The Wet Seal, Inc. Announces First Quarter Fiscal 2013 Financial Results

The Wet Seal, Inc. Announces First Quarter Fiscal 2013 Financial Results

Provides Second Quarter 2013 Financial Guidance;

Expects to Achieve Positive Mid-Single Digit Comp Store Sales in Q2 2013


FOOTHILL RANCH, Calif.--(BUSINESS WIRE)-- The Wet Seal, Inc. (NAS: WTSL) , a leading specialty retailer to young women, today announced results for the first quarter of fiscal 2013 ended May 4, 2013.

First Quarter 2013

  • Net sales for the quarter ended May 4, 2013, were $140.4 million compared to net sales of $147.9 million for the quarter ended April 28, 2012.

  • Consolidated comparable store sales decreased 2.9%, including a decrease of 3.4% at Wet Seal and an increase of 0.9% at Arden B.

  • Operating income was $3.2 million compared to operating loss of $0.4 million in the first quarter of fiscal 2012. The current year and prior year quarters include $1.6 million and $3.6 million, respectively, of non-cash asset impairment charges. Operating income in the 2013 period also includes a $3.5 million benefit to adjust a loss contingency. Non-GAAP adjusted operating income, excluding the effect of the aforementioned charges and benefits, was $1.3 million in the first quarter of fiscal 2013 compared to $3.2 million in the prior year period.

  • Operating income in the 2013 period also includes $1.7 million of incremental legal defense costs versus a year ago.

  • Net income was $3.1 million, or $0.03 per diluted share, compared to net loss of $0.3 million, or $0.00 per diluted share, in the prior year quarter. Non-GAAP adjusted net income in the first quarter of fiscal 2013, excluding the after-tax effect of the asset impairment charges and benefit to adjust a loss contingency accrual, was $1.3 million, or $0.01 per diluted share. Non-GAAP adjusted net income in the first quarter of fiscal 2012, excluding the after-tax effect of the asset impairment charges, was $1.9 million, or $0.02 per diluted share.

  • At quarter's end, the Company's inventory per square foot was down 7.7% versus a year ago, with Wet Seal down 7.6% and Arden B down 6.3%.

"We are pleased with the operating and financial momentum we're beginning to experience," said John D. Goodman, Chief Executive Officer. "We have made good progress in a short period of time throughout the organization. Our teams have executed well and delivered improvement in virtually every aspect of the business, including product, inventory management, merchandising, marketing, in-store presentation and customer engagement. This allowed us to exceed our financial guidance in the first quarter and forecast a return to positive comp store sales earlier than planned in the second quarter of 2013.

"We have effectively stabilized the business," continued Goodman. "We are seeing an increasingly strong response to our product offerings and customer engagement strategies, while at the same time, we have closely managed inventory and significantly improved our merchandise margin. We believe the Company has the people, processes and brand strength to enable us to begin driving consistent performance, and we are enthusiastic about the opportunity to better position both Wet Seal and Arden B for long-term growth."

Balance Sheet and Share Repurchase Program

As of May 4, 2013, the Company was in strong financial condition, with cash and cash equivalents and short-term investments of $111.7 million and no debt. Inventory totaled $36.3 million compared to $40.1 million a year ago.

During the first quarter ended May 4, 2013, the Company repurchased a total of 1,206,649 shares of its common stock under its current $25 million share repurchase program. The purchases were made at a weighted average cost of $3.00 per share for a total cost of approximately $3.6 million. The Company also repurchased a total of 46,872 shares of its common stock to satisfy employee tax obligations, upon restricted stock vesting, for a total cost of approximately $0.2 million.

Goodman concluded, "We are pleased to be able to utilize the Company's strong cash position to return value to our shareholders. We are also investing in Wet Seal's real estate portfolio through a combination of remodels and new store openings, with an emphasis on highly productive outlet center growth in fiscal 2013."

Real Estate

During the first quarter of fiscal 2013, the Company opened 2 and closed 6 Wet Seal stores. As of May 4, 2013, the Company operated 526 stores in 47 states and Puerto Rico, including 464 Wet Seal stores and 62 Arden B stores.

Second Quarter Fiscal 2013 Guidance

For the second quarter of fiscal 2013, the Company expects earnings per diluted share to be in the range of $0.00 to $0.02. The guidance is based on the following major assumptions:

  • Total net sales between $138 million and $141 million versus $135.3 million in the second quarter of fiscal 2012.

  • Comparable store sales increase in the positive mid-single digits, versus an 11.1% decrease in the prior year quarter.

  • Gross margin rate between 29.0% and 30.2% of net sales versus 22.8% in the prior year quarter, reflecting improvement in merchandise margin and leveraging benefits of positive comparable store sales on occupancy costs.

  • SG&A expense between 28.8% and 28.9% of net sales versus 30.6% in the prior year quarter.

  • Operating income ranging from $0.1 million to $2.1 million. In the second quarter of 2012, operating loss was $19.5 million, including non-cash asset impairment charges and CEO severance costs.

First Quarter Conference Call Information

The Company will host a conference call to discuss first quarter fiscal 2013 financial results today, Tuesday, May 28, 2013, at 1:30 p.m. Pacific Time. The call will be hosted by John D. Goodman, Chief Executive Officer, and Steve Benrubi, Executive Vice President and Chief Financial Officer.

To participate in the call, please dial (877) 407-3982 or (201) 493-6780. A broadcast of the call will also be available on the Company's web site at www.wetsealinc.com. A replay of the call will be available through June 11, 2013. To access the replay, please dial (877) 870-5176 or (858) 384-5517 and provide pin number 413830.

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 May 4, 2013, the Company operated a total of 526 stores in 47 states and Puerto Rico, including 464 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 second quarter earnings guidance, 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

(000's Omitted)

(Unaudited)

May 4,

2013

February 2,
2013

April 28,

2012

ASSETS

Cash and cash equivalents

$

50,320

$

42,279

$

148,108

Short-term investments

61,342

67,694

-

Merchandise inventories

36,341

33,788

40,080

Other current assets

16,258

15,467

16,206

Deferred taxes

-

-

20,133

Total current assets

164,261

159,228

224,527

Net equipment and leasehold improvements

63,569

64,225

86,606

Deferred taxes

-

-

23,927

Other assets

3,040

3,053

3,054

Total assets

$

230,870

$

226,506

$

338,114

LIABILITIES AND STOCKHOLDERS' EQUITY

Accounts payable - merchandise

$

20,644

$

16,978

$

23,802

Accounts payable - other

17,470

18,116

11,747

Accrued liabilities

27,970

26,347

23,410

Current portion of deferred rent

2,717

2,289

2,619

Total current liabilities

68,801

63,730

61,578

Deferred rent

31,674

32,136

33,057

Other long-term liabilities

1,871

1,908

1,889

Total liabilities

102,346

97,774

96,524

Total stockholders' equity

128,524

128,732

241,590

Total liabilities and stockholders' equity

$

230,870

$

226,506

$

338,114

Exhibit A (continued)

The Wet Seal, Inc.

Condensed Consolidated Statements of Operations

(000's Omitted, Except Share and Per Share Data)

(Unaudited)

13 Weeks Ended

May 4, 2013

April 28, 2012

Net sales

$

140,445

$

147,945

Gross margin

42,231

43,603

Selling, general & administrative expenses

37,437

40,438

Asset impairment

1,596

3,606

Operating income (loss)

3,198

(441

)

Interest expense, net

(6

)

(10

)

Income (loss) before provision (benefit) for income taxes

3,192

(451

)

Provision (benefit) for income taxes

82

(178

)

Net income (loss)

$

3,110

$

(273

)

Net income (loss) per share, basic

$

0.03

$

(0.00

)

Net income (loss) per share, diluted

$

0.03

$

(0.00

)

Weighted average shares outstanding, basic

88,501,179

88,486,977

Weighted average shares outstanding, diluted

88,503,407

88,486,977

Calculation of the Company's earnings per share requires the allocation of net income among common shareholders and participating security holders. The net income available to common shareholders used to calculate basic and diluted earnings per share was $3,079 for the 13 weeks ended May 4, 2013.

Exhibit A (continued)

The Wet Seal, Inc.

Condensed Consolidated Statements of Cash Flows

(000's Omitted)

(Unaudited)

13 Weeks Ended

May 4,
2013

April 28,
2012

CASH FLOW FROM OPERATING ACTIVITIES:

Net income (loss)

$ 3,110

$ (273)

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

Depreciation and amortization

3,338

4,691

Amortization of premium on investments

152

-

Amortization of deferred financing costs

27

27

Asset impairment

1,596

3,606

Loss on disposal of equipment and leasehold improvements

18

286

Deferred income taxes

-

(147)

Stock-based compensation

369

994

Changes in operating assets and liabilities:

Income tax receivable

-

(310)

Other receivables

(2,874)

218

Merchandise inventories

(2,553)

(8,246)

Prepaid expenses and other assets

2,056

(9,926)

Other non-current assets

13

8

Accounts payable and accrued liabilities

3,950

3,987

Deferred rent

(34)

24

Other long-term liabilities

(37)

(35)

Net cash provided by (used in) operating activities

9,131

(5,096)

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchase of equipment and leasehold improvements

(3,603)

(3,778)

Proceeds from maturity of marketable securities

6,200

-

Net cash provided by (used in) investing activities

2,597

(3,778)

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from exercise of stock options

94

19

Repurchase of common stock

(3,781)

(222)

Net cash used in financing activities

(3,687)

(203)

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

8,041

(9,077)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

42,279

157,185

CASH AND CASH EQUIVALENTS, END OF PERIOD

$ 50,320

$ 148,108

Exhibit B

Segment 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 May 4, 2013, and April 28, 2012, for the two reportable segments is set forth below (in thousands, except number of stores as of period end and sales per square foot):

Thirteen Weeks Ended May 4, 2013

Wet Seal

Arden B

Corporate

Total

Net sales

$

122,799

$

17,646

n/a

$

140,445

% of total sales

87

%

13

%

n/a

100

%

Comparable store sales % (decrease) increase

(3.4

)%

0.9

%

n/a

(2.9

)%

Operating income (loss)

$

9,553

$

558

$

(6,913

)

$

3,198

Interest expense, net

$

$

$

(6

)

$

(6

)

Income (loss) before provision (benefit) for income taxes

$

9,553

$

558

$

(6,919

)

$

3,192

Depreciation

$

2,584

$

260

$

494

$

3,338

Number of stores as of period end

464

62

n/a

526

Sales per square foot

$

62

$

81

n/a

$

64

Square footage as of period end

1,856

192

n/a

2,048

Thirteen Weeks Ended April 28, 2012

Wet Seal

Arden B

Corporate

Total

Net sales

$

126,175

$

21,770

n/a

$

147,945

% of total sales

85

%

15

%

n/a

100

%