Print page
Email page
Download PDF
« Previous Release | Next Release »
FOOTHILL RANCH, Calif.--(BUSINESS WIRE)--March 29, 2007--The Wet Seal, Inc. (Nasdaq:WTSLA), a leading specialty retailer to young women, today announced results for its fourth fiscal quarter and full fiscal year ended February 3, 2007, provided guidance for its fiscal 2007 first quarter and announced an additional share repurchase authorization.
FINANCIAL RESULTS
The net loss for the fourth quarter was $5.7 million, or $0.07 per diluted share. Operating income for the quarter totaled $4.8 million. Included in the quarterly results are a non-cash interest charge of $11.0 million associated with the conversion of the Company's Convertible Notes (the "Notes"), non-cash stock compensation charges of $3.6 million and a $0.4 million non-cash asset impairment charge. Before the effect of these items, net income was $9.2 million, or $0.09 per diluted share, and operating income was $8.8 million, or 5.3% of net sales. These results compare favorably to the Company's most recent guidance indicating operating income before the effect of items ranging from $7.7 million to $8.7 million.
In the prior year fourth quarter, the Company reported a net loss of $2.9 million and operating income of $0.6 million. The net loss for the prior year fourth quarter includes a non-cash interest charge of $3.1 million associated with the conversion of Notes, a non-cash stock compensation charge of $7.0 million and a $0.6 million non-cash asset impairment charge. Before the effect of these items, net income was $7.8 million and operating income was $8.2 million, or 5.8% of net sales.
For the fiscal year, the Company reported a net loss attributable to common stockholders of $12.8 million, or $0.18 per diluted share, and operating income of $15.0 million. The net loss included $15.0 million in non-cash stock compensation charges, a $29.1 million non-cash interest charge associated with conversions of Notes, a $3.7 million favorable sales adjustment related to modifications to a customer loyalty program, a $0.4 million non-cash asset impairment charge and a credit to reverse a prior accrual for store closure costs of $0.7 million. Before the effect of these items, net income was $27.1 million and operating income was $26.0 million, or 4.6% of net sales.
In the prior year, the Company reported a net loss attributable to common stockholders of $52.7 million, or $1.19 per diluted share, and an operating loss of $16.2 million. The net loss included $24.6 million in non-cash stock compensation charges, an $8.8 million non-cash interest charge associated with conversions of Notes, a store closure charge of $4.5 million, a $1.0 million non-cash asset impairment charge and $23.3 million for the accretion of non-cash dividends on preferred stock. Before the effect of these items, net income was $9.5 million and operating income was $13.9 million, or 2.8% of net sales.
Consistent with the National Retail Federation calendar, fiscal 2006 included an extra week in the fourth quarter. The extra week increased total reported net sales by $9.4 million.
For the 14 weeks ended February 3, 2007, comparable store sales increased 3.1% when compared to the 14 weeks ended February 4, 2006. The Company reported a 44.6% increase in comparable store sales in the fourth quarter last year. Net sales for the 14 weeks ended February 3, 2007 were $166.4 million, compared to net sales of $141.4 million for the 13 weeks ended January 28, 2006.
For the 53 weeks ended February 3, 2007, comparable store sales increased 6.1% when compared to the 53 weeks ended February 4, 2006. The Company reported a 44.7% increase in comparable store sales for fiscal 2005. Net sales for the 53 weeks ended February 3, 2007 were $564.3 million, compared to net sales of $500.8 million for the 52 weeks ended January 28, 2006.
Joel Waller, chief executive officer, commented, "Our fourth quarter results were somewhat above our most recent guidance. We are encouraged by sales and margins so far in the first quarter, and I have confidence in our merchant teams' abilities to exploit current fashion trends. Based upon recent trends, we now estimate a March comparable store sales increase in the high single digits.
"Our focus in 2007 will be on driving profit margins, and a key component of this process is to maximize inventory efficiency. We have already begun a disciplined approach to increase inventory turns and we expect that our average per store inventory balance at the end of the first quarter will reflect an increase of between 3% and 5% when compared to the balance at the end of last year's first quarter. This significant improvement is being accomplished primarily through a moderation in purchases, and we do not expect an increase in markdown rates related to these activities. Our plans call for an acceleration in inventory turns as we move through the balance of the year."
The Company opened 14 new stores during the fourth quarter, net of closures. At February 3, 2007, the Company operated 430 stores, consisting of 338 Wet Seal stores and 92 Arden B stores.
Reconciliation of Non-GAAP Financial Measures to Most Directly Comparable Financial Measures
Included within this press release are references to net income (loss) and operating income (loss) before certain charges and credits, which are non-GAAP financial measures. The following is a reconciliation of these non-GAAP financial measures to the applicable GAAP financial measures for the fourth quarter and annual periods (in millions):
Fourth Quarter 2006 2005
Net Net
Income Operating Income Operating
(Loss) Income (Loss) Income
--------- --------- ---------- ---------
Financial measure before
certain (charges)/credits
(non-GAAP) $ 9.2 $ 8.8 $ 7.8 $ 8.2
(Charges)/credits:
Non-cash stock compensation (3.6) (3.6) (7.0) (7.0)
Non-cash interest charge on
conversions of notes (11.0) - (3.1) -
Non-cash asset impairment
charge (0.4) (0.4) (0.6) (0.6)
Income tax impact of above
items 0.1 - - -
--------- --------- ---------- ---------
GAAP financial measure $ (5.7) $ 4.8 $ (2.9) $ 0.6
========= ========= ========== =========
Fiscal Year 2006 2005
Net Net Operating
Income Operating Income Income
(Loss)(a) Income (Loss)(a) (Loss)
--------- --------- ---------- ---------
Financial measure before
certain (charges)/credits
(non-GAAP) $ 27.1 $ 26.0 $ 9.5 $ 13.9
(Charges)/credits:
Adjustment to customer
loyalty sales reserve 3.7 3.7 - -
Non-cash stock compensation (15.0) (15.0) (24.6) (24.6)
Non-cash interest charge on
conversions of notes (29.1) - (8.8) -
Non-cash asset impairment
charge (0.4) (0.4) (1.0) (1.0)
Store closure reserve
(accrual)/reversal 0.7 0.7 (4.5) (4.5)
Accretion of non-cash
dividends on preferred stock - - (23.3) -
Income tax impact of above
items 0.2 - - -
--------- --------- ---------- ---------
GAAP financial measure $ (12.8) $ 15.0 $ (52.7) $(16.2)
========= ========= ========== =========
(a) Net income(loss) attributable to common stockholders
The rationale for management's use of non-GAAP financial measures is available on the Company's website at www.wetsealinc.com and as an attachment to the Form 8-K that includes this press release, and is being furnished today to the Securities and Exchange Commission.
Guidance for First Quarter of Fiscal 2007
For the first quarter, earnings are estimated in the range of $0.04 to $0.08 per diluted share, and include a $1.3 million charge, or $0.01 per diluted share, for non-cash stock compensation. This guidance is based on the following major assumptions:
The Company estimates non-cash stock compensation expense in fiscal 2007 will be approximately $5.3 million.
The Company anticipates opening between 58 and 62 net new stores in fiscal 2007. The Company expects net annual capital expenditures of approximately $38 million.
The Company has approximately $161 million in federal net operating tax loss carry-forward credits available to reduce future income tax liabilities. The amounts able to be utilized are subject to annual limitations. In 2007, the Company estimates there is approximately $67 million in available net operating losses that can be used to reduce federal taxes. Any remaining balance will be available for carryover to future fiscal years through 2023 to 2025, subject to annual limitations. The utilization of state net operating loss carry-forward credits may also be limited and will be determined on a state-by-state basis after considering the income attributable to each state and any limitation on net operating loss utilization for that state. Also with respect to income taxes, certain of the Company's expenses for financial reporting purposes, including non-cash interest charges upon conversion of convertible notes and the amortization of the convertible notes discount, are not tax-deductible and could cause increases in the Company's effective tax rate.
The Company estimates an effective tax rate in fiscal 2007 of 3%, mainly due to limitations in the ability to offset alternative minimum taxes with net operating loss carry-forwards.
For purposes of calculating earnings per share, the Company estimates its fiscal 2007 diluted share count will be approximately 106 million to 107 million.
Share Repurchase Authorization
The Company indicated that on March 28, 2007, the Board of Directors authorized it to repurchase up to 4,000,000 shares of its Class A Common Stock. Repurchases are at the option of the Company and can be discontinued at any time.
The Company will host a live conference call and question and answer session at 8:00 a.m. Pacific Daylight Time today. To participate in the conference call, please dial 800-238-9007 and provide ID#2154186. A replay of the call will be available until April 5, 2007. To access the replay, please call 888-203-1112 or 719-457-0820 and provide the ID number above. A webcast of the call will also be available on our website www.wetsealinc.com.
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 to young women. The Company currently operates a total of 432 stores in 46 states, the District of Columbia and Puerto Rico, including 341 Wet Seal stores and 91 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 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 sales trends, comparable store sales and sales guidance, expected inventory balances and improvements in inventory turns, scheduled openings of new stores, first quarter guidance and assumptions underlying the first quarter guidance, expected effective tax rate and estimated weighted shares outstanding, 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 Form 10-Q for the fiscal quarter ended October 28, 2006, as filed 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. 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.
THE WET SEAL, INC.
SUMMARY STATEMENTS OF OPERATIONS
(000'S OMITTED, EXCEPT SHARE DATA)
(Unaudited)
14 Weeks 13 Weeks 53 Weeks 52 Weeks
Ended Ended Ended Ended
February 3, January 28, February 3, January 28,
2007 2006 2007 2006
---------------------------------------------------
Net sales $ 166,401 $ 141,378 $ 564,324 $ 500,807
Gross margin 55,929 47,524 193,436 161,324
Selling, general &
administrative
expenses 50,745 46,334 178,703 171,988
Store closure
(adjustments)
costs (90) - (730) 4,517
Asset impairment 425 566 425 989
------------ ------------ ------------ ------------
Operating income
(loss) 4,849 624 15,038 (16,170)
Interest expense,
net (10,197) (3,605) (27,568) (12,862)
------------ ------------ ------------ ------------
Loss before income
taxes (5,348) (2,981) (12,530) (29,032)
Provision
(benefit) for
income taxes 310 (93) 308 330
------------ ------------ ------------ ------------
Net loss (5,658) (2,888) (12,838) (29,362)
Accretion of non-
cash dividends on
convertible
preferred stock - - - (23,317)
------------ ------------ ------------ ------------
Net loss
attributable to
common
stockholders $ (5,658) $ (2,888) $ (12,838) $ (52,679)
============ ============ ============ ============
Net loss per share,
basic and diluted ($0.07) ($0.06) ($0.18) ($1.19)
============ ============ ============ ============
Weighted average
shares
outstanding,
basic and diluted 79,266,420 52,482,225 72,577,398 44,340,894
============ ============ ============ ============
THE WET SEAL, INC.
SUMMARY CONSOLIDATED BALANCE SHEETS
(000'S OMITTED)
(Unaudited)
February 3, January 28,
2007 2006
------------ ------------
ASSETS
Cash and cash
equivalents $ 105,254 $ 96,806
Income taxes
receivable 56 136
Merchandise
inventories 34,231 25,475
Other current
assets 12,399 6,636
------------ ------------
Total current
assets 151,940 129,053
Equipment and
leasehold
improvements, net 50,525 43,637
Deferred financing
costs 555 3,236
Other assets 1,651 1,633
Goodwill 3,496 3,496
------------ ------------
Total assets $ 208,167 $ 181,055
============ ============
LIABILITIES AND
STOCKHOLDERS'
EQUITY
Accounts payable -
merchandise $ 11,143 $ 13,953
Accounts payable -
other 10,078 9,883
Income taxes
payable 128 -
Accrued
liabilities 37,256 36,041
Current portion of
deferred rent 3,381 3,973
------------ ------------
Total current
liabilities 61,986 63,850
------------ ------------
Long-term debt - 8,000
Secured
convertible notes 2,739 11,824
Deferred rent 22,501 20,023
Other long-term
liabilities 1,977 3,228
------------ ------------
Total long-term
liabilities 27,217 43,075
------------ ------------
Convertible
preferred stock 2,167 9,660
------------ ------------
Total
stockholders'
equity 116,797 64,470
------------ ------------
Total liabilities
and stockholders'
equity $ 208,167 $ 181,055
============ ============
CONTACT: The Wet Seal, Inc.
John Luttrell, 949-699-3918
SOURCE: The Wet Seal, Inc.