FOOTHILL RANCH, Calif., Mar 26, 2009 (BUSINESS WIRE) -- The Wet Seal, Inc. (Nasdaq:WTSLA), a leading specialty retailer to young women, announced results for its fiscal fourth quarter and full year ended January 31, 2009, and introduced guidance for the first quarter of fiscal 2009. The Company provided segment information on Wet Seal and Arden B in Exhibit B.
For the fourth quarter:
Edmond Thomas, chief executive officer, commented, "The fourth quarter was a difficult period for the retail industry. We were operating in a highly promotional environment with consumers reluctant to spend. We reacted early to these challenges by reducing inventory levels and cutting costs while maintaining a pristine balance sheet."
Mr. Thomas continued, "We will continue to carefully monitor inventory and operating expenses while moving ahead on strategic initiatives that will position us to compete effectively during this economic downturn as well as drive long term sales and earnings growth."
For the full year:
The Company opened 3 and closed 3 Wet Seal stores during the quarter. The Company also closed 4 Arden B stores during the quarter. At January 31, 2009, the Company operated 496 stores in 47 states, the District of Columbia and Puerto Rico, including 409 Wet Seal stores and 87 Arden B stores.
Capital Expenditures and Depreciation
During 2008, the Company incurred capital expenditures of $22.7 million, of which $19.0 million was for construction of new stores and remodels of existing stores. The Company recognized tenant improvement allowances of $3.2 million associated primarily with new store construction, resulting in net capital expenditures for the year of $19.5 million.
Depreciation in the fourth quarter and full year fiscal 2008 totaled $3.7 million and $14.5 million, respectively.
During the fourth quarter, the Company did not repurchase shares and does not have an existing share repurchase program. There were no conversions of Secured Convertible Notes in the fourth quarter.
During 2008, investors converted Convertible Preferred Stock with a face value of approximately $0.6 million into 185,333 shares of the Company's Class A Common Stock. Through fiscal 2008, $51.3 million in principal amount of the Company's Secured Convertible Notes had been converted into shares of Class A common stock. As of January 31, 2009, Secured Convertible Notes and Convertible Preferred Stock remain outstanding that are convertible into approximately 3.1 million shares and 537,000 shares, respectively, of the Company's Class A Common stock, and warrants exercisable into approximately 10.7 million shares of the Company's Class A common stock also remain outstanding. Exercise of all remaining outstanding warrants via cash payment by the warrant holders would result in proceeds to the Company of $39.6 million. The average exercise price on the outstanding warrants is $3.68, with approximately 7.8 million of such warrants having an exercise price in excess of the Company's closing Class A Common Stock price as of March 24, 2009.
The Company began fiscal 2009 with approximately $117.9 million of federal net operating loss ("NOL") carry forwards available to offset taxable income in fiscal 2009 and thereafter, subject to certain annual limitations based on the provisions of Section 382 of the Internal Revenue Code ("Section 382"). Subject to potential further adjustment, as discussed further below, the Company believes NOL carry forwards available will be sufficient to offset any reasonably foreseeable federal regular taxable income in fiscal 2009. Accordingly, if the Company generates taxable income in Fiscal 2009, the Company expects it would report an effective income tax rate of approximately 4% in fiscal 2009 related to a limited portion of federal alternative minimum taxes that cannot be offset by NOL carry forwards, as well as income taxes in the State of California, which cannot be offset by NOL carry forwards, and certain other state income taxes.
Currently, the Company maintains a 100% valuation allowance against its net deferred income tax assets, which are comprised primarily of NOL carry forwards. Through fiscal 2008, the Company had generated three consecutive fiscal years of federal taxable income and had realized a portion of its NOL carry forwards to offset regular taxable income in those years. However, as a result of the difficult economic environment in which the Company currently operates and the impact these economic conditions have had on its comparable store sales trends, especially during the second half of fiscal 2008, the Company believes that, as of January 31, 2009, evidence continues that does not support realization of these net deferred income tax assets. Prospectively, as the Company continues to evaluate evidence, including the depth of the current economic downturn and its implications on its operating results, it is possible that the Company may deem some or all of its deferred income tax assets to be realizable.
Accordingly, the valuation allowance recorded against those deferred income tax assets, which the Company currently estimates to be in excess of $79.7 million, may be reversed at some point. If such valuation allowance is reversed, the Company would record an immediate benefit to income taxes for a substantial majority of the reversal and would record an increase to additional paid-in capital for the remainder of the reversal. Prospectively, the Company would then report an effective income tax rate much closer to statutory rates, which the Company estimates to be in the range of 38% to 40%. However, this does not change the Company's current expectation federal taxable income, as it would continue to utilize available NOL carry forwards.
The Company's current expectations regarding the federal NOL carry forwards it may use annually in fiscal 2009 and thereafter are based on calculations made by management in April 2005 and December 2006, at which times the Company incurred "ownership changes", as defined in Section 382, that require re-calculation of NOL annual utilization limits. Such ownership changes can result merely from an accumulation of normal market trading activity in the Company's common stock over time. The NOL annual utilization limits determined upon an ownership change depend on, among other things, the Company's market capitalization and long-term federal interest rates on the ownership change date. If the Company were to determine it had incurred another ownership change at some time after December 2006, the Company would be required to re-calculate its annual federal NOL utilization limit, which could result in a decrease to NOL carry forwards annually available to offset taxable income.
Reconciliation of Non-GAAP Financial Measures to Most Directly Comparable Financial Measures
Included within this press release are references to net income and earnings per diluted share before certain charges and benefits, 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 and 52 weeks ended January 31, 2009, and February 2, 2008 (in millions, except for earnings per diluted share):
|13 Weeks Ended||13 Weeks Ended|
|January 31, 2009||February 2, 2008|
|Financial measure before certain credits/charges (non-GAAP)||$||8.8||$||0.09||$||12.2||$||0.13|
|Gift card/store credit breakage||0.3||0.00||3.7||0.04|
|Non-cash goodwill impairment charge||-||-||(3.5||)||(0.04||)|
|Non-cash asset impairment charges||(4.8||)||(0.05||)||(0.2||)||(0.00||)|
|GAAP financial measure||$||4.3||$||0.04||$||12.2||$||0.13|
|52 Weeks Ended||52 Weeks Ended|
|January 31, 2009||February 2, 2008|
|Financial measure before certain credits/charges (non-GAAP)||$||36.8||$||0.37||$||25.0||$||0.25|
|Gift card/store credit breakage||0.9||0.01||3.7||0.03|
|Non-cash interest expense on conversion of notes||(1.9||)||(0.02||)||-||-|
|Non-cash goodwill impairment charge||-||-||(3.5||)||(0.03||)|
|Non-cash asset impairment charges||(5.6||)||(0.06||)||(2.0||)||(0.02||)|
|GAAP financial measure||$||30.2||$||0.30||$||23.2||$||0.23|
In the fiscal 2007 fourth quarter, the Company determined it had sufficient redemption history for gift cards and sales credits to reasonably estimate "breakage". At that time, the Company recorded a significant "breakage" benefit related thereto covering several years. Given the nature of this initial adjustment, such amount was much larger than amounts the Company anticipates recording in future periods. Accordingly, management believes presenting financial information without "breakage" benefits for fiscal 2008 and fiscal 2007 helps investors better understand comparative operating performance during those periods.
From time to time, the Company determines the carrying values of certain 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. Timing and magnitude of these charges can be sporadic and can significantly affect the financial results of the quarter in which they are recorded. The Company consistently presents these charges as a separate line item within quarterly and annual results in its statements of operations and, similarly, believes the presentation of historical financial information excluding these non-cash charges to be beneficial to investors.
The complexity and volatility of the financial reporting for the Company's Secured Convertible Notes has been a major focus of management and investors. To help investors better understand the accounting for the Notes, the Company provided disclosure in its Annual Report on Form 10-K for fiscal 2007. Management presents historic financial information that excludes non-cash charges for the ratable write-off of unamortized debt discounts, deferred financing costs and accrued interest when notes are converted. Management believes presenting financial information without these charges helps investors better understand the Company's current operating performance and that explicit disclosure of these charges provides meaningful information to investors.
First Quarter Fiscal 2009 Guidance
First quarter net sales guidance is based on an expectation of normal seasonal sales growth during the three weeks leading up to the Easter holiday. In fiscal 2009, Easter occurs on April 12th, or three weeks later than in the prior year first quarter. If seasonal sales growth does not occur as expected, forecasted net sales and operating performance could differ from the guidance below.
For the first quarter of fiscal 2009, earnings are estimated in the range of $0.02 to $0.06 per diluted share. Following are the major assumptions:
For all of fiscal 2009, the Company expects its store count to remain flat or decline slightly, with 20 planned new store openings at Wet Seal offset by a similar or slightly higher number of combined Wet Seal and Arden B closings. The Company forecasts fiscal 2009 net capital expenditures will be between $24 million and $25 million, of which approximately $18 million will be for construction of new stores or remodeling of existing stores upon lease renewals and/or store relocations.
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 (888) 466-4440 and provide ID # 8403470. A broadcast of the call will also be available on the Company's website, www.wetsealinc.com. A replay of the call will be available through April 2, 2009. 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. As of February 28, 2009, the Company operated a total of 494 stores in 47 states, the District of Columbia and Puerto Rico, including 409 Wet Seal stores and 85 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 its first quarter and full year of fiscal 2009, as well as 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 Consolidated Balance Sheets
|January 31,||February 2,|
|Cash and cash equivalents||$||142,064||$||100,618|
|Income taxes receivable||-||167|
|Total current assets||179,977||149,081|
|Net equipment and leasehold improvements||74,869||72,881|
|Deferred financing costs||173||412|
|LIABILITIES AND STOCKHOLDERS' EQUITY|
|Accounts payable - merchandise||$||8,388||$||9,474|
|Accounts payable - other||9,188||10,197|
|Income taxes payable||228||-|
|Current portion of deferred rent||3,378||4,729|
|Total current liabilities||49,261||58,845|
|Secured convertible notes||2,707||3,583|
|Other long-term liabilities||1,821||1,956|
|Convertible preferred stock||1,611||2,167|
|Total stockholders' equity||171,208||127,839|
|Total liabilities and stockholders' equity||$||256,659||$||224,076|
Exhibit A (continued)
The Wet Seal, Inc.
Statements of Operations
(000's Omitted, Except Share Data)
|Thirteen Weeks Ended||Fifty-Two Weeks Ended|
|January 31, 2009||February 2, 2008||January 31, 2009||February 2, 2008|
|Selling, general & administrative expenses||38,435||46,134||154,671||177,468|
|Interest income (expense), net||36||917||(681||)||4,353|
|Income before provision for income taxes||4,620||12,245||31,476||23,610|
|Provision for income taxes||328||37||1,322||378|
|Weighted average shares, basic||94,997,519||90,064,566||93,172,635||91,154,133|
|Weighted average shares, diluted||98,885,467||96,734,291||99,029,046||100,938,542|
Exhibit A (continued)
The Wet Seal, Inc.
Consolidated Statements of Cash Flows
|January 31,||February 2,|
|CASH FLOW FROM OPERATING ACTIVITIES:|
Adjustments to reconcile net income to net cash provided by operating activities:
|Depreciation and amortization||14,518||13,673|
|Amortization of discount on secured convertible notes||2,746||516|
|Amortization of deferred financing costs||284||143|
|Amortization of stock payment in lieu of rent||179||216|
|Adjustment of derivatives to fair value||(40||)||70|
|Interest (extinguished from) added to principal of secured convertible notes||(210||)||328|
|Loss on disposal of equipment and leasehold improvements||558||558|
|Changes in operating assets and liabilities:|
|Income tax receivable||167||(111||)|
|Prepaid expenses and other assets||346||(2,196||)|
|Other non-current assets||62||(51||)|
|Accounts payable and accrued liabilities||(8,113||)||(4,475||)|
|Income taxes payable||228||(128||)|
|Other long-term liabilities||(133||)||(121||)|
|Net cash provided by operating activities||58,340||51,470|
|CASH FLOWS FROM INVESTING ACTIVITIES:|
|Investment in equipment and leasehold improvements||(23,023||)||(38,523||)|
|Investment in marketable securities||-||(72,659||)|
|Proceeds from sale of marketable securities||-||72,659|
|Net cash used in investing activities||(23,023||)||(38,523||)|
|CASH FLOWS FROM FINANCING ACTIVITIES:|
|Proceeds from exercise of stock options||11||177|
|Repurchase of common stock||-||(20,061||)|
|Proceeds from exercise of common stock warrants||6,118||2,301|
|Net cash provided by (used in) financing activities||6,129||(17,583||)|
|INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS||41,446||(4,636||)|
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD||100,618||105,254|
|CASH AND CASH EQUIVALENTS, END OF PERIOD||$||142,064||$||100,618|
The Company operates exclusively in the retail apparel industry in which it sells fashionable and contemporary apparel and accessories items, primarily through mall-based chains of retail stores, to female consumers with a young, active lifestyle. The Company has identified two operating segments ("Wet Seal" and "Arden B") as defined by Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information." E-commerce operations for Wet Seal and Arden B are included in their respective operating segments. Information for fiscal 2008 and 2007 for the two reportable segments is set forth below (in thousands, except store counts and sales per square foot):
|Fiscal 2008||Wet Seal||Arden B||Corporate||Total|
|% of total sales||83||%||17||%||n/a||100||%|
Comparable store sales % (decrease)
|Operating income (loss)||$||71,113||$||(9,754||)||$||(29,202||)||$||32,157|
|Interest expense, net||$||-||$||-||$||(681||)||$||(681||)|
|Income (loss) before provision for income taxes||$||71,113||$||(9,754||)||$||(29,883||)||$||31,476|
|Depreciation and amortization expense||$||10,548||$||2,961||$||1,009||$||14,518|
|Total assets as of year end||$||209,595||$||37,540||$||9,524||$||256,659|
|Number of stores as of year end||409||87||-||496|
|Sales per square foot||$||292||$||326||-||$||297|
|Square footage as of year end||1,612||267||-||1,879|
|Fiscal 2007||Wet Seal||Arden B||Corporate||Total|
|% of total sales||78||%||22||%||n/a||100||%|
|Comparable store sales % increase (decrease)||1.2||%||(8.2||)%||n/a||(1.1||)%|
|Operating income (loss)||$||69,188||$||(14,953||)||$||(34,978||)||$||19,257|
|Interest income, net||$||-||$||-||$||4,353||$||4,353|
|Income (loss) before provision for income taxes||$||69,188||$||(14,953||)||$||(30,625||)||$||23,610|
|Depreciation and amortization expense||$||8,498||$||3,309||$||1,866||$||13,673|
|Total assets as of year end||$||170,193||$||43,644||$||10,239||$||224,076|
|Number of stores as of year end||399||95||-||494|
|Sales per square foot||$||314||$||420||-||$||332|
|Square footage as of year end||1,568||295||-||1,863|
In the tables above, Wet Seal and Arden B reportable segments include net sales generated from their respective stores and e-commerce operations. The "Corporate" column is presented solely to allow for reconciliation of store contribution and total asset amounts to consolidated operating income, interest income (expense), net, income (loss) before provision for income taxes and total assets. 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 in fiscal 2008 and fiscal 2007 include $0.6 million and $2.9 million, respectively, of additional net sales resulting from the recognition of "breakage" on gift cards, gift certificates and store credits, and $0.5 million and $0.2 million, respectively, of asset impairment charges.
Arden B operating segment results in fiscal 2008 and fiscal 2007 include $0.3 million and $0.8 million, respectively of additional net sales resulting from the recognition of "breakage" on gift cards, gift certificates and store credits. In fiscal 2008 and fiscal 2007, asset impairment charges in the Arden B operating segment totaled $5.1 million and $5.3 million, respectively.
Corporate expenses in fiscal 2008 include interest expense of $1.9 million as a result of accelerated write-off of discounts, capitalized interest and deferred financing costs upon conversions of secured convertible notes. Corporate total assets consists primarily of net equipment and leasehold improvements located at the Company's corporate offices and distribution facility, as well as receivables, prepaid expenses and other miscellaneous assets not specifically related to the reporting segments.
SOURCE: The Wet Seal, Inc.
The Wet Seal, Inc.
Steven H. Benrubi, 949-699-3947
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