segment Information



The Company has one reportable segment representing the aggregation of its operating segments due to the similarities of the
economic and operating characteristics of the operations represented by the Companys two continuing store formats.



The Companys success is largely dependent upon its ability to gauge the fashion tastes of its customers and provide merchandise that satisfies
customers preferences. Any inability to provide appropriate merchandise in sufficient quantities in a timely manner could have a material adverse effect on the Companys operating results.



New Accounting Pronouncements



In November 2001, the FASB issued SFAS No. 143 Accounting for Asset
Retirement Obligations, which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated retirement costs. SFAS No. 143 is effective for fiscal years beginning
after June 15, 2002. The Company adopted SFAS No. 143 without material impact on the Companys consolidated results of operations, financial position or cash flows.



In July 2002, the FASB issued SFAS 146, Accounting for Costs Associated with Exit or Disposal Activities, which
addresses financial accounting and reporting for costs associated with exit or disposal activities and supersedes Emerging Issues Task Force (EITF) Issue 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to
Exit an Activity (including Certain Costs Incurred in a Restructuring). SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under Issue 94-3, a liability for
an exit cost as defined in EITF 94-3 was recognized at the date of an entitys commitment to an exit plan. SFAS 146 also establishes that the liability should initially be measured and recorded at fair value. The Company adopted the provisions
of SFAS 146 for exit or disposal activities initiated after December 31, 2002. See Note 4 to consolidated financial statements.



In November 2002, the FASB issued FASB Interpretation (FIN) No. 45, Guarantors Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others, an interpretation of FASB Statements No. 5, 57 and 107, and rescission of FASB Interpretation No. 34, Disclosure of Indirect Guarantees of Indebtedness of Others.
FIN 45 elaborates on the disclosures to be made by the guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also requires that a guarantor recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and measurement provisions of this interpretation are applicable on a prospective basis to guarantees issued or modified after
December 31, 2002 while the provisions of the disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002. The adoption of this interpretation did not have a material impact on its
results of operations or financial position. See Note 7 to consolidated financial statements.



In January 2003, the FASB issued FIN No. 46, Consolidation of Variable Interest Entities and in December 2003, issued Interpretation No. 46 (revised in December 2003) Consolidation of Variable
Interest EntitiesAn Interpretation of APB No. 51. In general, a variable interest entity is a corporation, partnership, trust, or any other legal structure used for business purposes that either (a) does not have equity investors with
voting rights or (b) has equity investors that do not provide sufficient financial resources for the entity to support its activities. FIN No. 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity
if the investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other
parties. FIN No. 46 (R) clarifies the application of Accounting Research Bulletin (APB)



F-11



---

THE WET SEAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended
January 31, 2004, February 1, 2003, and February 2, 2002



NOTE
1:    Summary of Significant Accounting Policies (Continued)



No. 51, Consolidated Financial Statements, to certain entities in which equity investors do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for the entity to finance its activities without subordinated financial support from other parties. The consolidation requirements of FIN No. 46 applies immediately to variable
interest entities created after January 31, 2003. The consolidation requirements apply to older entities in the first fiscal year or interim period beginning after June 15, 2003. Certain of the disclosure requirements apply in all financial
statements issued after January 31, 2003, regardless of when the variable interest entity was established. FIN No. 46(R) applies immediately to variable interest entities created after December 31, 2003, and to variable interest entities in which an
enterprise obtains an interest after that date. It applies no later than the first reporting period ending after December 15, 2004, to variable interest entities in which an enterprise holds a variable interest (other than special purpose) that it
acquired before January 1, 2004. FIN No. 46(R) applies to public enterprises as of the beginning of the applicable interim or annual period. The Company believes that the adoption of FIN No. 46 and FIN No. 46(R) will not have a material impact on
its financial position or results of operation because the Company has no variable interest entities.



In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Instruments with Characteristics of Both Liabilities and Equity, (SFAS
150) which establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS 150 requires that an issuer classify a financial instrument that is within its
scope, which may have previously been reported as equity, as a liability (or an asset in some circumstances). This statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003 for public companies. In October 2003, the FASB deferred implementation of paragraphs 9 and 10 of SFAS 150 regarding parent company treatment of minority interest for certain
limited life entities. This deferral is for an indefinite period. The adoption of SFAS 150 did not have a material impact on the Companys financial statements.



NOTE 2:    Investments



Short-term investments consist of highly liquid interest-bearing deposits purchased with an initial maturity exceeding three months with a remaining
maturity at January 31, 2004 of 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 January 31, 2004.



Investments are comprised of the following (in thousands):



|                       |  |                    |  |                |        |                       |   |                        |  |   |                      |   |  |   |       
|---------------------- |  | ------------------ |  | -------------- | ------ | --------------------- | - | ---------------------- |  | - | -------------------- | - |  | - | ------
|Description            |  | Maturity Dates     |  | Amortized Cost |        | GrossUnrealized Gains |   | GrossUnrealized Losses |  |   | Estimated Fair Value
|January 31, 2004       |  |                    |  |                |        |                       |   |                        |  |   |                      |   |  |   |       
|Corporate bonds        |  | Within one year    |  | $              | 17,108 |                       | $ | 100                    |  | $ |                     |   |  | $ | 17,208
|Municipal bonds        |  | Within one year    |  |                | 13,709 |                       |   | 4                      |  |   | (471                 | ) |  |   | 13,242
|Government obligations |  | Within one year    |  |                |       |                       |   |                       |  |   |                     |   |  |   |      
|Corporate bonds        |  | One to three years |  |                |       |                       |   |                       |  |   |                     |   |  |   |      
|Municipal bonds        |  | One to three years |  |                | 19,114 |                       |   | 80                     |  |   | (6                   | ) |  |   | 19,188
|                       |  |                    |  |                |        |                       |   |                        |  |   |                      |   |  |   |       
|                       |  |                    |  | $              | 49,931 |                       | $ | 184                    |  | $ | (477                 | ) |  | $ | 49,638
|                       |  |                    |  |                |        |                       |   |                        |  |   |                      |   |  |   |       



F-12



---

THE WET SEAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended
January 31, 2004, February 1, 2003, and February 2, 2002



NOTE
2:    Investments (Continued)



|                       |  |                    |  |                |        |                       |   |                        |  |   |                      |   |  |   |       
|---------------------- |  | ------------------ |  | -------------- | ------ | --------------------- | - | ---------------------- |  | - | -------------------- | - |  | - | ------
|Description            |  | Maturity Dates     |  | Amortized Cost |        | GrossUnrealized Gains |   | GrossUnrealized Losses |  |   | Estimated Fair Value
|February 1, 2003       |  |                    |  |                |        |                       |   |                        |  |   |                      |   |  |   |       
|Corporate bonds        |  | Within one year    |  | $              |       |                       | $ |                       |  | $ |                     |   |  | $ |      
|Municipal bonds        |  | Within one year    |  |                | 39,237 |                       |   | 216                    |  |   | (2                   | ) |  |   | 39,451
|Government obligations |  | Within one year    |  |                |       |                       |   |                       |  |   |                     |   |  |   |      
|Corporate bonds        |  | One to three years |  |                | 17,517 |                       |   | 385                    |  |   |                     |   |  |   | 17,902
|Municipal bonds        |  | One to three years |  |                | 16,122 |                       |   | 52                     |  |   | (5                   | ) |  |   | 16,169
|                       |  |                    |  |                |        |                       |   |                        |  |   |                      |   |  |   |       
|                       |  |                    |  | $              | 72,876 |                       | $ | 653                    |  | $ | (7                   | ) |  | $ | 73,522
|                       |  |                    |  |                |        |                       |   |                        |  |   |                      |   |  |   |       



NOTE
3:    Provision (Benefit) for Income Taxes



The components of the income tax provision (benefit) from continuing operations are as follows (in thousands):

|          |  |                 |         |   |                 |   |                 |  |   |       
|--------- |  | --------------- | ------- | - | --------------- | - | --------------- |  | - | ------
|          |  | January 31,2004 |         |   | February 1,2003 |   | February 2,2002
|Current:  |  |                 |         |   |                 |   |                 |  |   |       
|Federal   |  | ($              | 10,069  | ) |                 | $ | 1,517           |  | $ | 16,430
|State     |  |                 | 377     |   |                 |   | 992             |  |   | 3,078 
|          |  |                 |         |   |                 |   |                 |  |   |       
|          |  |                 | (9,692  | ) |                 |   | 2,509           |  |   | 19,508
|Deferred: |  |                 |         |   |                 |   |                 |  |   |       
|Federal   |  |                 | (10,548 | ) |                 |   | 1,767           |  |   | 124   
|State     |  |                 | (1,367  | ) |                 |   | 265             |  |   | 46    
|          |  |                 |         |   |                 |   |                 |  |   |       
|          |  |                 | (11,915 | ) |                 |   | 2,032           |  |   | 170   
|          |  |                 |         |   |                 |   |                 |  |   |       
|          |  | $               | (21,607 | ) |                 | $ | 4,541           |  | $ | 19,678
|          |  |                 |         |   |                 |   |                 |  |   |       



The total provision
(benefit) for income taxes is recorded as follows (in thousands):



|                        |  |                 |         |   |                 |   |        |                 |  |   |        |  
|----------------------- |  | --------------- | ------- | - | --------------- | - | ------ | --------------- |  | - | ------ | -
|                        |  | January31, 2004 |         |   | February1, 2003 |   |        | February2, 2002 | 
|Continuing operations   |  | $               | (21,607 | ) |                 | $ | 4,541  |                 |  | $ | 19,678 |  
|Discontinued operations |  |                 | (4,695  | ) |                 |   | (2,259 | )               |  |   | (673   | )
|                        |  |                 |         |   |                 |   |        |                 |  |   |        |  
|                        |  | $               | (26,302 | ) |                 | $ | 2,282  |                 |  | $ | 19,005 |  
|                        |  |                 |         |   |                 |   |        |                 |  |   |        |  



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



|                                                      |  |                 |   |  |                 |   |  |                 |  
|----------------------------------------------------- |  | --------------- | - |  | --------------- | - |  | --------------- | -
|                                                      |  | January 31,2004 |   |  | February 1,2003 |   |  | February 2,2002 |  
|Provision for income taxes at federal statutory rate  |  | 35.0            | % |  | 35.0            | % |  | 35.0            | %
|State income taxes, net of federal income tax benefit |  | 0.9             |   |  | 10.6            |   |  | 4.0             |  
|Tax exempt interest                                   |  | 0.4             |   |  | (7.9            | ) |  | (0.9            | )
|Inventory contributions                               |  | (0.7            | ) |  | (7.6            | ) |  | (1.1            | )
|Non-deductible expenses                               |  | (0.1            | ) |  | 3.0             |   |  | 0.1             |  
|Other                                                 |  | 0.2             |   |  | 1.9             |   |  | 0.9             |  
|                                                      |  |                 |   |  |                 |   |  |                 |  
|Effective tax rate                                    |  | 35.7            | % |  | 35.0            | % |  | 38.0            | %
|                                                      |  |                 |   |  |                 |   |  |                 |  



F-13



---

THE WET SEAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended
January 31, 2004, February 1, 2003, and February 2, 2002



NOTE
3:    Provision (Benefit) for Income Taxes (Continued)



As of January 31, 2004 and February 1, 2003, the Companys net deferred tax asset was
$27,590,000 and $10,978,000, respectively. The major components of the Companys net deferred taxes at January 31, 2004 and February 1, 2003 are as follows (in thousands):



|                                                         |  |                 |        |   |                  |   |        |  
|-------------------------------------------------------- |  | --------------- | ------ | - | ---------------- | - | ------ | -
|                                                         |  | January 31,2004 |        |   | February 1, 2003 |  
|Deferred rent                                            |  | $               | 3,904  |   |                  | $ | 3,761  |  
|Inventory cost capitalization                            |  |                 | 977    |   |                  |   | 1,167  |  
|Difference between book and tax basis of fixed assets    |  |                 | 2,273  |   |                  |   | 3,364  |  
|State income taxes                                       |  |                 | (1,003 | ) |                  |   | (544   | )
|Supplemental Employee Retirement Plan                    |  |                 | 1,754  |   |                  |   | 1,778  |  
|Net operating loss and other tax attribute carryforwards |  |                 | 16,731 |   |                  |   |       |  
|Other                                                    |  |                 | 2,954  |   |                  |   | 1,452  |  
|                                                         |  |                 |        |   |                  |   |        |  
|                                                         |  | $               | 27,590 |   |                  | $ | 10,978 |  
|                                                         |  |                 |        |   |                  |   |        |  



In fiscal 2003, the
Company generated federal and state net operating loss carryforwards of $34,571,000 and $21,561,000 which begin to expire in 2024 and 2009, respectively. At January 31, 2004, the Company had federal charitable contribution carryforwards of
$8,760,000 which begin to expire in 2009.



At January 31, 2004,
the Company had federal credit carryforwards of $679,000, which will carry forward indefinitely until used.



NOTE 4:    Discontinued Operations



On January 6, 2004, the Board of Directors authorized the Company to proceed with their strategic decision to close all Zutopia stores by the end of the
first quarter or early in the second quarter of fiscal 2004, due to their poor financial results and perceived limited ability to become profitable in the future. Therefore, the financial losses generated by this chain and the write down of its
fixed assets to an estimated fair value of zero, have been identified as discontinued operations.



The Company expects to record a reserve in the first and second quarters of 2004 for all applicable charges associated with the closure of the Zutopia
stores which primarily includes the buyout of leases.



The
operating results of the discontinued Zutopia division included in the accompanying consolidated statements of operations were as follows (in thousands):



|                                     |  |                 |         |   |                 |   |        |                 |  |   |        |  
|------------------------------------ |  | --------------- | ------- | - | --------------- | - | ------ | --------------- |  | - | ------ | -
|                                     |  | January 31,2004 |         |   | February 1,2003 |   |        | February 2,2002 | 
|Net Sales                            |  | $               | 16,394  |   |                 | $ | 18,187 |                 |  | $ | 12,010 |  
|                                     |  |                 |         |   |                 |   |        |                 |  |   |        |  
|Loss from discontinued operations    |  |                 | (7,595  | ) |                 |   | (6,437 | )               |  |   | (1,746 | )
|Loss on disposal of assets           |  |                 | (5,427  | ) |                 |   |       |                 |  |   |       |  
|                                     |  |                 |         |   |                 |   |        |                 |  |   |        |  
|Loss before income taxes             |  |                 | (13,022 | ) |                 |   | (6,437 | )               |  |   | (1,746 | )
|Provision (benefit) for income taxes |  |                 | (4,695  | ) |                 |   | (2,259 | )               |  |   | (673   | )
|                                     |  |                 |         |   |                 |   |        |                 |  |   |        |  
|Loss from Discontinued Operations    |  | $               | (8,327  | ) |                 | $ | (4,178 | )               |  | $ | (1,073 | )
|                                     |  |                 |         |   |                 |   |        |                 |  |   |        |  



F-14



---

THE WET SEAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended
January 31, 2004, February 1, 2003, and February 2, 2002



NOTE
5:    Stockholders Equity



The 4,502,833 shares of the Companys Class B common stock outstanding as of January 31, 2004
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.



On May 9, 2002, the Company effected a three-for-two stock split on the Class
A and Class B common stock. Stockholders as of April 25, 2002, the record date for the stock split, were issued one share for every two shares that they then owned. All share and per share amounts included in the accompanying consolidated financial
statements and footnotes have been restated for all periods presented to reflect the stock split. The Stockholders equity section has been restated to give retroactive recognition to the stock split by reclassifying the par value of the
additional shares arising from the split from additional paid-in capital to common stock.



On October 1, 2002, the Companys Board of Directors authorized the repurchase of up to 5,400,000 of the outstanding common stock of the Companys Class A common shares. This amount includes the remaining
shares previously authorized for repurchase by the Companys Board of Directors. All shares repurchased under this plan will be retired as authorized by the Companys Board of Directors. During fiscal 2002, the Company repurchased 947,400
shares for $8,215,000 and immediately retired the shares. During fiscal 2003, the Company repurchased 124,500 shares for $854,000 and immediately retired these shares. As of January 31, 2004, there were 4,328,100 shares remaining that are authorized
for repurchase.



NOTE 6:    Long-Term Incentive Plans



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 nonqualified 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 10,331,250 shares of
the Companys Class A common stock may be issued pursuant to the Plans. As of January 31, 2004, 2,369,157 shares were available for future grants.



Stock option activity for each of the three years in the period ended January 31, 2004 was as follows:



|                                |  |                  |   |  |                                |      
|------------------------------- |  | ---------------- | - |  | ------------------------------ | -----
|                                |  | Number of Shares |   |  | WeightedAverage Exercise Price
|Outstanding at February 3, 2001 |  | 3,520,350        |   |  | $                              | 6.73 
|Granted                         |  | 2,041,875        |   |  |                                | 12.66
|Canceled                        |  | (399,893         | ) |  |                                | 10.48
|Exercised                       |  | (1,210,167       | ) |  |                                | 7.27 
|                                |  |                  |   |  |                                |      
|Outstanding at February 2, 2002 |  | 3,952,165        |   |  |                                | 9.19 
|Granted                         |  | 2,589,000        |   |  |                                | 17.69
|Canceled                        |  | (583,574         | ) |  |                                | 12.86
|Exercised                       |  | (569,708         | ) |  |                                | 8.66 
|                                |  |                  |   |  |                                |      
|Outstanding at February 1, 2003 |  | 5,387,883        |   |  |                                | 12.91
|Granted                         |  | 1,837,650        |   |  |                                | 9.42 
|Canceled                        |  | (3,167,733       | ) |  |                                | 13.86
|Exercised                       |  | (572,573         | ) |  |                                | 6.79 
|                                |  |                  |   |  |                                |      
|Outstanding at January 31, 2004 |  | 3,485,227        |   |  | $                              | 11.21
|                                |  |                  |   |  |                                |      



F-15



---

THE WET SEAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended
January 31, 2004, February 1, 2003, and February 2, 2002



NOTE
6:    Long-Term Incentive Plans (Continued)



At January 31, 2004, February 1, 2003 and February 2, 2002 there were 1,282,037, 1,122,241 and
493,274 outstanding options exercisable at a weighted-average exercise price of $10.75, $8.89 and $7.69, respectively.



The following table summarizes information on outstanding and exercisable stock options as of January 31, 2004:



|                         |  |                                        |  |                                             |  |                                 |       |                                        |           |                                 |   |      
|------------------------ |  | -------------------------------------- |  | ------------------------------------------- |  | ------------------------------- | ----- | -------------------------------------- | --------- | ------------------------------- | - | -----
|                         |  | Options Outstanding                    |  | Options Exercisable                        
|Range of Exercise Prices |  | Number Outstanding as of Jan. 31, 2004 |  | Weighted Average Remaining Contractual Life |  | Weighted Average Exercise Price |       | Number Exercisable As of Jan. 31, 2004 |           | Weighted Average Exercise Price
|$  1.61  $  8.08        |  | 987,852                                |  | 7.33                                        |  | $                               | 7.21  |                                        | 395,562   |                                 | $ | 6.52 
|8.58    10.70           |  | 824,250                                |  | 8.00                                        |  |                                 | 10.26 |                                        | 285,750   |                                 |   | 9.87 
|10.79    11.76          |  | 936,500                                |  | 8.35                                        |  |                                 | 11.56 |                                        | 340,850   |                                 |   | 11.68
|11.79    16.71          |  | 352,375                                |  | 7.81                                        |  |                                 | 14.12 |                                        | 153,625   |                                 |   | 14.60
|17.27    23.55          |  | 361,250                                |  | 8.11                                        |  |                                 | 20.56 |                                        | 106,250   |                                 |   | 20.36
|                         |  |                                        |  |                                             |  |                                 |       |                                        |           |                                 |   |      
|$  1.61  $23.55         |  | 3,462,227                              |  | 7.90                                        |  | $                               | 11.21 |                                        | 1,282,037 |                                 | $ | 10.75
|                         |  |                                        |  |                                             |  |                                 |       |                                        |           |                                 |   |      



During the years ended
January 31, 2004, February 1, 2003 and February 2, 2002, the Company recognized tax benefits of $927,000, $2,541,000 and $3,543,000, respectively, resulting from the exercise of certain nonqualified stock options.



The Company recorded stock compensation expense of $806,000 as of January 31,
2004, due to the modification (extension) of the right to exercise stock options for two executives.



As of January 31, 2004, the Company has granted an aggregate of 234,771 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 salaries.



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 January 31, 2004, February 1, 2003 and February 2, 2002, 13,926, 23,875, and 26,261 shares, respectively, were fully vested and issued. In connection with the issuance of these shares, the Company recorded
compensation expense of $135,000, $213,000, and $465,000 for the years ended January 31, 2004, February 1, 2003 and February 2, 2002, respectively.



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 2014. 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.



F-16



---

THE WET SEAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended
January 31, 2004, February 1, 2003, and February 2, 2002



NOTE
7:    Commitments and Contingencies (Continued)



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



|                         |  |                      |        
|------------------------ |  | -------------------- | -------
|                         |  | Net LeaseCommitments
|Fiscal year ending: 2003 |  | $                    | 69,300 
|2004                     |  |                      | 64,000 
|2005                     |  |                      | 61,300 
|2006                     |  |                      | 57,900 
|2007                     |  |                      | 50,600 
|Thereafter               |  |                      | 130,000
|                         |  |                      |        
|                         |  | $                    | 433,100
|                         |  |                      |        



Rental expense,
including common area maintenance, was $112,851,000, $106,949,000, and $100,406,000, of which $105,000, $134,000, and $289,000 was paid as percentage rent based on sales volume, for the years ended January 31, 2004, February 1, 2003 and February 2,
2002, respectively.



Indemnities, Commitments and Guarantees



During its normal course of business, the Company has
made certain indemnities, commitments and guarantees under which it may be required to make payments in relation to certain transactions. These indemnities include those given to various lessors in connection with facility leases for certain claims
arising from such facility or lease and indemnities to directors and officers of the Company to the maximum extent permitted under the laws of the State of Delaware. The Company has issued guarantees in the form of standby letters of credit as
security for merchandise shipments from overseas. There were $18.2 million of these letters of credit outstanding at January 31, 2004. The duration of these indemnities, commitments and guarantees varies. Some of these indemnities, commitments and
guarantees do not provide for any limitation of the maximum potential future payments the Company could be obligated to make. The Company has not yet recorded any liability for these indemnities, commitments and guarantees in the accompanying
consolidated balance sheets.



Employment Contracts



The Company has employment contracts currently with two
officers, which provide for annual salary, customary benefits and allowances, and annual bonus compensation, based upon sole discretion by the Board. The agreements provide these same officers with severance benefits through the expiration date, if
the agreement is terminated without cause before expiration of its term. The Company also has other agreements with employees that contain defined severance benefits.



Litigation



The Company was served with a class-action lawsuit in the Orange County Superior Court by previously employed store managers alleging non-exempt status
under California state labor laws. Through non-binding mediation, the Company agreed to settle the litigation and pay approximately $1.3 million. Upon approval by the court and all parties, the Company will proceed with the process to administer the
notice of settlement to class members, and determine the claims to award.



F-17



---

THE WET SEAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended
January 31, 2004, February 1, 2003, and February 2, 2002



NOTE
7:    Commitments and Contingencies (Continued)



The Company is a plaintiff in a lawsuit in the Superior Court of California which seeks injunctive
relief and damages against a previous executive, and bebe stores, inc., alleging violation of the non-compete, non-solicitation and other provisions of the executives employment agreement.



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 certainty, the Company is of the opinion that their resolution will not likely have a material adverse effect on the Companys
consolidated financial statements.



Letters of Credit



At January 31, 2004, the Company had outstanding letters
of credit amounting to $18,200,000.



NOTE
8:    Revolving Credit Arrangement



The Company has a revolving line-of-credit arrangement with Bank of America, N.A. under which the company may borrow up to a maximum of $50 million on a revolving basis through July 1, 2004. The Company renegotiated and revised certain of
the covenants included in this secured line of credit on January 29, 2004, primarily as a result of the decision to divest the Zutopia division. The amended line-of-credit arrangement is secured by the companys merchandise inventory. At
January 31, 2004, there were no outstanding borrowings under the credit arrangement. There were $17.2 million in open letters of credit related to imported inventory orders as well as standby letters of credit totaling $1.0 million. As of January
31, 2004, the Company was in compliance with all financial covenants of the credit arrangement. The Company was required for the fourth fiscal quarter 2003 to meet a net worth covenant of $168.5 million adjusted for the disposition of the Zutopia
division, the class action legal settlement, and year-end markdowns. The Company also is required to maintain a minimum cash and investment balance under the line of credit. To the extent that its cash and investment balance falls below the $50.0
million required cash covenant, the line of credit may not be available, and therefore the Company would have to rely upon its cash and investments to meet its operating requirements.



NOTE 9:    Related-Party Transactions



In fiscal years 2003, 2002 and 2001, the Company paid a fee of $639,500, $639,500 and $575,000, respectively, to First
Canada Management Consultants Limited (First Canada), a company controlled by Irving Teitelbaum, for the services of Irving Teitelbaum, Chairman of the Board of the Company, and Stephen Gross, Corporate Secretary of the Company,
respectively. These services are provided pursuant to a Management Agreement, dated December 1, 1999, and amended on June 28, 2001, between First Canada and the Company. The agreement expires on January 28, 2006, subject to earlier termination in
certain circumstances, and requires annual payments of $639,500 for the remainder of the term.



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 Retirement Plan) is
available to all employees who meet the Retirement Plans eligibility requirements. The Retirement Plan is funded by employee contributions, and additional contributions may be made by the Company at its discretion. As of January 31, 2004,
February 1, 2003, and February 2, 2002, the Company had paid or accrued $415,000, $415,000 and $300,000, respectively.



F-18



---

THE WET SEAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended
January 31, 2004, February 1, 2003, and February 2, 2002



NOTE
11:    Accrued Liabilities



Accrued liabilities consist of the following (in thousands):



|                                            |  |                  |        |                  |   |       
|------------------------------------------- |  | ---------------- | ------ | ---------------- | - | ------
|                                            |  | January 31, 2004 |        | February 1, 2003
|Minimum rent and common area maintenance    |  | $                | 2,433  |                  | $ | 1,657 
|Accrued wages, bonuses and benefits         |  |                  | 6,228  |                  |   | 9,205 
|Gift certificate and store credit liability |  |                  | 7,578  |                  |   | 6,390 
|Utilities and telephone                     |  |                  | 401    |                  |   | 1,057 
|Sales tax payable                           |  |                  | 1,073  |                  |   | 1,721 
|Litigation Settlement                       |  |                  | 1,650  |                  |   |      
|Other                                       |  |                  | 3,866  |                  |   | 2,828 
|                                            |  |                  |        |                  |   |       
|                                            |  | $                | 23,229 |                  | $ | 22,858
|                                            |  |                  |        |                  |   |       



NOTE
12:    Supplemental Employee Retirement Plan



As of January 31, 2004, the Company maintains a defined benefit Supplemental Employee Retirement Plan (the SERP) for one director. The SERP provides for retirement 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. During the year ended January 31, 2004, a second participant terminated participation in the SERP resulting in a
curtailment/settlement of the benefit obligation of $1,347,000. Additionally, due to losses incurred by the Company, the benefits payable under the SERP were reduced. This reduction resulted in a $2,696,000 reduction in the benefit obligation.



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) and certain SERP information:



CHANGE IN BENEFIT OBLIGATION

|                                        |  |                 |        |   |                 |   |      
|--------------------------------------- |  | --------------- | ------ | - | --------------- | - | -----
|                                        |  | January 31,2004 |        |   | February 1,2003
|Benefit obligation at beginning of year |  | $               | 5,392  |   |                 | $ | 4,438
|Service cost                            |  |                 | 136    |   |                 |   | 308  
|Interest cost                           |  |                 | 150    |   |                 |   | 300  
|Actuarial loss                          |  |                 | 5      |   |                 |   | 346  
|Effect of curtailment/settlement        |  |                 | (1,347 | ) |                 |   |     
|Actuarial change in assumption          |  |                 | (2,696 | ) |                 |   |     
|                                        |  |                 |        |   |                 |   |      
|Benefit obligation at end of year       |  | $               | 1,640  |   |                 | $ | 5,392
|                                        |  |                 |        |   |                 |   |      



F-19



---

THE WET SEAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended
January 31, 2004, February 1, 2003, and February 2, 2002



NOTE
12:    Supplemental Employee Retirement Plan (Continued)



CHANGE IN PLAN ASSETS

|                                                   |  |                  |        |   |                  |   |        |  
|-------------------------------------------------- |  | ---------------- | ------ | - | ---------------- | - | ------ | -
|                                                   |  | January 31,2004  |        |   | February 1, 2003 |  
|Fair value of plan assets at beginning of year     |  | $                |       |   |                  | $ |       |  
|Actual return on assets                            |  |                  |       |   |                  |   |       |  
|Employer contribution                              |  |                  |       |   |                  |   |       |  
|Benefits paid                                      |  |                  |       |   |                  |   |       |  
|                                                   |  |                  |        |   |                  |   |        |  
|Fair value of plan assets at end of year           |  | $                |       |   |                  | $ |       |  
|                                                   |  |                  |        |   |                  |   |        |  
|Funded status                                      |  | $                | (1,640 | ) |                  | $ | (5,392 | )
|Unrecognized transition (asset) obligation         |  |                  |       |   |                  |   |       |  
|Unrecognized prior service cost                    |  |                  | (342   | ) |                  |   | 1,313  |  
|Unrecognized net loss                              |  |                  | (68    | ) |                  |   | (132   | )
|                                                   |  |                  |        |   |                  |   |        |  
|Net amount recognized                              |  | $                | (2,050 | ) |                  | $ | (4,211 | )
|                                                   |  |                  |        |   |                  |   |        |  
|Weighted-average assumptions:                      |  |                  |        |   |                  |   |        |  
|Discount rate                                      |  |                  | 6.25   | % |                  |   | 6.25   | %
|Expected return on plan assets                     |  |                  | n/a    |   |                  |   | n/a    |  
|Rate of compensation increase                      |  |                  | n/a    |   |                  |   | n/a    |  
|                                                   |  |                 
|AMOUNTS RECOGNIZED IN BALANCE SHEET                |  |                  |        |   |                  |   |        |  
|                                                   |  | January 31,2004  |        |   | February 1, 2003 |  
|Prepaid pension cost                               |  | $                |       |   |                  | $ |       |  
|Accrued benefit liability                          |  |                  | (2,050 | ) |                  |   | (5,392 | )
|Intangible asset (unrecognized prior service cost) |  |                  |       |   |                  |   | 1,181  |  
|Accumulated other comprehensive loss               |  |                  |       |   |                  |   |       |  
|                                                   |  |                  |        |   |                  |   |        |  
|Net amount recognized                              |  | $                | (2,050 | ) |                  | $ | (4,211 | )
|                                                   |  |                  |        |   |                  |   |        |  
|                                                   |  |                 
|COMPONENTS OF NET PERIODIC PENSION COST            |  |                  |        |   |                  |   |        |  
|                                                   |  | January 31, 2004 |        |   | February 1, 2003 |  
|Service costbenefits earned during the period     |  | $                | 154    |   |                  | $ | 308    |  
|Interest cost on projected benefit obligation      |  |                  | 150    |   |                  |   | 300    |  
|Expected return on plan assets                     |  |                  |       |   |                  |   |       |  
|Amortization of prior service cost                 |  |                  | (173   | ) |                  |   | 164    |  
|Amortization of (gain)                             |  |                  | (6     | ) |                  |   | (6     | )
|                                                   |  |                  |        |   |                  |   |        |  
|Net periodic pension cost                          |  | $                | 125    |   |                  | $ | 766    |  
|                                                   |  |                  |        |   |                  |   |        |  



F-20



---

THE WET SEAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended
January 31, 2004, February 1, 2003, and February 2, 2002



NOTE
13:    Net Income Per Share



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



|                                                              |  |                  |            |   |                  |   |            |                  |  |   |            |  
|------------------------------------------------------------- |  | ---------------- | ---------- | - | ---------------- | - | ---------- | ---------------- |  | - | ---------- | -
|                                                              |  | January 31, 2004 |            |   | February 1, 2003 |   |            | February 2, 2002 | 
|Net income (loss) from continuing operations                  |  | $                | (38,953    | ) |                  | $ | 8,417      |                  |  | $ | 32,088     |  
|                                                              |  |                  |            |   |                  |   |            |                  |  |   |            |  
|Weighted-average number of common shares:                     |  |                  |            |   |                  |   |            |                  |  |   |            |  
|Basic                                                         |  |                  | 29,748,888 |   |                  |   | 30,044,673 |                  |  |   | 29,601,368 |  
|Effect of dilutive securitiesstock options                   |  |                  |           |   |                  |   | 1,033,876  |                  |  |   | 913,434    |  
|                                                              |  |                  |            |   |                  |   |            |                  |  |   |            |  
|Diluted                                                       |  |                  | 29,748,888 |   |                  |   | 31,078,549 |                  |  |   | 30,514,802 |  
|                                                              |  |                  |            |   |                  |   |            |                  |  |   |            |  
|Net income (loss) from continuing operations per share: Basic |  | $                | (1.31      | ) |                  | $ | 0.28       |                  |  | $ | 1.08       |  
|Effect of dilutive securitiesstock options                   |  |                  | 0.00       |   |                  |   | (0.01      | )                |  |   | (0.03      | )
|                                                              |  |                  |            |   |                  |   |            |                  |  |   |            |  
|Diluted                                                       |  | $                | (1.31      | ) |                  | $ | 0.27       |                  |  | $ | 1.05       |  
|                                                              |  |                  |            |   |                  |   |            |                  |  |   |            |  



(Per share data, net income per share
and the weighted average shares have been adjusted to account for the three-for-two stock split effected as of July 24, 2001 and the subsequent three-for-two split on May 9, 2002)



NOTE 14:    Shareholder Rights Plan



On August 19, 1997, the Companys Board of Directors adopted a Shareholder Rights Plan, which was amended on August 17,
1999, (the Rights Plan) designed to protect Company stockholders in the event of takeover action that would deny them the full value of their investments. 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% or more of the Companys voting stock, or if a
party announces an offer to acquire 20% 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% position in
its voting stock.



F-21



---

THE WET SEAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended
January 31, 2004, February 1, 2003, and February 2, 2002



NOTE
15:    Unaudited Quarterly Financial Data



Fiscal Year Ended January 31, 2004

|               |  |                                       |         |             |   |                                           |  |   |                                             |   |  |                                                          |        |   |                                                            |   |       |   |  |   |       |  
|-------------- |  | ------------------------------------- | ------- | ----------- | - | ----------------------------------------- |  | - | ------------------------------------------- | - |  | -------------------------------------------------------- | ------ | - | ---------------------------------------------------------- | - | ----- | - |  | - | ----- | -
|Quarter        |  | Net Sales                             |         | GrossMargin |   | Net Income(Loss) FromContinuingOperations |  |   | Net Income(Loss) FromDiscontinuedOperations |   |  | Net Income(Loss) FromContinuingOperationsPer Share,Basic |        |   | Net Income(Loss) FromContinuingOperationsPer Share,Diluted |  
|               |  | (In thousands, except for share data) |        
|First Quarter  |  | $                                     | 120,211 |             | $ | 25,094                                    |  | $ | (7,378                                      | ) |  | $                                                        | (1,135 | ) |                                                            | $ | (0.25 | ) |  | $ | (0.25 | )
|Second Quarter |  |                                       | 122,599 |             |   | 19,078                                    |  |   | (11,764                                     | ) |  |                                                          | (1,664 | ) |                                                            |   | (0.40 | ) |  |   | (0.40 | )
|Third Quarter  |  |                                       | 131,757 |             |   | 28,794                                    |  |   | (6,366                                      | ) |  |                                                          | (1,161 | ) |                                                            |   | (0.21 | ) |  |   | (0.21 | )
|Fourth Quarter |  |                                       | 143,077 |             |   | 23,879                                    |  |   | (13,445                                     | ) |  |                                                          | (4,367 | ) |                                                            |   | (0.45 | ) |  |   | (0.45 | )
|               |  |                                       |         |             |   |                                           |  |   |                                             |   |  |                                                          |        |   |                                                            |   |       |   |  |   |       |  
|For the Year   |  | $                                     | 517,644 |             | $ | 96,845                                    |  | $ | (38,953                                     | ) |  | $                                                        | (8,327 | ) |                                                            | $ | (1.31 | ) |  | $ | (1.31 | )
|               |  |                                       |         |             |   |                                           |  |   |                                             |   |  |                                                          |        |   |                                                            |   |       |   |  |   |       |  



Fiscal Year Ended
February 1, 2003

|               |  |                                       |         |             |   |                                           |  |   |                                             |   |  |                                                          |        |   |                                                            |   |       |   |  |   |       |  
|-------------- |  | ------------------------------------- | ------- | ----------- | - | ----------------------------------------- |  | - | ------------------------------------------- | - |  | -------------------------------------------------------- | ------ | - | ---------------------------------------------------------- | - | ----- | - |  | - | ----- | -
|Quarter        |  | Net Sales                             |         | GrossMargin |   | Net Income(Loss) FromContinuingOperations |  |   | Net Income(Loss) FromDiscontinuedOperations |   |  | Net Income(Loss) FromContinuingOperationsPer Share,Basic |        |   | Net Income(Loss) FromContinuingOperationsPer Share,Diluted |  
|               |  | (In thousands, except for share data) |        
|First Quarter  |  | $                                     | 152,652 |             | $ | 52,460                                    |  | $ | 9,377                                       |   |  | $                                                        | (657   | ) |                                                            | $ | 0.31  |   |  | $ | 0.30  |  
|Second Quarter |  |                                       | 142,251 |             |   | 44,553                                    |  |   | 4,940                                       |   |  |                                                          | (1,274 | ) |                                                            |   | 0.16  |   |  |   | 0.16  |  
|Third Quarter  |  |                                       | 139,791 |             |   | 39,510                                    |  |   | (1,605                                      | ) |  |                                                          | (893   | ) |                                                            |   | (0.05 | ) |  |   | (0.05 | )
|Fourth Quarter |  |                                       | 155,628 |             |   | 40,139                                    |  |   | (4,295                                      | ) |  |                                                          | (1,354 | ) |                                                            |   | (0.14 | ) |  |   | (0.14 | )
|               |  |                                       |         |             |   |                                           |  |   |                                             |   |  |                                                          |        |   |                                                            |   |       |   |  |   |       |  
|For the Year   |  | $                                     | 590,322 |             | $ | 176,662                                   |  | $ | 8,417                                       |   |  | $                                                        | (4,178 | ) |                                                            | $ | 0.28  |   |  | $ | 0.27  |  
|               |  |                                       |         |             |   |                                           |  |   |                                             |   |  |                                                          |        |   |                                                            |   |       |   |  |   |       |  



Net income per share
is computed independently for each of the quarters presented and, therefore, may not sum to the totals for the year. Per share data, net income per share and the weighted average shares have been adjusted to account for the three-for-two stock split
effected as of May 9, 2002.



F-22



---

EXHIBIT INDEX



|            |  |                                                                                                                                                                                                    
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                        
|            | 
|3.1         |  | Restated Certificate of Incorporation of the Company.(1)                                                                                                                                           
|            | 
|3.1.1       |  | Amendment to Restated Certificate of Incorporation of the Company.(9)                                                                                                                              
|            | 
|3.2         |  | Bylaws of the Company.(1)                                                                                                                                                                          
|            | 
|4.1         |  | Specimen Certificate of the Class A Stock, par value $.10 per share.(1)                                                                                                                            
|            | 
|4.2         |  | Specimen Certificate of the Class B Stock, par value $.10 per share.(1)                                                                                                                            
|            | 
|4.3         |  | Shareholder Rights Plan.(7)                                                                                                                                                                        
|            | 
|10.1        |  | Lease between the Company and Foothill-Parkstone I, LLC, dated November 21, 1996.(6)                                                                                                               
|            | 
|10.2        |  | 1990 Long-Term Incentive Plan.(1)                                                                                                                                                                  
|            | 
|10.3        |  | Business Loan Agreement between the Company and Bank of America, containing Loan and Revolving Line of Credit; Term dated October 29,
1999.(7)                                                     
|            | 
|10.3.1      |  | Amendment No. 5 to Business Loan Agreement between the Company and Bank of America, containing Term Loan and Revolving Line of Credit,
dated December 21, 2001.(9)                                 
|            | 
|10.3.2      |  | Amendment No. 6 to Business Loan Agreement between the Company and Bank of America, containing Term Loan and Revolving Line of Credit,
dated March 13, 2003.(10)                                   
|            | 
|10.3.3      |  | Amendment No. 7 to Business Loan Agreement between the Company and Bank of America, containing Term Loan and Revolving Line of Credit,
dated January 29, 2003.                                     
|            | 
|10.4        |  | 1994 Long-Term Incentive Plan.(2)                                                                                                                                                                  
|            | 
|10.5        |  | Indemnification Agreement between the Company and various Executives and Directors, dated January 3, 1995, and schedule listing all parties
thereto.(3)                                            
|            | 
|10.6        |  | 1996 Long-Term Incentive Plan.(5)                                                                                                                                                                  
|            | 
|10.6.1      |  | Amendment to the 1996 Long-Term Incentive Plan.(9)                                                                                                                                                 
|            | 
|10.7        |  | Supplemental Employee Retirement Plan.(6)                                                                                                                                                          
|            | 
|10.8        |  | 2000 Stock Incentive Plan.(8)                                                                                                                                                                      
|            | 
|10.9        |  | Incorporated by reference to the Companys second quarter Form 10-Q dated August 2, 2003, the Settlement Agreement and General Release
entered into by and between Kathy Bronstein and the Company.
|            | 
|14.1        |  | The Wet Seal, Inc. Code of Conduct.                                                                                                                                                                
|            | 
|21.1        |  | Subsidiaries of the Registrant.(4)                                                                                                                                                                 
|            | 
|23.1        |  | Consent of Deloitte & Touche LLP, independent auditors.                                                                                                                                            
|            | 
|31.1        |  | Certification of the Chief Executive Officer filed herewith pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                             
|            | 
|31.2        |  | Certification of the Chief Financial Officer filed herewith pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                             
|            | 
|32.1        |  | Certification of the Chief Executive Officer furnished herewith pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.                                                                         
|            | 
|32.2        |  | Certification of the Chief Financial Officer furnished herewith pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.                                                                         
|            | 
|99.1        |  | Factors Affecting Future Financial Results.                                                                                                                                                        



---

---

|(1) |  | Denotes exhibits incorporated by reference to the Companys Registration Statement File No. 33-34895.
|--- |  | -----------------------------------------------------------------------------------------------------



|(2) |  | Denotes exhibits incorporated by reference to the Companys Annual Report on Form 10-K for the fiscal year ended January 29, 1994.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------



|(3) |  | Denotes exhibits incorporated by reference to the Companys Annual Report on Form 10-K for the fiscal year ended January 28, 1995.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------



|(4) |  | Denotes exhibits incorporated by reference to the Companys Annual Report on Form 10-K for the fiscal year ended February 3, 1996.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------



|(5) |  | Denotes exhibits incorporated by reference to the Companys Annual Report on Form 10-K for the fiscal year ended February 1, 1997.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------



|(6) |  | Denotes exhibits incorporated by reference to the Companys Annual Report on Form 10-K for the fiscal year ended January 1, 1998.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------



|(7) |  | Denotes exhibits incorporated by reference to the Companys Annual Report on Form 10-K for the fiscal year ended January 29, 2000.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------



|(8) |  | Denotes exhibits incorporated by reference to the Companys Annual Report on Form 10-K for the fiscal year ended February 3, 2001.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------



|(9) |  | Denotes exhibits incorporated by reference to the Companys Annual Report on Form 10-K for the fiscal year ended February 2, 2002.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------



|(10) |  | Denotes exhibits incorporated by reference to the Companys Annual Report on Form 10-K for the fiscal year ended February 1, 2003.
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------