10-Q

QuickLinks -- Click here to rapidly navigate through this document

THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended May 4, 2002

OR

o 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
(State of Incorporation) 33-0415940
(I.R.S. Employer Identification No.)

26972 Burbank
Foothill Ranch, California
(Address of principal executive offices) 92610
(Zip code)

(949) 583-9029
(Registrant's telephone number, including area code)

        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  ý    No  o

        The number of shares outstanding of the registrant's Class A Common Stock and Class B Common Stock par value $.10 per share, at June 13, 2002 were 25,591,697 and 4,804,249, respectively. There were no shares of Preferred Stock, par value $.01 per share, outstanding at June 13, 2002.

THE WET SEAL, INC.
FORM 10-Q

Index

PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated condensed balance sheets as of May 4, 2002 (unaudited) and February 2, 2002 (audited)	3
	Consolidated condensed statements of income and comprehensive income (unaudited) for the 13 weeks ended May 4, 2002 and May 5, 2001	4
	Consolidated condensed statements of cash flows (unaudited) for the 13 weeks ended May 4, 2002 and May 5, 2001	5
	Notes to consolidated condensed financial statements	6-7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	8-11
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	12
PART II.	OTHER INFORMATION	13
	SIGNATURE PAGE	14
	EXHIBIT 10.1	1-9
	EXHIBIT 99.1	1-4

2

THE WET SEAL, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS

(IN THOUSANDS)

	May 4, 2002			February 2, 2002
	(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	48,716		$	34,345
Short-term investments		54,165			67,523
Other receivables		3,863			4,830
Merchandise inventories		31,254			32,020
Prepaid expenses		12,197			11,018
Deferred tax charges		2,500			2,500
Total current assets		152,695			152,236
EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Leasehold improvements		129,932			117,284
Furniture, fixtures and equipment		73,026			66,880
Leasehold rights		2,588			2,848
		205,546			187,012
Less accumulated depreciation		(96,077	)		(93,304	)
Net equipment and leasehold improvements		109,469			93,708
LONG-TERM INVESTMENTS		17,714			30,433
OTHER ASSETS:
Deferred taxes and other assets		13,017			13,017
Goodwill, net of accumulated amortization of $1,780,000 as of May 4, 2002 and February 2, 2002		6,323			6,323
Total other assets		19,340			19,340
TOTAL ASSETS	$	299,218		$	295,717
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable	$	47,028		$	51,890
Accrued liabilities		19,351			19,321
Income taxes payable		1,520			3,834
Total current liabilities		67,899			75,045
LONG-TERM LIABILITIES:
Deferred rent		8,597			8,624
Other long-term liabilities		4,629			4,438
Total long-term liabilities		13,226			13,062
Total liabilities		81,125			88,107
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
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; 28,486,697 and 28,268,456 shares issued and outstanding at May 4, 2002 and February 2, 2002, respectively		2,849			2,827
Common Stock, Class B Convertible, $.10 par value, authorized 10,000,000 shares; 4,804,250 shares issued and outstanding at May 4, 2002 and February 2, 2002		480			480
Paid-in capital		81,309			79,568
Retained earnings		153,804			145,084
Treasury stock, 3,077,100 shares at cost		(20,349	)		(20,349	)
Total stockholders' equity		218,093			207,610
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	299,218		$	295,717

See accompanying notes to consolidated condensed financial statements

3

THE WET SEAL, INC.

CONSOLIDATED CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE DATA)

	13 Weeks Ended
	May 4, 2002		May 5, 2001
SALES	$	156,620	$	137,913
COST OF SALES (including buying, distribution and occupancy costs)		103,823		96,247
GROSS MARGIN		52,797		41,666
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		39,845		34,399
OPERATING INCOME		12,952		7,267
INTEREST INCOME, NET		1,000		1,520
INCOME BEFORE PROVISION FOR INCOME TAXES		13,952		8,787
PROVISION FOR INCOME TAXES		5,232		3,427
NET INCOME	$	8,720	$	5,360
COMPREHENSIVE INCOME	$	8,720	$	5,360
NET INCOME PER SHARE, BASIC	$	0.29	$	0.18
NET INCOME PER SHARE, DILUTED	$	0.28	$	0.18
WEIGHTED AVERAGE SHARES OUTSTANDING, BASIC		30,121,793		29,241,947
WEIGHTED AVERAGE SHARES OUTSTANDING, DILUTED		31,594,562		30,619,166

See accompanying notes to consolidated condensed financial statements

4

THE WET SEAL, INC.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(IN THOUSANDS)

				13 Weeks Ended
				May 4, 2002			May 5, 2001
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net income			$	8,720		$	5,360
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization			5,172			5,070
		(Gain) Loss on disposal of equipment and leasehold improvements			(29	)		13
		Changes in operating assets and liabilities:
			Other receivables		967			(782	)
			Merchandise inventories		766			(9,294	)
			Prepaid expenses		(1,179	)		(145	)
			Other assets		—			1
			Accounts payable and accrued liabilities		(4,832	)		15,609
			Income taxes payable		(2,314	)		(5,548	)
			Deferred rent		(27	)		(61	)
			Other long-term liabilities		191			178
		Net cash provided by operating activities			7,435			10,401
CASH FLOWS FROM INVESTING ACTIVITIES:
	Investment in equipment and leasehold improvements				(20,680	)		(2,915	)
	Acquisition of store leases and store assets				—			(3,550	)
	Investment in marketable securities				(1,500	)		(20,671	)
	Proceeds from sale of marketable securities				27,353			20,129
		Net cash provided by (used in) investing activities			5,173			(7,007	)
CASH FLOWS FROM FINANCING ACTIVITIES:
	Proceeds from issuance of stock				1,763			4,642
NET INCREASE IN CASH AND CASH EQUIVALENTS					14,371			8,036
CASH AND CASH EQUIVALENTS, beginning of period					34,345			30,122
CASH AND CASH EQUIVALENTS, end of period				$	48,716		$	38,158
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
	Cash paid during the period for:
		Interest		$	7		$	—
		Income taxes, net		$	7,535		$	9,212

See accompanying notes to consolidated condensed financial statements

5

THE WET SEAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

NOTE 1—Basis of Presentation:

        The information set forth in these consolidated condensed financial statements is unaudited except for the February 2, 2002 balance sheet. These statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information, the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.

        In the opinion of management, all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation have been included. The results of operations for the 13 weeks ended May 4, 2002 are not necessarily indicative of the results that may be expected for the year ending February 1, 2003 (fiscal 2002). For further information, refer to the consolidated financial statements and notes thereto included in the Annual Report for the year ended February 2, 2002.

NOTE 2—Revolving Credit Arrangement:

        Under a secured revolving line-of-credit arrangement with a major financial institution, the company may borrow up to a maximum of $50,000,000 on a revolving basis through January 2004. The cash borrowings under the arrangement bear interest at the bank's prime rate or, at our option, LIBOR plus 1.5%.

        The credit arrangement imposes quarterly and annual financial covenants requiring us to maintain certain financial ratios and achieve certain levels of annual income. In addition, the credit arrangement requires that the bank approve the payment of dividends and restricts the level of capital expenditures. At May 4, 2002, the Company was in compliance with these covenants. The Company had no borrowings outstanding under the credit arrangement at May 4, 2002.

NOTE 3—Net Income Per Share:

        Net income per share, basic, is computed based on the weighted average number of shares of Class A and Class B common stock outstanding for the period.

        Net income per share, diluted, is computed based on the weighted average number of shares of Class A and Class B common stock and potentially dilutive common stock equivalents outstanding for the period.

        A reconciliation of the numerators and denominators used in basic and diluted net income per share is as follows:

	13 Weeks Ended May 4, 2002		13 Weeks Ended May 5, 2001
Net income:	$	8,720,000	$	5,360,000
Weighted average Number of common shares:
Basic		30,121,793		29,241,947
Effect of dilutive Securities-stock options		1,472,769		1,377,219
Diluted		31,594,562		30,619,166
Net income per share: Basic	$	0.29	$	0.18
Effect of dilutive Securities-stock options		0.01		0.00
Diluted	$	0.28	$	0.18

6

        The Company effected a three-for-two stock split on May 9, 2002, on both the Class A and Class B common stock. Earnings per share and share outstanding amounts have been restated to give retroactive effect to the stock split in these financial statements.

NOTE 4—Treasury Stock:

        The Company's Board of Directors authorized the repurchase of up to 20% of the outstanding shares of the Company's Class A common stock. As of May 4, 2002, 3,077,100 shares (split adjusted) had been repurchased at a cost of $20,349,000. Such repurchased shares are reflected as Treasury Stock in the Company's consolidated condensed balance sheets. There were no shares repurchased in the three months ended May 4, 2002.

NOTE 5—Goodwill: Adoption of Statements 141 and 142

        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. SFAS No. 142 requires an entity to complete the first step of the transitional goodwill impairment test within six months of adopting the Statement. The Company adopted SFAS No. 142 in the first quarter of fiscal 2002.

        The following table provides the Company's net income and net income per share had the non-amortization provisions of SFAS No. 142 been adopted for all periods presented:

	13 Weeks Ended May 4, 2002		13 Weeks Ended May 5, 2001
Net income:	$	8,720,000	$	5,360,000
Add back: Goodwill amortization		—		99,000
Related income tax effect		—		(38,000	)
Adjusted net income	$	8,720,000	$	5,421,000
Net income per share:
Basic	$	0.29	$	0.18
Add back: Goodwill amortization, net of related income tax effect		—		—
Adjusted basic net income per common share	$	0.29	$	0.18
Diluted	$	0.28	$	0.18
Add back: Goodwill amortization, net of related income tax effect		—		—
Adjusted diluted net income per common share	$	0.28	$	0.18

        Amortization of goodwill for the full fiscal year 2001 was $394,000 before income taxes.

7

Item 2—Management's Discussion and Analysis of Financial Condition and Results of Operations

Introduction

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

        We are one of the largest national mall-based specialty retailers focusing primarily on young women's apparel and accessories, and currently operate 584 retail stores in 44 states, Washington D.C. and Puerto Rico. Of the 584 stores, 417 are Wet Seal stores and 45 are Contempo Casuals stores which cater to the junior customer, 89 are Arden B. stores which focus on a fashionable, sophisticated, contemporary customer and 33 are Zutopia stores, for the "tween' customer. In the fall of fiscal 2002, we are planning to launch the Wet Seal Catalog and within six to nine months launch a proprietary credit card in an effort to further build the Wet Seal brand and enhance our relationship with our customers. We also believe these actions will increase the opportunity for sales to new and existing customers.

        As of May 4, 2002, we operated 579 stores compared to 563 stores as of May 5, 2001, the end of the first quarter of fiscal 2001. We opened 64 stores and closed 48 stores for the period from May 5, 2001 to May 4, 2002.

Critical Accounting Policies and Estimates

        We prepared the consolidated condensed financial statements of The Wet Seal, Inc. in accordance with accounting principles generally accepted in the United States of America for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The preparation of financial statements 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.

        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 is warranted. Our accounting policies are more fully described in Note 1 to the Consolidated Financial statements included in the Annual Report for the year ended February 2, 2002.

Current Trends and Outlook

        We believe that consumer acceptance of our fashion offering continues to be positive resulting in increased sales in all of our operating divisions, especially our Arden B. division. Consequently, our Board of Directors has authorized capital expenditures of $50,000,000 in the current fiscal year to cover new store openings, store renovations and other capital expenditures described in Liquidity and Capital Resources in this Management Discussion and Analysis and elsewhere in this report.

        In a release dated February 28, 2002 we stated that the average new store will be approximately 3,300 square feet and each will require an investment of $308,000. We believe we can achieve sales of $300 per square foot in these stores and, if we are successful, the return on the Company's investment in the first full year of operations of the new stores is estimated to be approximately 75%.

8

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. Inventories include items that have been marked down to management's best estimate of their fair market value. Management's decision to markdown 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 to the stores. To the extent that management's estimates differ from actual results, additional markdowns may be required which could reduce our gross margin and operating income. Our success is largely dependent on 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 markdowns which would adversely affect our operating results.

Results of Operations

The 13 weeks ended May 4, 2002 (first quarter of fiscal 2002) as compared to the 13 weeks ended May 5, 2001 (first quarter of fiscal 2001)

        Sales in the first quarter of fiscal 2002 were $156,620,000 compared to sales in the first quarter of fiscal 2001 of $137,913,000, an increase of $18,707,000, or 13.6%. The dollar increase in sales was due in part to the net increase of 16 stores; 579 stores at the end of the first quarter of fiscal 2002 compared to 563 stores at the end of the first quarter of fiscal 2001. The increase in sales was also due to the increase in comparable store sales of 8.2% for the first quarter of fiscal 2002 compared to an increase of 3.5% in the first quarter of fiscal 2001. Comparable store sales are defined as sales in stores that were open throughout the full prior 14 months.

        Cost of sales, including buying, distribution and occupancy costs, was $103,823,000 in the first quarter of fiscal 2002 compared to $96,247,000 in the first quarter of fiscal 2001, an increase of $7,576,000. The dollar increase in cost of sales in fiscal 2002 compared to fiscal 2001 was due primarily to an increase in sales. As a percentage of sales, cost of sales was 66.3% in the first quarter of fiscal 2002 compared to 69.8% in the first quarter of fiscal 2001, a decrease of 3.5%. The decrease in cost of sales as a percentage of sales related primarily to a decrease in markdowns. The decrease in cost of sales as a percentage of sales was also due to decreases in occupancy and distribution costs due to leverage from the increase in comparable store sales.

        Selling, general and administrative expenses were $39,845,000 in the first quarter of fiscal 2002 compared to $34,399,000 in the first quarter of fiscal 2001, an increase of $5,446,000, or 15.8%. As a percentage of sales, selling, general and administrative expenses were 25.4% in fiscal 2002 compared to 24.9% in fiscal 2001, an increase of 0.5%. The dollar increase in selling, general and administrative expenses in the first quarter of fiscal 2002 compared to the first quarter of fiscal 2001 was primarily due to the increase in total sales. The increase as a percentage of sales was primarily related to an increase in advertising.

        Interest income, net, was $1,000,000 in the first quarter of fiscal 2002 compared to $1,520,000 in the first quarter of fiscal 2001, a decrease of $520,000. This decrease was due primarily to lower interest rates offset by higher cash balances.

        Income tax provision was $5,232,000 in the first quarter of fiscal 2002 compared to $3,427,000 in the first quarter of fiscal 2001. The effective income tax rate for the first quarter of fiscal 2002 was 37.5% compared to 39.0% in the prior year first quarter. The decrease in the effective tax rate in the first quarter of fiscal 2002 compared to the first quarter of fiscal 2001 was due to an increase in income generated from states with lower effective tax rates.

9

        Based on the factors noted above, net income was $8,720,000 in the first quarter of fiscal 2002 compared to $5,360,000 in the first quarter of fiscal 2001, an increase of $3,360,000, or 62.7%. As a percentage of sales, net income was 5.6% in the first quarter of fiscal 2002 compared to 3.9% in the first quarter of fiscal 2001.

Liquidity and Capital Resources

        Net cash provided by operating activities for the first quarter of fiscal 2002 was $7,435,000. Working capital at May 4, 2002 was $84,796,000 compared to $77,191,000 at February 2, 2002, an increase of $7,605,000. This increase was primarily due to a decrease in accounts payable, due to the timing of payments to merchandise vendors and lower receipts, and a decrease in income taxes payable.

        In the first quarter of fiscal 2002, we invested $20,680,000 in equipment and leasehold improvements, compared to $6,465,000 in the same period of the prior year. The investment of $20,680,000 includes the opening of 14 new stores, conversion of nine stores, as well as various upgrades and renovations. The prior year capital expenditures included one new store opening and the acquisition of 18 Zutopia stores acquired at a cost of $3,550,000. We currently estimate that the capital expenditures for the remainder of fiscal 2002 will be approximately $29,320,000. These planned expenditures relate primarily to new store openings and remodel construction.

        The Company's Board of Directors authorized the repurchase of up to 20% of the outstanding shares of the Company's Class A common stock. As of May 4, 2002, 3,077,100 shares (split adjusted) had been repurchased at a cost of $20,349,000. Such repurchased shares are reflected as Treasury Stock in the Company's consolidated condensed financial statements.

        We have a secured revolving line-of-credit arrangement with Bank of America National Trust and Savings Association in an aggregate principal amount of $50,000,000, maturing on January 1, 2004. At May 4, 2002, there were no outstanding borrowings under the credit arrangement and there were $6,101,000 open letters of credit related to imported inventory orders. We were in compliance with all terms and covenants of the credit arrangement.

        We invest our excess funds primarily in a short-term investment grade money market fund, investment grade commercial paper and U.S. Treasury and Agency obligations. We believe that our working capital and cash flows from operating activities will be sufficient to meet our operating and capital requirements in the foreseeable future.

Seasonality and Quarterly Operating Results

        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 the largest percentage of sales volume. In our three fiscal years ended February 2, 2002, the Christmas and back-to-school seasons together accounted for an average of approximately 31% 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, there can be no assurance that our business will not be affected by inflation in the future.

Statement Regarding Forward-Looking Disclosure

        Certain sections of this Quarterly Report on Form 10-Q, including the preceding "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, and Section 21E of the Securities Exchange Act of 1934, as amended, which represent our expectations or beliefs concerning future events.

10

        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 future-looking statements include, but are not limited to, those discussed in Exhibit 99.1 attached to this report and elsewhere in this report. We strongly urge you to review and consider the risk factors set forth in Exhibit 99.1.

New Accounting Pronouncements

        In July 2001, the FASB issued SFAS No. 142 "Goodwill and Other Intangible Assets," which, among other things, establishes new standards for goodwill acquired in a business combination, eliminates the amortization of goodwill and requires the carrying value of goodwill and identifiable intangibles to be evaluated for impairment on an annual basis. Identifiable intangible assets with a determinable useful life will continue to be amortized over that period. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. The adoption of SFAS No. 142 did not have a material impact on our consolidated results of operations, financial position or cash flows.

        In August 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. We do not believe the adoption of SFAS No. 143 will have a material impact on our consolidated results of operations, financial position or cash flows.

        In October 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets", which 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. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. The adoption of SFAS No. 144 did not have a material impact on our consolidated results of operations, financial position or cash flows.

11

Item 3—Quantitative and Qualitative Disclosures About Market Risk

        To the extent that we borrow under our credit facility, we would be exposed to market risk related to changes in interest rates. At May 4, 2002 no borrowings were outstanding under our credit facility. We are not a party to any derivative financial instruments. Additionally, we are exposed to market risk related to interest rate risk on the short-term investment of excess cash in short-term investment grade interest-bearing securities. These investments are considered to be cash equivalents and are shown that way on our balance sheet. If there are changes in interest rates, those changes would affect the investment income we earn on those investments.

12

PART II—OTHER INFORMATION

Item 1—Legal Proceedings.

        We are not party to any material legal proceedings. We anticipate that we will be subject to litigation (and arbitration) in the ordinary course of business.

Item 2—Changes in Securities.

        On May 9, 2002, we effected a three-for-two stock split on Class A and Class B common stock.

Item 3—Defaults Upon Senior Securities.

        Not Applicable

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

        We held our most recent Annual Meeting on May 30, 2002. At the meeting, our stockholders elected George H. Benter, Jr., Kathy Bronstein, Barry J. Entous, Stephen Gross, Walter F. Loeb, Wilfred Posluns, Alan Siegel and Irving Teitelbaum to the Board of Directors with an affirmative vote of at least 12,558,112 Class A shares and 3,202,833 Class B shares for each director, with no more than 3,751,065 Class A shares voting against any director. The stockholders approved an amendment to our Amended and Restated 1996 Long-Term Incentive Plan to increase the number of shares issuable under such plan with an affirmative vote of 10,606,607 Class A shares and 3,202,833 Class B shares, with 3,392,182 Class A shares voting against. The stockholders ratified the selection of Deliotte and Touche LLP as the independent auditors for the fiscal year ending February 1, 2003 with an affirmative vote of 15,886,511 Class A shares and 3,202,833 Class B shares, with 417,996 Class A shares voting against. Class A shares are entitled to one vote per share. Class B shares are entitled to two votes per share.

Item 5—Other Information.

        Not Applicable

Item 6(a)—Exhibits.

10.1	Services Agreement, dated April 21, 2002, between the Company and Greg Scott.
99.1	Factors Affecting Future Financial Results.

Item 6(b)—Reports on Form 8-K.

        On March 8, 2002, we filed a current report on Form 8-K reporting that the Company issued a press release on February 28, 2002 to announce expected earnings for fourth quarter and fiscal 2001. We also announced plans to release final earnings results for fiscal 2001 on March 21, 2002, at 5:00 am PST and that it would hold a conference call on March 21, 2002 at 9:00 am PST to discuss fiscal 2001 results.

13

SIGNATURES

        Pursuant to the requirements 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)
Date: June 14, 2002	/s/  KATHY BRONSTEIN Kathy Bronstein Vice Chairman and Chief Executive Officer and Director (Principal Executive Officer)
Date: June 14, 2002	/s/  WALTER J. PARKS Walter J. Parks Executive Vice President and Chief Administrative Officer (Principal Financial and Accounting Officer)

14

QuickLinks

THE WET SEAL, INC. FORM 10-Q Index
THE WET SEAL, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (IN THOUSANDS)
THE WET SEAL, INC. CONSOLIDATED CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE DATA)
THE WET SEAL, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
THE WET SEAL, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

Item 2—Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3—Quantitative and Qualitative Disclosures About Market Risk

PART II—OTHER INFORMATION

Item 1—Legal Proceedings.
Item 2—Changes in Securities.
Item 3—Defaults Upon Senior Securities.
Item 4—Submission of Matters to a Vote of Security Holders.
Item 5—Other Information.
Item 6(a)—Exhibits.
Item 6(b)—Reports on Form 8-K.

SIGNATURES

EX-10.1

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 10.1

EMPLOYMENT AGREEMENT

        THIS EMPLOYMENT AGREEMENT ("Agreement") is dated as of April 21, 2002, and made and entered into by and between The Wet Seal, Inc., a Delaware corporation (the "Company"), and Greg Scott (the "Executive").

        WHEREAS, Executive is employed as President of the Arden B division of the Company; and

        WHEREAS, the Company and Executive (collectively, the "Parties") desire to continue their employment relationship on the terms set forth below.

        THEREFORE, the Parties agree as follows:

1.    EMPLOYMENT

        The Company hereby employs Executive and Executive hereby accepts employment upon the terms and conditions set forth below.

2.    TERM

        The term of this Agreement shall begin on May 1, 2002 (the "Effective Date"), and end on the third (3^rd) anniversary thereof unless earlier termination occurs in accordance with the provisions of Section 5 below (the "Term"). The period during which Executive is an employee of the Company is referred to herein as the "Employment Period."

3.    COMPENSATION

        3.1    Base Compensation.    For the services to be rendered by Executive under this Agreement, Executive shall be entitled to receive, commencing as of the Effective Date, salary at the annual rate of Four Hundred Fifty Thousand Dollars ($450,000) ("Base Compensation") payable in twenty-four (24) substantially equal installments per year. The Base Compensation shall be reviewed annually for increase by the Company's Board of Directors ("Board") but in no event shall the annual increase be less than five percent (5%) each year. After any such increase, the Base Compensation shall not thereafter be reduced.

        3.2    Annual Bonus Compensation.    Provided that Executive is employed as of the end of the Company's fiscal year (January 31), Executive shall be eligible to receive bonus compensation as may be determined in the sole discretion of the Board. Executive shall not be eligible for a bonus under this provision if he is not employed as of the end of the fiscal year for which it is awarded. Any bonus under this provision shall be paid no later than the end of March of the fiscal year following the fiscal year for which it is awarded.

        3.3    Other Incentive Compensation.    In the event that the Company from time to time adopts additional incentive compensation programs which are generally applicable to employees holding the title of President, Executive shall be entitled to participate in such programs on the same basis as other executives at that level. This provision shall not entitle Executive to receive bonuses or incentive compensation which are intended to be limited in application to individual executives, or are provided for in individual employment agreements.

        3.4    Options.    Subject to the approval of the Board, pursuant to and subject to the terms of the Company's stock option plan(s), Executive shall be granted options to purchase shares of common stock of the Company. The options shall vest and the exercise price shall be set in accordance with the

1

terms of the plan under which such options are granted and shall be subject to a written option agreement in a form acceptable to the Company.

        3.5    Benefits.    Executive shall be entitled to participate in all pension and welfare benefit, medical, dental, vision, life insurance, disability and any other benefit or insurance plans established by the Company in accordance with the terms of such plans as they may be in effect from time to time.

        3.6    Vacation and Other Benefits.    Executive shall be entitled to vacation in accordance with the Company's vacation policy as it shall be in effect from time to time.

        3.7    Automobile Allowance.    Executive shall be entitled to reimbursement of Five Hundred Dollars ($500) per month to defray the cost of leasing and maintaining an automobile. Such amount shall be reported to the Internal Revenue Service as part of the Executive's compensation.

        3.8    Expense Reimbursement; Legal Fees.    Executive shall be reimbursed for reasonable business expenses actually incurred, in accordance with the Company's expense reimbursement policy as it may be in effect from time to time. The Company shall pay for Executive's reasonable attorneys' fees and costs incurred in connection with the negotiation and preparation of this Agreement in an amount not to exceed Five Thousand Dollars ($5,000).

4.    POSITION AND DUTIES

        4.1    Position.    Executive shall serve as President of the Arden B division of the Company.

        4.2    Devotion of Time and Effort.    Executive shall use Executive's good faith best efforts and judgment (a) in performing Executive's duties required hereunder and (b) to act in the best interests of the Company. Executive shall devote such time, attention and energies to the business of the Company as are reasonably necessary to satisfy Executive's required responsibilities and duties hereunder.

        4.3    Other Activities.    Executive may engage in other activities for Executive's own account while employed hereunder, including without limitation, charitable, community and other business activities, provided that such other activities do not materially interfere with the performance of Executive's duties hereunder.

5.    TERMINATION

        5.1    Due to Death or Disability.    If Executive dies during the Employment Period, Executive's employment shall terminate as of the date of his death. The Company may terminate Executive if he becomes "disabled," as defined below, upon written notice to Executive. For purposes of this Agreement, the term "Disability" shall mean a physical or mental incapacity as a result of which Executive becomes unable to continue the proper performance of Executive's duties hereunder for six (6) consecutive calendar months or for shorter periods aggregating one hundred eighty (180) business days in any twelve (12) month period, or, if this provision is inconsistent with any applicable law, for such period or periods as permitted by law.

        5.2    By the Company Without "Cause".    The Company may terminate this Agreement without "cause" (as hereinafter defined) at any time following the Effective Date, upon thirty (30) days written notice to Executive, subject to compliance by the Company with the provisions of Section 5.5 hereof.

        5.3    By the Company For Cause.    The Company may terminate Executive's employment for "Cause" at any time (A) upon thirty (30) days written notice to Executive describing the claimed event or circumstance and setting forth the Company's intention to terminate Executive's employment if such claimed event or circumstance is not remedied within fifteen (15) days following such notice, if capable of remedy, or (B) upon written notice to Executive, describing the claimed event or circumstance, if such claimed event or circumstance is not capable of remedy, or (C) upon written notice to Executive, describing the claimed event or circumstance, if such claimed event or circumstance has, on one or

2

more prior occasions, been the subject of a notice as provided for in subparagraph (A) hereof. For purposes of this Agreement, "Cause" shall mean:

        (a)  Executive's conviction of, or plea of nolo contendere to, a felony or any crime involving moral turpitude or involving the Company;

        (b)  Executive's commission of any act of theft, embezzlement or misappropriation against the Company;

        (c)  The gross neglect, malfeasance or nonfeasance of Executive in the performance of the services contemplated hereunder where such conduct causes or has the likelihood of causing material economic harm to the Company;

        (d)  A material breach of this Agreement by Executive;

        (e)  Any willful misconduct or unethical behavior related to Executive's duties hereunder or insubordination by Executive;

        (f)    The sexual or other harassment by Executive of any employee, independent contractor or customer of the Company; and/or

        (g)  Executive's use of illegal drugs or abuse of alcohol or legally prescribed drugs.

        5.4    By Executive For Good Reason.    Executive may terminate this Agreement only for Good Reason as defined below. In the event Executive terminates his employment for Good Reason, Executive shall provide thirty (30) days written notice to the Company describing the claimed event or circumstance and setting forth Executive's intention to terminate his employment with the Company. For purposes of this Agreement, "Good Reason" shall mean:

        (a)  The Company's material beach of any of its obligations hereunder and (1) such breach is incurable or, (2) if curable, has not been cured within fifteen (15) days of written notice from Executive to the Company of such beach by the Company;

        (b)  Relocating Executive's place of work, or the executive offices of the Company, outside of the County of Orange, State of California, without Executive's written consent;

        (c)  A material reduction, without cause, in Executive's title, responsibilities or duties; or

        (d)  Any failure by the Company to obtain the assumption and agreement to perform this Agreement by a successor as provided in Section 15.1.

        5.5    Termination Payment.

        (a)    Amount.    In the event that Executive's employment is terminated pursuant to Sections 5.1 through 5.4, Executive shall continue to render services to the Company pursuant to this Agreement until his date of death or the date of termination ("Termination Date") and shall continue to receive compensation and payment for any unreimbursed expenses incurred and other accrued employee benefits as provided in this Agreement, through the Termination Date. In addition, in the event Executive's employment is terminated pursuant to Section 5.2 or 5.4, Executive shall receive severance in an amount equal to the greater of (i) the Base Compensation due to Executive for the remainder of the Term, but not to exceed twenty four (24) months or (ii) one year's Base Compensation (the "Severance Period"), in equal bi-monthly installments paid over a period of twelve (12) months with the first payment occurring on the latter of the first regular pay date after the Termination Date or the tenth (10^th) day after execution of the release described in subpart (c) below. Except as provided in this Section 5.5, Executive shall not be entitled to any other payments in connection with his employment and/or the termination thereof, and shall have no further right to receive compensation or other consideration from the Company or have any other remedy whatsoever against the Company, as a result of the termination of this

3

Agreement or the termination of Executive. Executive shall have no duty of mitigation and shall not be subject to any right of offset with respect to any compensation received by Executive on or after the termination of his employment.

        (b)    Benefits.    In the event Executive's employment is terminated pursuant to Section 5.2 or 5.4 and Executive timely elects to continue healthcare coverage through COBRA, subject to subpart (c) below, the Company shall pay that portion of the COBRA premium equal to the difference between the COBRA premium and Executive's monthly contribution towards health care benefits that was in effect as of the Termination Date. The Company shall make such payments for up to twelve (12) months from the Termination Date (the "Severance Benefits") so long as Executive continues to timely pay Executive's portion of the COBRA premium.

        (c)    Release.    To be eligible to receive severance and Severance Benefits under this Section 5.5, Executive must execute and deliver (and not revoke, if a revocation period is required by law) a release of all claims against the Company and any of its parents, subsidiaries, affiliates, shareholders, members, partners, investors, officers, directors, agents and employees in a form acceptable to the Company.

6.    NON-SOLIC1TATION, NON-COMPLETION

        Executive acknowledges that by virtue of Executive's position as President of the Arden B division of the Company, and Executive's employment hereunder, he will have advantageous familiarity with and knowledge about the Company and will be instrumental in establishing and maintaining goodwill between the Company and its customers, which goodwill is the property of the Company. Therefore, Executive agrees as follows:

        (a)  During the Employment Period, Executive will not engage (either directly or indirectly, as shareholder, partner, officer, director, consultant, employee or otherwise) in any enterprise nor perform any services of any kind whatsoever for nor provide any financial assistance to any enterprise in the retail clothing business other than through the Company or its subsidiaries and their successors;

        (b)  During Executive's employment and any Severance Period hereunder the Executive will not solicit, take away, hire, employ or endeavor to employ any of the employees of the Company;

        (c)  If Executive's employment terminates pursuant to Section 5.3 hereof, during a twelve (12) month period commencing from the Termination Date, Executive will not solicit, take away, hire, employ or endeavor to employ any of the employees of the Company

        (d)  Executive acknowledges that any violation of any provision of this Section 6 by Executive will cause irreparable damage to the Company, that such damages will be incapable of precise measurement and that, as a result, the Company will not have an adequate remedy at law to redress the harm which such violations will cause. Therefore, in the event of any violation of any provision of this Section 6 by Executive, Executive agrees that the Company will be entitled to injunctive relief including, but not limited to, temporary and/or permanent restraining orders to restrain any violation of this Section 6 by Executive; and

        (e)  It is the desire and intent of the parties that the provisions of this Section 6 shall be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, if any portion of this Section 6 shall be adjudicated to be invalid or unenforceable, this Section 6 shall be deemed amended either to conform to such restrictions as the court or arbitrator may allow, or to delete therefrom or reform the portion thus adjudicated to be invalid and unenforceable, such deletion or reformation to apply only with respect to the operation of this Section 6 in the particular jurisdiction in which such adjudication is made. It is expressly agreed that the arbitrator in any arbitration hereunder shall

4

have the authority to modify this Section 6 if necessary to render it enforceable, in such manner as to preserve as mach as possible the parties' original intentions, as expressed herein, with respect to the scope hereof.

7.    TRADE SECRETS

        7.1  Executive specifically agrees that Executive will not at my time, whether during or subsequent to the Employment Period, in any fashion, form or manner, except in furtherance of Executive's duties at the Company or with the specific written consent of the Company, either directly or indirectly use or divulge, disclose or communicate to any Person in any manner whatsoever, any confidential information of any kind, nature or description concerning any matters affecting or relating to the business of the Company (the "Proprietary Information"), including (i) all information, formulae, compilations, software programs (including object codes and source codes), devices, methods, techniques, drawings, plans, experimental and research work, inventions, patterns, processes and know-how, whether or not patentable, and whether or not at a commercial stage related to the Company or any subsidiary thereof (ii) buying habits or practices of any of its customers, (iii) the Company's marketing methods and related data, (iv) Company's costs of materials, (v) the prices it obtains or has obtained or at which it sells or has sold its products or services, (vi) lists or other written records used in the Company's business, (vii) compensation paid to employees and other terms of employment or (viii) any other confidential information of, about or concerning the business of the Company, its manner of operation, or other confidential data of any kind, nature, or description (excluding any information that is or becomes publicly known or available for use through no fault of Executive or as directed by Court order). The parties hereto stipulate that as between them, Proprietary Information constitutes trade secrets that derive independent economic value, actual or potential, from not being generally known to the public or to other Persons who can obtain economic value from its disclosure or use and that Proprietary Information is the subject of efforts which are reasonable under the circumstances to maintain its secrecy and of which this Section 7.1 is an example, and that any breach of this Section 7.1 shall be a material breach of this Agreement. All Proprietary Information shall be and remain the Company's sole property.

        7.2  Executive agrees to keep confidential and not to use or divulge except in furtherance of Executive's duties at the Company any confidential or proprietary information of any customer of the Company to which Executive may obtain access during the Employment Period. Executive acknowledges and agrees that a breach of this Section 7.2 shall be a material breach of this Agreement.

8.    INVENTIONS

        8.1  Executive agrees to disclose promptly to the Company any and all concepts, designs, inventions, discoveries and improvements related to the Company's business (collectively, "Inventions") that Executive may conceive, discover or make from the beginning of Executive's employment with Company until the termination thereof; whether such is made solely or jointly with others, whether or not patentable, of which the conception or making involves the use of the Company's time, facilities, equipment or personnel.

        8.2  Executive agrees to assign, and does hereby assign, to the Company (or its nominee) Executive's right, title and interest in and to any and all Inventions that Executive may conceive, discover or make, either solely or jointly with others, patentable or unpatentable, from the beginning of Executive's employment with the Company until the termination thereof.

        8.3  Executive agrees to sign at the request of the Company any instrument necessary for the filing and prosecution of patent applications in the United States and elsewhere, including divisional, continuation, revival, renewal or reissue applications, covering any Inventions and all instruments necessary to vest title to such Inventions in the Company (or its nominee). Executive further agrees to

5

cooperate and assist the Company in preparing, filing and prosecuting any and all such patent applications and in pursuing or defending any litigation upon Inventions covered hereby. The Company shall bear all expenses involved in the prosecution of such patent applications it desires to have filed. Executive agrees to sign at the request of the Company any and all instruments necessary to vest title in the Company (or its nominee) to any specific patent application prepared by the Company and covering Inventions which Executive has agreed to assign to the Company (or its nominee) pursuant to Section 8.2 above.

        8.4  The provisions of Sections 8.2 and 8.3 do not apply to any invention which qualifies fully under the provisions of Section 2870 of the California Labor Code, which provides in substance that provisions in an employment agreement providing that an employee shall assign or offer to assign rights in an invention to his or her employer do not apply to an invention for which no equipment, supplies, facilities, or trade secret information of the employer was used and which was developed entirely on the employee's own time, except for those inventions that either (a) relate, at the time of conception or reduction to practice of the invention: (1) to the business of the employer or (2) to the employer's actual or demonstrably anticipated research or development, or (b) result from any work performed by the employee for the employer.

9.    SHOP RIGHTS

        The Company shall also have a perpetual, royalty-free, non-exclusive right to use in its business, and to make, use, license and sell products, processes and/or services derived from any inventions, discoveries, designs, improvements, concepts, ideas, works of authorship, whether patentable or not, including processes, methods, formulae, techniques or know-how related thereto, that are not within the scope of "Inventions" as defined above, but which are conceived or made by Executive during regular working hours or with the use of the facilities, materials or personnel of the Company.

10.  COPYRIGHT

        Executive agrees that any work prepared for the Company that is eligible for copyright protection under any U.S. or foreign law shall be a work made for hire and ownership of all copyrights (including all renewals and extensions therein) shall vest in the Company. In the event any such work is deemed not to be a work made for hire for any reason, Executive hereby irrevocably grants, transfers and assigns all right, title and interest in such work and all copyrights in such work and all renewals and extensions thereof to the Company, and agrees to provide all assistance reasonably requested by the Company in the establishment, preservation and enforcement of its copyright in such work, such assistance to be provided at the Company's expense but without any additional compensation to Executive. Executive agrees to and does hereby irrevocably waive all moral rights with respect to the work developed or produced hereunder, including any and all rights of identification of authorship and any and all rights of approval, restriction or limitation on use or subsequent modifications.

11.  EXECUTIVE'S DUTIES ON TERMINATION

        In the event of termination of Executive, Executive agrees to delivery promptly to the Company all Proprietary Information which is or has been in Executive's possession or under Executive's control.

12.  INDEMNIFICATION

        The Company shall indemnify, defend and hold Executive harmless from and against any and all causes of action, claims, demands, liabilities, damages, costs and expenses of any nature whatsoever (collectively, "Damages") directly or indirectly arising out of or relating to Executive discharging Executive's duties hereunder on behalf of the Company and/or its respective subsidiaries and affiliates to the fullest extent permitted by law.

6

13.  THE COMPANY'S REPRESENTATIONS

        The Company hereby represents and warrants that (a) it has the right to enter into this Agreement and to incur the obligations incurred by it herein, (b) this Agreement has been duly and validly authorized by the Company, and (c) the provisions of this Agreement do not violate any other contracts or agreements to which it is a party and that would adversely affect its ability to perform his obligation hereunder.

14.  EXECUTIVE'S REPRESENTATIONS

        Executive hereby represents and warrants that (a) he has the right to enter into this Agreement and to grant the rights granted by him herein and (b) the provisions of this Agreement do not violate any other contracts or agreements to which he is a party and that would adversely affect his ability to perform his obligation hereunder.

15.  GENERAL PROVISIONS

        15.1    Assignment, Binding Effect.    Neither the Company nor Executive may assign, delegate or otherwise transfer this Agreement or any of their respective rights or obligations hereunder without the prior written consent of the other party, except that the Company may assign this Agreement to its successors, and affiliate, parent or subsidiary corporations. In the event that (a) the Company shall merge or consolidate with any other corporation, partnership or business entity or (b) all or substantially all of the Company's stock, business or assets shall be transferred in any manner to any other corporation, partnership or business entity (collectively a "Transaction"), such successor shall thereupon succeed to, and be subject to, all rights, interests, duties and obligations of, and shall thereafter for all purposes hereof be, the Company hereunder and the Company shall obtain a written assumption agreement from such successor prior to completion of any such Transaction; provided, however, that if the Company is unable, after reasonable efforts, to obtain such written assumption agreement, Company may nevertheless proceed with such Transaction and Executive's sole remedy shall be as set forth in Section 5.4 hereof. Any attempted prohibited assignment or delegation shall be void. This Agreement shall be binding upon and inure to the benefit of any permitted successors or assigns of the parties and the heirs, executors, administrators and/or personal representatives of Executive.

        15.2    Notices.    All notices, requests, demands and other communications that are required or may be given under this Agreement shall be in writing and shall be deemed to have been duly given when received if personally delivered, when transmitted if transmitted by telecopy, electronic or digital transmission method with electronic confirmation of receipt; the day after it is sent, if sent for next-day delivery to a domestic address by recognized overnight delivery service (e.g., FedEx); and upon receipt, if sent by certified or registered mail, return receipt requested. In each case notice shall be sent to:

        If to the Company

Ms. Pam Furlong
Vice President, Human Resources
The Wet Seal, Inc.
26972 Burbank
Foothill Ranch, CA 92610
Facsimile No.: (949) 699 4722

        If to Executive:

Greg Scott
2520 Astral Drive
Los Angeles, CA 90046
Facsimile No.: (323) 512 2038

7

        With a copy to:

Jeffrey H. Kapor, Esq.
Buchalter, Nemer, Fields & Younger, P.C.
601 South Figueroa Street, Suite 2400
Los Angeles, CA 90017
Facsimile No.: (213) 896-0400

        Any party may change its address for the purpose of this Section 15.2 by giving the other party written notice of its new address in the manner set forth above.

        15.3    Entire Agreement.    This Agreement constitutes the entire agreement of the parties, and supersedes all prior agreements.

        15.4    Amendments; Waivers.    This Agreement may be amended or modified, and any of the terms and covenants may be waived, only by a written instrument executed by the parties hereto, or, in the case of a waiver, by the party waiving compliance. Any waiver by any party in any one or more instances of any term or covenant contained in this Agreement shall neither be deemed to be nor construed as a further or continuing waiver of any such term or covenant of this Agreement.

        15.5    Provisions Severable.    In case any one or more provisions of this Agreement shall be invalid, illegal or unenforceable, in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not, in any way, be affected or impaired thereby. If any provision hereof is determined by any court of competent jurisdiction or an arbitrator to be invalid or unenforceable by reason of such provision extending the covenants and agreements contained herein for too great a period of time or over too great a geographical area, or being too extensive in any other respect, such provision shall be interpreted to extend only over the maximum period of time and geographical area, and to the maximum extent in all other respects, as to which it is valid and enforceable, all as determined by such court or such arbitrator.

        15.6    Governing Law.    This Agreement shall be construed, performed and enforced in accordance with, and governed by the laws of the State of California without giving effect to the principles of conflict of laws thereof.

        15.7    Counterparts.    This Agreement may be executed in one or more counterparts and delivered by facsimile, each of which shall be deemed an original, but all of which shall together constitute the same instrument.

        15.8    Survival.    Sections 2 and 5 through 16 shall survive the termination or expiration of this Agreement.

16.  ARBITRATION

        16.1    Scope of Arbitration.    Except for claims for emergency equitable or injunctive relief which cannot be timely addressed through arbitration, the Parties hereby agree to submit any claim or dispute in any way relating to, in connection with, or arising out of the terms of this Agreement, including, without limitation, claims regarding confidentiality and/or any dispute in any way arising out of or relating to Executive's employment or the termination of such employment with the Company, to private and confidential arbitration by a single neutral arbitrator through the American Arbitration Association ("AAA"). All arbitration proceedings shall be governed by the then current AAA rules governing employment disputes, and shall take place in Orange County, California. The decision of the arbitrator shall be final and binding on all parties to this Agreement; and judgment thereon may be entered in any court having jurisdiction. All costs of arbitration, including attorneys' fees and witness expenses, shall be paid as the arbitrator or court awards in accordance with applicable law. Except for claims for emergency equitable or injunctive relief which cannot be timely addressed through

8

arbitration, this arbitration procedure is intended to be the exclusive method of resolving any claim relating to or in any way arising out of this Agreement and Executive's employment with the Company, including but not limited to the termination of such employment.

        16.2    Waiver of Jury Trial.    Executive and the Company understand and agree that they are hereby waiving any right they may have to jury trial, and that this Arbitration clause shall also be applicable to, but not limited to, statutory claims including but not limited to claims under the Age Discrimination in Employment Act of 1967, as amended, the California Fair Employment and Housing Act, as amended, Title VII of the Civil Rights Act of 1964, as amended, and the Americans With Disabilities Act, as amended.

        16.3    Third-Party Beneficiaries.    The Company's successors, parents, affiliates, subsidiaries, officers, directors, employees, shareholders, and contractors, shall be third-party beneficiaries of this arbitration provision, and any claim against them by Executive relating to, in connection with, or arising out of his employment with the Company shall be subject to these provisions.

        IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as of the date first written above.

THE "COMPANY"
By:	/s/  KATHY BRONSTEIN Kathy Bronstein Title: Vice Chairman and Chief Executive Officer
"EXECUTIVE"
	/s/  GREG SCOTT Greg Scott

9

QuickLinks

EXHIBIT 10.1

Employment Agreement

EX-99.1

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 99.1

Factors Affecting Future Financial Results

Statement Regarding Forward-Looking Disclosure and Risk Factors

        Certain sections of this Quarterly Report on Form 10-Q may contain various forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, 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 materially from those expressed or forecasted in forward-looking statements due to a number of factors. Factors that could cause our actual performance and future events and actions to differ materially from such forward-looking statements, include, but are not limited to those discussed below and elsewhere in this Quarterly Report on Form 10-Q.

We may be unable to sustain comparable store sales growth.

        Growth in our business depends, in part, on our ability to sustain comparable store sales growth. We use the term "comparable store sales" to refer to sales in stores that were open for at least 14 full fiscal months. A variety of factors affect comparable store sales results, including changes in fashion trends, changes in our merchandise mix, calendar shifts of holiday periods, actions of competitors, weather conditions and general economic conditions. Our comparable store sales results have fluctuated significantly in the past, and we cannot assure you that comparable store sales will not decline in the future.

Our profitability depends on our ability to anticipate and react to new trends.

        Our profitability depends largely on our ability to anticipate the changing fashion tastes of our customers and to respond to those changing tastes in a timely manner. The fashion tastes of our customers change frequently, and 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 markdowns, which could have a material adverse effect on our business. In addition, if we misjudge fashion trends, our image with our customers may be significantly impaired, and our customers might cease to purchase additional merchandise from us in the future. This is particularly acute, because we rely on a limited demographic for a large percentage of our sales.

        Our sales and profitability also depend upon the continued demand by our customers for fashionable, casual apparel. Demand for our merchandise could be negatively affected by shifts in consumer discretionary spending to other goods such as electronic equipment, computers and music, for example. If the demand for apparel and related merchandise were to decline, our financial results would be adversely affected by any resulting decline in sales.

1

We compete with other retailers for sales and locations.

        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 for sales with specialty apparel retailers, department stores and certain other apparel retailers, including Charlotte Russe, Gadzooks, Pacific Sunwear, Forever 21, Express, bebe, Rampage and Limited Too. We also compete for favorable site locations and lease terms in shopping malls. Many of our competitors are large national chains, which have substantially greater financial, marketing and other resources than we do. While we believe we compete effectively for sales and for favorable site locations and lease terms, competition for prime locations within malls, in particular, and within other locations is intense and we cannot assure you that we will be able to obtain new locations on terms favorable to us, if at all.

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

        We believe that our trademarks and other proprietary rights are important to our success. We have registered trademarks for Wet Seal, Contempo Casuals and Zutopia, and have applied for a registration for Arden B. Even though we take actions to establish and protect our trademarks and other proprietary rights, we cannot assure you that others will not imitate our products or infringe on our intellectual property rights. In addition, we cannot assure you that others will not resist or seek to block the sale of our products as violative of their trademarks and proprietary rights. If we are required to stop using any of our registered or non-registered marks, our sales could decline and our business and results of operations could be adversely affected.

Our business is affected by local, regional and national economic conditions.

        Our business is sensitive to consumer spending patterns and preferences. Various economic conditions affect the level of spending on the merchandise we offer, including general business conditions, interest rates, taxation, the availability of consumer credit and consumer confidence in future economic conditions. Our growth, sales and profitability may be adversely affected by unfavorable occurrences in these economic conditions on a local, regional or national level. We are especially affected by economic conditions in California, where approximately 16% of our stores are located.

        Most of our stores are located in regional shopping malls. We derive sales, in part, from the high volume of traffic in these malls. The inability of mall "anchor" tenants and other area attractions to generate consumer traffic around our stores, or the decline in popularity of malls as shopping destinations would reduce our sales volume.

Our success depends upon the performance of our senior management and our ability to attract and retain key management personnel.

        Our company's success depends, to a significant extent, upon the performance of our senior management particularly personnel engaged in merchandising and store operations. Our success also depends, in part, on our ability to identify, hire and retain additional key management personnel. Competition for qualified personnel in the retail apparel industry is intense, and we cannot assure you that we will be able to identify, hire or retain the key personnel necessary to grow and operate our business as currently contemplated.

We may experience disruption in service by our common shipping carrier.

        Due to a threatened strike by our common shipping carrier that delivers merchandise to our stores, our business could be negatively affected. Although we are currently in negotiations with an alternative carrier in order to ensure delivery of our goods as well as to maintain our current delivery cost structure in the event of a strike by our current carrier, we can not assure you that we will be able to finalize an arrangement with an alternative carrier on commercially acceptable terms.

2

Increases in Federal and state minimum wage laws could increase our expenses.

        Statutory increases in Federal and state minimum wages could adversely affect our profitability by increasing our expenses. Recently, California, Massachusetts and Washington each increased their state minimum wages above the Federal minimum. We operated a total of 118 stores in those states as of May 4, 2002. The recent state increases and any other future Federal or state increases could raise minimum wages above the current wages of some of our employees, and competitive factors could require us to make corresponding increases in employee wage rates. Increases in our wage rates increases our expenses, which could adversely affect our results of operations.

We must increase our regional and demographic scope to continue the growth of our business.

        Our company has historically expanded by opening new stores, remodeling existing stores and acquiring other store locations or businesses that complement and enhance our operations. From time to time we have created new retail concepts such as Arden B. There can be no assurance that these new fashion businesses will gain consumer acceptance or ultimately be successful. Our ability to open stores and the performance of newly opened stores depends upon several factors, including among others, our ability to:

•

locate and obtain favorable store sites;



•

negotiate acceptable lease terms;



•

obtain adequate supplies of merchandise; and



•

hire and train qualified management level and other employees.

        Our ability to complement and enhance our operations through acquisitions depends on our ability to integrate the new business, its management, systems and relationships into our company. This type of integration is often very difficult and may not be successful. Although we are not currently planning any acquisitions, our inability to integrate future acquisitions into our corporate structure could adversely affect our results of operations.

        Additionally, in an effort to further increase our demographic and geographic scope and to build brand awareness, we plan to launch a new Wet Seal catalog in the fall of fiscal 2002 and to implement a proprietary credit card in conjunction with a large financial institution. We cannot assure you that we will be able to launch the Wet Seal catalog or the new credit card on time, or at all, or that once launched, the catalog or the credit card will be effective in increasing our brand awareness or demographic or geographic scope.

Our business is seasonal in nature.

        The retail apparel industry is highly seasonal. We generate our highest levels of sales during the Christmas season, which begins the week of Thanksgiving and ends the first Saturday after Christmas, and the "back to school" season, which begins the last week of July and ends the first week of September. 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 beyond our control, could have a material adverse effect on our company.

We depend on key vendors to supply us with merchandise for our stores.

        Our business depends on our ability to purchase current season apparel in sufficient quantities at competitive prices. The inability or failure of our key vendors to supply us with adequate quantities of desired merchandise, the loss of one or more key vendors or a material change in our current purchase terms could adversely affect our business. We have no long-term purchase contracts or other contractual assurances of continued supply, pricing or access to new products. We cannot assure you that we will be able to acquire desired merchandise in sufficient quantities or on terms acceptable to us in the future.

3

We depend on a single distribution facility.

        Our distribution functions for all of our stores are handled from a single, leased facility in Foothill Ranch, California. Any significant interruption in the operation of the distribution facility due to natural disasters, accidents, system failures or other unforeseen causes could delay or impair our ability to distribute merchandise to our stores, which could cause our sales to decline.

We do not authenticate the license rights of our suppliers.

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

We experience business risks as a result of the catalog and internet business.

        We compete with catalog and internet businesses that handle similar lines of merchandise. These competitors have certain advantages, including the inapplicability of sales tax and the absence of retail real estate and related costs. As a result, increased catalog and internet sales by our competitors could result in increased price competition and decreased margins.

        We operate an internet site where customers can purchase our merchandise on-line at "www.wetseal.com". This internet address is provided for informational purposes only and is not intended to be usable as a hyperlink. The information at this internet address is not a part of this filing. Our internet operations are subject to numerous risks, including:

•

reliance on an independent fulfillment center



•

diversion of sales from our retail stores; and



•

online security breaches and/or credit card fraud.

        Our inability to effectively address these factors could affect the profitability of our internet business, and we cannot assure you that we will be able to compete successfully through our internet business.

We are subject to risks associated with our international operations.

        A significant portion of our products are manufactured outside the United States. As a result of our international operations, we are subject to additional risks. For example, we cannot predict whether any of the foreign countries in which our products are currently manufactured or any of the countries in which we may manufacture our products in the future will be subject to future or increased import restrictions by the U.S. government, including the likelihood, type or effect of any trade restrictions. Trade restrictions, including increased tariffs or quotas, against apparel, footwear or other items sold by us could affect the importation of such merchandise generally and could increase the cost or reduce the supply of merchandise available to us and adversely affect our business, financial condition, results of operations and liquidity. Furthermore, our merchandise flow may be adversely affected by the financial or political instability in any of the countries in which our goods are manufactured or by significant fluctuations in the value of the U.S. dollar against foreign currencies or restrictions on the transfer of funds. If our merchandise flow is negatively impacted as a result of any of the risks associated with our international operations, our sales could decline.

4

QuickLinks

EXHIBIT 99.1

Factors Affecting Future Financial Results Statement Regarding Forward-Looking Disclosure and Risk Factors