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The Wet Seal, Inc. Announces Fourth Quarter and Fiscal 2012 Financial Results

Provides Outlook for the First Quarter of Fiscal 2013

FOOTHILL RANCH, Calif.--(BUSINESS WIRE)-- The Wet Seal, Inc. (Nasdaq:WTSL), a leading specialty retailer to young women, announced results for its fiscal fourth quarter and full year ended February 2, 2013. The Company noted that fiscal 2012 had 53 weeks versus 52 weeks in fiscal 2011; results for the fourth quarter and fiscal year 2012 include the additional week.

Fourth Quarter 2012

John D. Goodman, chief executive officer of The Wet Seal, Inc., stated, "Fiscal 2012 was a challenging year for the Company, marked by changes in leadership, strategic direction and brand positioning, which had a significant impact on our financial performance. During the past two months, our team has moved quickly to begin stabilizing the business, get back to Wet Seal's fast fashion roots and prepare for growth. Additionally, we have taken meaningful action to reduce expenses, control inventories and leverage the core strengths of our team members.

"Our merchandising and field organizations are excited about our renewed focus on the core customer and we are effecting change in the assortments as quickly as possible. At the same time, we're improving the visual presentation in the stores and developing marketing programs and partnerships designed to influence our Wet Seal customers.

"We have also implemented strategic merchandising changes at Arden B, which are enabling us to gain traction in key product categories and drive improvement in overall business trends."

Fiscal Year 2012

Balance Sheet

As of February 2, 2013, the Company remained in strong financial condition, with cash and cash equivalents and short-term investments of $110.0 million and no debt. Inventory totaled $33.8 million, an increase of 6.1% versus a year ago, which is partially attributable to the 53-week calendar and the Company's planned earlier receipt of select spring merchandise. Total capital expenditures were $20.4 million, including $15.0 million for new stores and remodels.

Mr. Goodman continued, "Historically, Wet Seal has been a strong cash flow generator. Today, we have a strong balance sheet that affords us the opportunity to return value to our shareholders, while prudently investing in the business to drive long-term growth. Looking at fiscal 2013, following a difficult start to the first quarter, due mainly to macro headwinds and weather challenges, we are beginning to see improvement in the business. Although we are continuing to operate against the backdrop of a challenging consumer environment, we believe our product, merchandising and marketing strategies will bring our core customer back to Wet Seal and help us return the business to positive comparable store sales."

Real Estate

During the fourth quarter of fiscal 2012, the Company opened 4 and closed 8 Wet Seal stores and closed 19 Arden B stores. As of February 2, 2013, the Company operated 530 stores in 47 states and Puerto Rico, including 468 Wet Seal stores and 62 Arden B stores.

Financial Guidance

For the first quarter of fiscal 2013, the Company expects net loss per diluted share to be in the range of $0.03 to $0.06. This includes an estimated $2.3 million, or between $0.02 and $0.03 per diluted share, of incremental legal fees versus the first quarter of fiscal 2012 for the Company's defense in certain employment related litigation that arose in prior years. The guidance is based on the following additional major assumptions:

In fiscal 2013, the Company expects to open 19 new Wet Seal stores, primarily in outlet centers, and close approximately 14-18 locations upon lease expiration. The Company also expects to close approximately nine Arden B locations upon lease expiration. Total capital expenditures are expected to be between $22 million and $24 million, of which approximately $16 million to $17 million will be used for remodeling of existing stores upon lease renewals and/or store relocations or construction of new stores.

Earnings Conference Call Details

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) 407-3982. 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 4, 2013. To access the replay, please call (877) 870-5176 or (858) 384-5517 and provide the ID number 410148.

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. As of February 2, 2013, the Company operated a total of 530 stores in 47 states and Puerto Rico, including 468 Wet Seal stores and 62 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 estimated fiscal 2013 first quarter guidance and full year store growth and capital spending plans, the Company's expectations for returning to positive comparable store sales, and the anticipated impact of current strategic initiatives on the Company's long term sales and profitability growth, 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.

Exhibit A

 
The Wet Seal, Inc.
Condensed Consolidated Balance Sheets

(Dollars in 000's)

(Unaudited)

 
  February 2,   January 28,
2013 2012
ASSETS
Cash and cash equivalents $ 42,279 $ 157,185
Short-term investments 67,694 -
Merchandise inventories 33,788 31,834
Other current assets 15,467 6,215
Deferred taxes   -   20,133
 
Total current assets 159,228 215,367
Net equipment and leasehold improvements 64,225 88,324
Deferred taxes - 23,780
Other assets   3,053   3,062
 
Total assets $ 226,506 $ 330,533
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable — merchandise $ 16,978 $ 18,520
Accounts payable — other 18,116 8,269
Accrued liabilities 26,347 25,096
Current portion of deferred rent   2,289   2,561
 
Total current liabilities 63,730 54,446
Deferred rent 32,136 33,091
Other long-term liabilities   1,908   1,924
 
Total liabilities 97,774 89,461
Total stockholders' equity   128,732   241,072
 
Total liabilities and stockholders' equity $ 226,506 $ 330,533
 

Exhibit A (Continued)

 
The Wet Seal, Inc.
Condensed Consolidated Statements of Operations

(Dollars in 000's, Except Share Data)

(Unaudited)

 

  14 Weeks Ended   13 Weeks Ended   53 Weeks Ended   52 Weeks Ended
February 2, January 28, February 2, January 28,
  2013       2012       2013     2012
Net sales $ 161,654 $ 163,152 $ 580,397 $ 620,097
Gross margin 40,051 49,560 140,501 195,436
Selling, general & administrative expenses 57,575 44,886 183,790 165,933
Asset impairment   7,965       2,454       27,000       4,503
Operating (loss) income (25,489 ) 2,220 (70,289 ) 25,000
Interest (expense) income, net   (11 )     (6 )     (39 )     61
(Loss) income before provision for income taxes (25,500 ) 2,214 (70,328 ) 25,061
Provision for income taxes   60,310       1,091       42,903       9,979
Net (loss) income $ (85,810 )   $ 1,123     $ (113,231 )   $ 15,082
Weighted average shares, basic 88,859,277 88,057,459 88,705,289 92,713,516
Net (loss) income per share, basic (1) $ (0.97 ) $ 0.01 $ (1.28 ) $ 0.16
Weighted average shares, diluted 88,859,277 88,061,398 88,705,289 92,762,077
Net (loss) income per share, diluted (1) $ (0.97 ) $ 0.01 $ (1.28 ) $ 0.16
 
(1) Calculation of the Company's net income per share requires the allocation of net income among common shareholders and participating security holders. As a result, the net income available to common shareholders used to calculate basic and diluted net income per share was $1,092 for the 13 weeks ended January 28, 2012, and $14,689 for the 52 weeks ended January 28, 2012.
 

Exhibit A (continued)

 
The Wet Seal, Inc.
Consolidated Statements of Cash Flows

(Dollars in 000's)

(Unaudited)

 
  Fiscal Year Ended
February 2,   January 28,
  2013     2012  
CASH FLOW FROM OPERATING ACTIVITIES:
Net (loss) income $ (113,231 ) $ 15,082

Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities

Depreciation and amortization 17,497 19,371
Amortization of premium on investments - 690
Amortization of deferred financing costs 107 108
Amortization of stock payment in lieu of rent - 61
Asset impairment 27,000 4,503
Loss on disposal of equipment and leasehold improvements 667 172
Deferred income taxes 43,913 8,991
Stock-based compensation 2,949 4,647
Stock-based compensation tax short falls (1,320 ) (665 )
Changes in operating assets and liabilities:
Income taxes receivable (86 ) (200 )
Other receivables (293 ) 496
Merchandise inventories (1,954 ) 1,502
Prepaid expenses and other assets (8,980 ) 8,112
Other non-current assets 9 (134 )
Accounts payable and accrued liabilities 8,897 (2,057 )
Income taxes payable - (60 )
Deferred rent (1,227 ) 1,414
Other long-term liabilities   (139 )   (133 )
Net cash (used in) provided by operating activities   (26,191 )   61,900  
 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment and leasehold improvements (20,406 ) (26,486 )
Investment in marketable securities (67,694 ) -
Proceeds from maturity of marketable securities   -     50,000  
Net cash (used in) provided by investing activities   (88,100 )   23,514  
 
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 19 1,071
Payment of deferred financing costs - (139 )
Repurchase of common stock   (634 )   (54,523 )
Net cash used in financing activities   (615 )   (53,591 )
 
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (114,906 ) 31,823
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD   157,185     125,362  
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 42,279   $ 157,185  

Exhibit B

Segment Reporting (Unaudited)
The Company operates exclusively in the retail apparel industry in which it sells trend-right and fashionable contemporary apparel and accessory 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 14 and 53 weeks ended February 2, 2013, and 13 and 52 weeks ended January 28, 2012, for the two reportable segments is set forth below (in thousands, except number of stores and sales per square foot):

Fourteen weeks ended February 2, 2013   Wet Seal   Arden B   Corporate   Total
Net sales   $ 137,220   $ 24,434   n/a   $ 161,654
% of total sales 85 % 15 % n/a 100 %
Comparable store sales % decrease (9.1 )% (3.1 )% n/a (8.3 )%
Operating loss $ (5,085 ) $ (1,142 ) $ (19,262 ) $ (25,489 )
Interest expense, net - - $ (11 ) $ (11 )
Loss before provision for income taxes $ (5,085 ) $ (1,142 ) $ (19,273 ) $ (25,500 )
Depreciation $ 3,218 $ 324 $ 424 $ 3,966
Number of stores as of period end 468 62 n/a 530
Sales per square foot (1) $ 64 $ 83 n/a $ 66
Square footage as of period end 1,871 192 n/a 2,063
 
 
Thirteen weeks ended January 28, 2012   Wet Seal   Arden B   Corporate   Total
Net sales $ 138,802 $ 24,350 n/a $ 163,152
% of total sales 85 % 15 % n/a 100 %
Comparable store sales % decrease (4.6 )% (11.0 )% n/a (5.5 )%
Operating income (loss) $ 12,897 $ (1,513 ) $ (9,164 ) $ 2,220
Interest expense, net - - $ (6 ) $ (6 )
Income (loss) before provision for income taxes $ 12,897 $ (1,513 ) $ (9,170 ) $ 2,214
Depreciation $ 4,021 $ 528 $ 396 $ 4,945
Number of stores as of period end 472 86 n/a 558
Sales per square foot $ 70 $ 82 n/a $ 71
Square footage as of period end 1,887 266 n/a 2,153
 
Fifty-three weeks ended February 2, 2013   Wet Seal   Arden B   Corporate   Total
Net sales   $ 495,027   $ 85,370   n/a   $ 580,397
% of total sales 85 % 15 % n/a 100 %
Comparable store sales % decrease (10.1 )% (9.9 )% n/a (10.1 )%
Operating loss $ (13,086 ) $ (7,757 ) $ (49,446 ) $ (70,289 )
Interest expense, net - - $ (39 ) $ (39 )
Loss before provision for income taxes $ (13,086 ) $ (7,757 ) $ (49,485 ) $ (70,328 )
Depreciation $ 14,239 $ 1,639 $ 1,619 $ 17,497
Sales per square foot (1) $ 245 $ 296 n/a $ 251
 
 
 
Fifty-two weeks ended January 28, 2012   Wet Seal   Arden B   Corporate   Total
Net sales $ 526,105 $ 93,992 n/a $ 620,097
% of total sales 85 % 15 % n/a 100 %
Comparable store sales % increase (decrease) 2.0 % (3.4 )% n/a 1.2 %
Operating income (loss) $ 55,661 $ 1,491 $ (32,152 ) $ 25,000
Interest income, net - - $ 61 $ 61
Income (loss) before provision for income taxes $ 55,661 $ 1,491 $ (32,091 ) $ 25,061
Depreciation $ 15,765 $ 2,099 $ 1,507 $ 19,371
Sales per square foot $ 271 $ 327 n/a $ 278

(1) Sales for the 53rd week of fiscal 2012 were excluded from "sales" for purposes of calculating "sales per square foot" in order to make the fourth quarter and full year of fiscal 2012 comparable to fiscal 2011.

Exhibit B (Continued)

The "Corporate" column is presented to allow for reconciliation of segment contribution amounts to consolidated operating (loss) income, interest income or expense, net, and (loss) income before provision 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 Q4 2012 and Q4 2011 include $7.7 million and $1.6 million, respectively, of asset impairment charges. Wet Seal operating segment results for fiscal 2012 and fiscal 2011 include $24.0 million and $2.6 million, respectively, of asset impairment charges.

Arden B operating segment results for Q4 2012 and Q4 2011 include $0.3 million and $0.9 million, respectively, of asset impairment charges. Arden B operating segment results for fiscal 2012 and fiscal 2011 include $3.0 million and $1.9 million, respectively, of asset impairment charges.

Corporate expenses for Q4 2012 and fiscal 2012 include $6.6 million and $7.1 million, respectively, of loss contingency for several litigation matters, a $1.3 million in net severance charges for the previously announced workforce reduction and a $0.5 million charge upon the early termination of two investment banker retention agreements, and for fiscal 2012, include $1.9 million in professional fees to defend against a shareholder proxy solicitation to replace certain of the Company's board members, which ultimately led to an agreement to replace four of the Company's seven board members during the third quarter.

Non-GAAP Financial Measures

Included within this press release are references to non-GAAP financial measures ("non-GAAP" or "adjusted"), including operating (loss) income, net (loss) income and net (loss) income per diluted share excluding the effect of certain adjustments and charges. These financial measures are not in compliance with U.S. generally accepted accounting principles ("GAAP") and are not necessarily comparable to similar measures presented by other companies. The Company believes that this non-GAAP information is useful as an additional means for investors to evaluate the Company's operating performance, when reviewed in conjunction with its GAAP financial statements. These amounts are not determined in accordance with GAAP and therefore, should not be used exclusively in evaluating the Company's business and operations. For further information, see "Company Statement on Disclosure of Non-GAAP Financial Measures" within the Investor Relations section of the Company's corporate web site, www.wetsealinc.com.

The following is a reconciliation of the applicable GAAP financial measures to these non-GAAP financial measures (in millions, except for net (loss) income per diluted share):

  14 Weeks Ended   13 Weeks Ended
February 2, 2013

January 28, 2012

    Net Loss Per     Net Income Per
Operating Net Diluted Operating Net Diluted
Loss   Loss   Share Income   Income   Share
 
GAAP financial measure $ (25.5 ) $ (85.8 ) $ (0.97 ) $ 2.2 $ 1.1 $ 0.01
 
Adjustments and Charges:
Adjustment to proxy solicitation costs, net of income taxes where applicable (0.2 ) (0.1 ) - - - -
Employee severance, net of income taxes where applicable 1.3 0.8 0.01 - - -
Investment banker early termination fees, net of income taxes where applicable 0.5 0.3 - - - -
Non-cash asset impairment charges, net of income taxes where applicable 8.0 4.9 0.05 2.5 1.5 0.02
Loss contingencies for several litigation matters, net of income taxes where applicable 6.6 4.0 0.05 - - -
Establishment of valuation allowance against net deferred income tax assets   -       71.1       0.80     -     -     -
 
Non-GAAP financial measure $ (9.3 )   $ (4.8 )   $ (0.06 )

$

4.7  

$

2.6   $ 0.03
 
53 Weeks Ended 52 Weeks Ended
February 2, 2013

January 28, 2012

Net Loss Per Net Income Per
Operating Net Diluted Operating Net Diluted
Loss   Loss   Share Income   Income   Share
 
GAAP financial measure $ (70.3 ) $ (113.2 ) $ (1.28 ) $ 25.0 $ 15.1 $ 0.16
 
Charges:
Proxy solicitation costs, net of income taxes where applicable 1.9 1.2 0.01
Employee severance, net of income taxes where applicable 1.3 0.8 0.01 - - -
Investment banker early termination fees, net of income taxes where applicable 0.5 0.3 -
Non-cash asset impairment charges, net of income taxes where applicable 27.0 16.5 0.19 4.5 2.7 0.03
Loss contingencies for several litigation matters, net of income taxes where applicable 7.1 4.3 0.05
Establishment of valuation allowance against net deferred income tax assets   -       71.1       0.80     -     -     -
 
Non-GAAP financial measure $ (32.5 )   $ (19.0 )   $ (0.22 ) $ 29.5   $ 17.8   $ 0.19

The Wet Seal, Inc.
Steven H. Benrubi, 949-699-3947

Source: The Wet Seal, Inc.

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