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FOOTHILL RANCH, Calif., Aug 23, 2007 (BUSINESS WIRE) --
The Wet Seal, Inc. (Nasdaq:WTSLA), a leading specialty retailer to young women, announced results for its second fiscal quarter ended August 4, 2007 and provided guidance for its third fiscal quarter.
Financial Results
Net income for the quarter was $6.8 million, or $0.07 per diluted share. These results compare to prior year second quarter net income of $4.4 million, or $0.04 per diluted share. The prior year results include a benefit to sales and gross margin of $1.4 million associated with a customer loyalty program adjustment and a $1.1 million reduction to expense for a decrease in the fair value of performance shares granted to a consultant formerly used by the Company.
As previously announced, net sales for the 13-week period ended August 4, 2007 were $143.3 million compared to net sales of $129.5 million for the 13-week period ended July 29, 2006. Included in net sales for the 13-week period ended July 29, 2006 is $1.4 million in sales recognized as a result of adjustments made for expired program awards under a customer loyalty program. Comparable store sales for the 13-week period ended August 4, 2007 decreased 1.7%. The Company reported a 2.2% comparable sales decrease for the 13-week period ended July 29, 2006.
Joel Waller, chief executive officer, commented, "Although sales in the second quarter were somewhat lower than original guidance, we were again able to deliver earnings near the upper end of our original estimate. Increasing product margins, a positive contribution from new stores and tight cost management resulted in an over 50% increase in net income from that achieved in the second quarter last year.
"We are planning our third quarter business assuming the recent difficult traffic trends in the specialty retail sector will continue and, accordingly, we will continue to tightly control inventory levels and costs. For August, we anticipate comparable store sales will be between -2% to +2%. For the third quarter, we estimate a -1% to +3% change in comparable store sales. We estimate these sales would result in third quarter earnings per diluted share in the range of $0.07 to $0.10 per share."
Store Openings
The Company opened 10 net new stores during the quarter. At August 4, 2007, the Company operated 458 stores in 47 states, the District of Columbia and Puerto Rico, including 366 Wet Seal stores and 92 Arden B stores.
Capital Transactions
During the second quarter, the Company repurchased 2,593,700 shares under an existing share repurchase program for a total cost of $13.7 million. Year-to-date the Company repurchased 3,593,700 shares for a total cost of $20.1 million. As of August 23, 2007, the Company has authorization to purchase up to 406,300 additional shares under the program. Repurchases are at the option of the Company and can be discontinued at any time.
Income Taxes
The Company has approximately $66.7 million of federal net operating loss carryforwards available to offset taxable income in fiscal 2007. The Company estimates an effective tax rate of approximately 3% for the year, mainly due to limitations in its ability to offset alternative minimum taxes with net operating loss tax carryforwards.
Third Quarter Guidance
For the third quarter, earnings are estimated in the range of $0.07 to $0.10 per diluted share. The guidance is based on the following major assumptions:
-- Total net sales between $157 million and $161 million versus $143 million in the prior year third quarter.
-- Comparable store sales between -1% and +3% versus a 7.3% increase in the prior year third quarter.
-- 32 net new store openings, with a net increase of 29 at Wet Seal and a net increase of 3 at Arden B. In the prior year third quarter, the Company opened 10 net new stores.
-- Gross margin rate between 33.8% and 34.9% of net sales versus 33.6% in the prior year. Included in gross margin is $0.2 million in both the current and prior year third quarters in stock compensation expense.
-- SG&A expense between 29.1% and 29.7% of net sales versus 32.2% in the prior year. Included in SG&A expense is $1.0 million and $5.4 million in the respective current and prior year quarters in stock compensation expense.
-- Operating income between $6.5 million and $9.3 million versus $2.0 million in the prior year third quarter. Included in operating income is store pre-opening expense of $1.4 million in this year's third quarter versus $0.7 million in the prior year third quarter.
-- Interest income of $1.0 million versus $0.4 million in the prior year third quarter. Included in the prior year third quarter is $0.1 million for the write-off of unamortized discounts, deferred financing costs and accrued interest associated with Secured Convertible Notes that were converted into common stock during the prior year third quarter. The guidance for this year's third quarter does not include an estimate for any such conversions or the related accelerated write-offs that may occur.
-- Income tax expense of $0.2 million to $0.3 million versus no provision for income taxes in the third quarter last year.
-- Weighted average shares outstanding of 100.5 million. A change in the Company's stock price can cause the weighted average share count to change significantly.
The Company will host a 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) 475-9001 and provide ID#4797397. A broadcast of the call will also be available on our website www.wetsealinc.com. A replay of the call will be available through August 30, 2007. To access the replay, please call (888) 203-1112 or (719) 457-0820 and provide the ID number above.
Headquartered in Foothill Ranch, California, The Wet Seal, Inc. is a leading specialty retailer of fashionable and contemporary apparel and accessory items. At August 4, 2007, the Company operated 458 stores in 47 states, the District of Columbia and Puerto Rico, including 366 Wet Seal stores and 92 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 guidance for the month of August 2007 and its third quarter of fiscal 2007, 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.
THE WET SEAL, INC.
SUMMARY STATEMENTS OF OPERATIONS
(000'S OMITTED, EXCEPT SHARE DATA)
(Unaudited)
13 Weeks Ended 26 Weeks Ended
August 4, July 29, August 4, July 29,
2007 2006 2007 2006
----------------------------------------------------
Net sales $ 143,314 $ 129,502 $ 281,334 $ 254,651
Gross margin 49,782 42,501 98,042 89,380
Selling, general
& administrative
expenses 43,843 38,732 85,420 81,863
Store closure
adjustments - (194) - (640)
Asset impairment 144 - 246 -
------------ ------------- ------------ ------------
Operating income 5,795 3,963 12,376 8,157
Interest income
(expense), net 1,179 461 2,411 (17,740)
------------ ------------- ------------ ------------
Income (loss)
before income
taxes 6,974 4,424 14,787 (9,583)
Provision
(benefit) for
income taxes 210 - 444 (2)
------------ ------------- ------------ ------------
Net income (loss) $ 6,764 $ 4,424 $ 14,343 $ (9,581)
============ ============= ============ ============
Net income (loss)
per share, basic $ 0.07 $ 0.05 $ 0.15 ($0.14)
============ ============= ============ ============
Net income (loss)
per share,
diluted $ 0.07 $ 0.04 $ 0.14 ($0.14)
============ ============= ============ ============
Weighted average
shares
outstanding,
basic 91,919,740 74,368,909 92,268,700 68,776,037
Weighted average
shares
outstanding,
diluted 103,499,780 100,544,737 104,397,325 68,776,037
THE WET SEAL, INC.
SUMMARY CONSOLIDATED BALANCE SHEETS
(000'S OMITTED)
(Unaudited)
August 4, February 3,
2007 2007
---------------------
ASSETS
Cash and cash equivalents $ 43,049 $ 105,254
Marketable securities 50,350 -
Income taxes receivable 48 56
Merchandise inventories 46,736 34,231
Other current assets 13,786 12,399
--------- -----------
Total current assets 153,969 151,940
Equipment and leasehold improvements, net 64,834 50,525
Deferred financing costs 484 555
Other assets 1,665 1,651
Goodwill 3,496 3,496
--------- -----------
Total assets $ 224,448 $ 208,167
========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable - merchandise $ 17,892 $ 11,143
Accounts payable - other 15,730 10,078
Income taxes payable 261 128
Accrued liabilities 37,513 37,256
Current portion of deferred rent 4,053 3,381
--------- -----------
Total current liabilities 75,449 61,986
--------- -----------
Secured convertible notes 3,132 2,739
Deferred rent 25,600 22,501
Other long-term liabilities 1,927 1,977
--------- -----------
Total long-term liabilities 30,659 27,217
--------- -----------
Convertible preferred stock 2,167 2,167
--------- -----------
Total stockholders' equity 116,173 116,797
--------- -----------
Total liabilities and stockholders' equity $ 224,448 $ 208,167
========= ===========
SOURCE: The Wet Seal, Inc.
The Wet Seal, Inc. John J. Luttrell, CFO, 949-699-3918
Copyright Business Wire 2007
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