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Press release from Business Wire

The Wet Seal, Inc. Announces First Quarter Fiscal 2012 Results

<p class='bwalignc'> <b>Introduces Second Quarter 2012 Guidance</b> </p>

Tuesday, May 22, 2012

The Wet Seal, Inc. Announces First Quarter Fiscal 2012 Results16:00 EDT Tuesday, May 22, 2012 FOOTHILL RANCH, Calif. (Business Wire) -- The Wet Seal, Inc. (Nasdaq: WTSLA), a leading specialty retailer to young women, announced results for its fiscal first quarter ended April 28, 2012, and introduced guidance for the second quarter of fiscal 2012. For the first quarter: Net sales for the quarter ended April 28, 2012, were $147.9 million compared to net sales of $156.0 million for the quarter ended April 30, 2011. Consolidated comparable store sales decreased 7.7%. Comparable store sales for Wet Seal decreased 7.0% and for Arden B decreased 11.4%. Operating loss was $0.4 million, or 0.3% of net sales, compared to operating income of $13.3 million, or 8.5% of net sales, in the first quarter of fiscal 2011. Excluding the effect of non-cash asset impairment charges, operating income would have been $3.2 million in the current year quarter and $13.6 million in the prior year quarter. Net loss was $0.3 million, or $0.00 per basic share, as compared to net income of $8.0 million, or $0.08 per diluted share, in the prior year quarter. Excluding the after-tax effect of non-cash asset impairment charges, net income would have been $1.9 million, or $0.02 per diluted share, in the current year quarter, and would have been $8.2 million, or $0.08 per diluted share, in the prior year quarter. The Company used $5.1 million of cash in operating activities during the 13 weeks ended April 28, 2012, and ended the quarter with $148.1 million of cash and cash equivalents, and no long-term debt. Due to the relatively early timing of its fiscal 2011 year-end date, the Company had not yet paid its February 2012 rents and other landlord costs at that time, and instead paid those costs in the first quarter. Typically, the Company had made such February payments as of the fiscal year-end date. Had the Company made these payments as of the end of fiscal 2011, its cash provided by operating activities in the first quarter would have been $4.4 million. As of quarter-end, the Company's inventory per square foot increased 3%, with Wet Seal up 4% and Arden B down 3%. Susan McGalla, the Company's chief executive officer, commented, “We are disappointed with our first quarter results and recent sales trends at both Wet Seal and Arden B. We are taking immediate actions to rebalance the assortments towards stronger selling categories.” Ms. McGalla continued, “At Wet Seal, challenges in our tops business overshadow important progress we have made in our turnaround. Our fashion trend and color execution is relevant and strong. We are seeing strength and consistency in several key trending categories, including woven tops, fashion denim, shorts, dresses, blazers, shoes and accessories, and we look to build upon their success through the second quarter and into the third quarter. “We are reducing our store opening plan to 20 to 22 net store openings at Wet Seal for fiscal 2012, a decrease from our prior plan of 25 to 30 net openings. This reflects a more selective approach to new store development while we're working on repositioning efforts at Wet Seal. “At Arden B, we are currently positioning the brand for longer term growth. While protecting our position as a dress destination, we continue to focus on developing a compelling bottoms business at Arden B, which will enable more complete outfitting and drive customer loyalty. “We have modified our Arden B real estate plans to focus entirely on turning around its merchandising and sales productivity challenges. As Arden B leases come up for renewal this year, we will either seek short-term extensions or allow the lease to expire and close the store. As a result, we expect the Arden B store base will decline from the current 84 stores to approximately 64 to 69 stores by the end of this fiscal year. This will allow us to put all efforts toward repositioning the brand. We are committed to the long-term future of Arden B and look forward to restoring strength in the business and resuming a growth trajectory.” Ms. McGalla concluded, “On a positive note, we are seeing signs of stabilization in our e-commerce business. We continue to transition to a higher penetration of full-price selling online and better align merchandising and messaging in this channel with our stores, and we were pleased with the traction gained in this business as the first quarter progressed.” Store Openings and Closings The Company opened one Wet Seal store and closed four Wet Seal stores and closed two Arden B stores during the first quarter. At April 28, 2012, the Company operated 553 stores in 47 states and Puerto Rico, including 469 Wet Seal stores and 84 Arden B stores. Capital Expenditures and Depreciation During the first quarter, the Company had capital expenditures of $3.8 million, of which $2.4 million was for construction of new stores and remodels of existing stores. Depreciation in the first quarter of fiscal 2012 totaled $4.7 million as compared to $4.7 million in the first quarter of fiscal 2011. The Company now forecasts fiscal 2012 net capital expenditures will be between $27 and $29 million, of which between $19 million and $21 million will be for construction of new stores or remodeling of existing stores upon lease renewals and/or store relocations. Income Taxes The Company incurred an effective income tax rate of 39.5% for the quarter, which approximates its expected effective rate for the fiscal year. Due to its expected utilization of federal and state net operating loss (“NOL”) carry forwards during fiscal 2012, the Company anticipates cash income taxes for the year will only be approximately 6.9% of pre-tax income, representing the portion of federal and state alternative minimum taxes that cannot be offset by NOLs. The difference between the effective income tax rate and the anticipated cash income taxes is recorded as a non-cash provision for deferred income taxes. Second Quarter Fiscal 2012 Guidance For the second quarter of fiscal 2012, the Company estimates net loss per diluted share in the range of $0.03 to $0.06 versus net income per diluted share of $0.02 in the prior year second quarter. The guidance is based on the following major assumptions: Total net sales between $136 million and $141 million versus $148.8 million in the second quarter of fiscal 2011. Comparable store sales percentage decline between 7% and 11% versus a 6.0% increase in the prior year second quarter. No net new store openings at Wet Seal, and two closings at Arden B. Gross margin rate between 24.3% and 26.1% of net sales versus 31.0% in the prior year second quarter. SG&A expense of between 29.7% and 30.7% of net sales versus 28.0% in the prior year second quarter. Operating loss between $5.0 million and $8.7 million versus operating income of $3.3 million in the prior year second quarter. The prior year second quarter included non-cash asset impairment charges of $1.1 million. Net interest expense of less than $0.1 million versus net interest income of less than $0.1 million in the prior year second quarter. Benefit for income taxes of between $2.0 million and $3.4 million versus a provision for income taxes of $1.1 million in the prior year second quarter. Conference Call The Company will host a conference call and question and answer session at 1:30 p.m. Pacific Time today. To participate in the conference call, please dial (877) 856-1968 or (719) 325-4767 and provide ID # 7543786. A broadcast of the call will also be available on our website, www.wetsealinc.com. A replay of the call will be available through May 29, 2012. To access the replay, please call (888) 203-1112 or (719) 457-0820 and provide the ID number above. About The Wet Seal, Inc. Headquartered in Foothill Ranch, California, The Wet Seal, Inc. is a leading specialty retailer of fashionable and contemporary apparel and accessory items for young women. As of April 28, 2012, the Company operated a total of 553 stores in 47 states and Puerto Rico, including 469 Wet Seal stores and 84 Arden B stores. The Company's products can also be purchased online at www.wetseal.com or www.ardenb.com. For more Company information, visit www.wetsealinc.com. Safe Harbor SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995: This news release contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements that relate to the Company's guidance for its second quarter of fiscal 2012, its anticipated effective income tax rate for fiscal 2012, its expected Arden B division store count contraction, or any other statements that relate to the intent, belief, plans or expectations of the Company or its management. All forward-looking statements made by the Company involve material risks and uncertainties and are subject to change based on factors beyond the Company's control. Accordingly, the Company's future performance and financial results may differ materially from those expressed or implied in any such forward-looking statements. Such factors include, but are not limited to, those described in the Company's filings with the Securities and Exchange Commission. This news release contains results reflecting partial year data and non-fiscal data that may not be indicative of results for similar future periods or for the full year. The Company will not undertake to publicly update or revise its forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized.   Exhibit A   The Wet Seal, Inc.Condensed Consolidated Balance Sheets (000's Omitted) (Unaudited)         April 28,2012January 28,2012   April 30,2011 ASSETS Cash and cash equivalents $ 148,108 $ 157,185 $ 133,074 Short-term investments - - 50,455 Merchandise inventories 40,080 31,834 37,100 Other current assets 16,206 6,215 14,692 Deferred taxes   20,133   20,133     19,649   Total current assets 224,527 215,367 254,970 Net equipment and leasehold improvements 86,606 88,324 91,861 Deferred taxes 23,927 23,780 28,447 Other assets   3,054   3,062     3,031   Total assets $ 338,114 $ 330,533   $ 378,309     LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable – merchandise $ 23,802 $ 18,520 $ 21,659 Accounts payable – other 11,747 8,269 15,973 Income taxes payable - - 44 Accrued liabilities 23,410 25,096 23,252 Current portion of deferred rent   2,619   2,561     3,380   Total current liabilities 61,578 54,446 64,308 Deferred rent 33,057 33,091 31,382 Other long-term liabilities   1,889   1,924     1,732   Total liabilities 96,524 89,461 97,422 Total stockholders' equity   241,590   241,072     280,887   Total liabilities and stockholders' equity $ 338,114 $ 330,533   $ 378,309   Exhibit A (continued)   The Wet Seal, Inc.Condensed Consolidated Statements of Operations (000's Omitted, Except Share Data) (Unaudited)   13 Weeks EndedApril 28, 2012   April 30, 2011 Net sales $ 147,945 $ 156,040 Gross margin 43,603 53,445 Selling, general & administrative expenses 40,438 39,860 Asset impairment   3,606     259   Operating (loss) income (441 ) 13,326 Interest (expense) income, net   (10 )   29   (Loss) income before (benefit) provision for income taxes (451 ) 13,355 (Benefit) provision for income taxes   (178 )   5,342   Net (loss) income $ (273 ) $ 8,013   Net (loss) income per share, basic $ (0.00 ) $ 0.08   Net (loss) income per share, diluted $ (0.00 ) $ 0.08   Weighted average shares outstanding, basic   88,486,977     98,916,747   Weighted average shares outstanding, diluted   88,486,977     98,975,965   Calculation of the Company's earnings per share requires the allocation of net income among common shareholders and participating security holders. The net (loss) income available to common shareholders used to calculate basic and diluted earnings per share, respectively, was ($273) for the 13 weeks ended April 28, 2012, and $7,834 for the 13 weeks ended April 30, 2011.   Exhibit A (continued)   The Wet Seal, Inc.Condensed Consolidated Statements of Cash Flows (000's Omitted) (Unaudited)       April 28,2012April 30,2011CASH FLOW FROM OPERATING ACTIVITIES: Net (loss) income $ (273 ) $ 8,013 Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: Depreciation and amortization 4,691 4,666 Amortization of premium on investments - 235 Amortization of deferred financing costs 27 26 Amortization of stock payment in lieu of rent - 15 Asset impairment 3,606 259 Loss on disposal of equipment and leasehold improvements 286 18 Deferred income taxes (147 ) 4,808 Stock-based compensation 994 900 Changes in operating assets and liabilities: Income tax receivable (310 ) - Other receivables 218 (61 ) Merchandise inventories (8,246 ) (3,764 ) Prepaid expenses and other assets (9,926 ) (65 ) Other non-current assets 8 (103 ) Accounts payable and accrued liabilities 3,987 2,067 Income taxes payable - (16 ) Deferred rent 24 524 Other long-term liabilities   (35 )   (33 )   Net cash (used in) provided by operating activities   (5,096 )   17,489     CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of equipment and leasehold improvements   (3,778 )   (6,045 )   Net cash used in investing activities   (3,778 )   (6,045 )   CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from exercise of stock options 19 2 Repurchase of common stock   (222 )   (3,734 )   Net cash used in financing activities   (203 )   (3,732 )   (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (9,077 ) 7,712 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD   157,185     125,362     CASH AND CASH EQUIVALENTS, END OF PERIOD $ 148,108   $ 133,074     Exhibit BSegment Reporting (Unaudited) The Company operates exclusively in the retail apparel industry in which it sells fashionable and contemporary apparel and accessories items, primarily through mall-based chains of retail stores, to female consumers with a young, active lifestyle. The Company has identified two operating segments (“Wet Seal” and “Arden B”) as defined under applicable accounting standards. E-commerce operations for Wet Seal and Arden B are included in their respective operating segments. Information for the 13 weeks ended April 28, 2012, and April 30, 2011, for the two reportable segments is set forth below (in thousands, except store counts and sales per square foot):         Thirteen Weeks Ended April 28, 2012Wet SealArden BCorporateTotal Net sales $ 126,175 $ 21,770 n/a $ 147,945 % of total sales 85 % 15 % n/a 100 % Comparable store sales % decrease (7.0 )% (11.4 )% n/a (7.7 )% Operating income (loss) $ 9,324 $ (1,304 ) $ (8,461 ) $ (441 ) Interest expense, net $ — $ — $ (10 ) $ (10 ) Income (loss) before provision (benefit) for income taxes $ 9,324 $ (1,304 ) $ (8,471 ) $ (451 ) Depreciation $ 3,856 $ 454 $ 381 $ 4,691 Number of stores as of period end 469 84 n/a 553 Sales per square foot $ 64 $ 76 n/a $ 65 Square footage as of period end 1,881 261 n/a 2,142     Thirteen Weeks Ended April 30, 2011   Wet Seal   Arden B   Corporate   Total Net sales $ 131,054 $ 24,986 n/a $ 156,040 % of total sales 84 % 16 % n/a 100 % Comparable store sales % increase (decrease) 8.3 % (0.1 )% n/a 7.0 % Operating income (loss) $ 18,813 $ 2,564 $ (8,051 ) $ 13,326 Interest income, net $ — $ — $ 29 $ 29 Income (loss) before provision for income taxes $ 18,813 $ 2,564 $ (8,022 ) $ 13,355 Depreciation $ 3,784 $ 540 $ 342 $ 4,666 Number of stores as of period end 454 82 n/a 536 Sales per square foot $ 69 $ 86 n/a $ 71 Square footage as of period end 1,806 254 n/a 2,060   The “Corporate” column is presented solely to allow for reconciliation of store contribution amounts to consolidated operating income (loss), interest income or expense, net, and income (loss) before provision (benefit) for income taxes. Wet Seal and Arden B segment results include net sales, cost of sales, asset impairment and other direct store and field management expenses, with no allocation of corporate overhead or interest income and expense. Wet Seal operating segment results for the 13 weeks ended April 28, 2012, and April 30, 2011, include $2.7 million and $0.2 million, respectively, of non-cash asset impairment charges. Arden B operating segment results for the 13 weeks ended April 28, 2012, and April 30, 2011, include $0.9 million and $0.1 million, respectively, of non-cash asset impairment charges. Exhibit CReconciliation of Non-GAAP Financial Measures to Most Directly Comparable Financial Measures Included within this press release are references to net cash (used in) provided by operating activities, operating income (loss), net income (loss) and net income (loss) per diluted share before certain adjustments and charges, which are measures not in compliance with accounting principles generally accepted in the United States of America, or “non-GAAP financial measures.” The following is a reconciliation of these non-GAAP financial measures to the applicable GAAP financial measures for the 13 weeks ended April 28, 2012, and April 30, 2011 (in millions, except for net income (loss) per diluted share):     13 Weeks Ended April 28, 2012 13 Weeks Ended April 30, 2011 Net Cash (Used in) Provided by Operating Activities   Operating Income (Loss)   Net Income (Loss)   Net Income (Loss) Per Diluted Share Operating Income   Net Income   Net Income Per Diluted Share           Financial measure before certain charges (non-GAAP) $ 4.4 $ 3.2 $ 1.9 $ 0.02 $ 13.6 $ 8.2 $ 0.08   Adjustments: February 2012 landlord payments timing difference (9.5 ) - - - - - -   Charges: Non-cash asset impairment charges, net of income taxes where applicable   -       (3.6 )     (2.2 )     (0.02 )     (0.3   )     (0.2 )     (0.00 )   GAAP financial measure $ (5.1 )   $ (0.4 )   $ (0.3 )   $ (0.00 ) $ 13.3     $ 8.0     $ 0.08     Due to the relatively early timing of its fiscal 2011 year-end date, the Company had not yet paid February 2012 rents and other landlord costs at that time, and instead paid those costs in the first quarter of fiscal 2012. As a result, the Company paid four calendar months of these costs during the first quarter of fiscal 2012 versus typical payment of three calendar months of such costs within a fiscal quarter. Given this unique payment cycle, the Company believes the presentation of cash flows from operating activities for the first fiscal quarter of 2012 assuming the typical three calendar months of rents and other landlord costs being paid is beneficial to investors' understanding of the Company's operating cash flows. From time to time, the Company determines the carrying values of certain of its long-lived assets are not supported by their anticipated future cash flows and, as a result, must record non-cash charges to impair these assets. The timing and magnitude of these charges can be sporadic, thus significantly affecting the reported financial results of the fiscal period in which they are recorded. Given the unique nature and sporadic timing of these charges, the Company consistently presents these charges as a separate line item within its statements of operations and, similarly, believes the presentation of its historical financial information excluding these non-cash charges to be beneficial to its investors. The Wet Seal, Inc.Steven H. Benrubi, 949-699-3947