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

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

Comp Store Sales Increase 3.7%

Gross Margin Up 680 Basis Points to 29.6% of Sales

Earnings Per Diluted Share of $0.01

FOOTHILL RANCH, Calif.--(BUSINESS WIRE)-- The Wet Seal, Inc. (NAS: WTSL) , a leading specialty retailer to young women, today announced financial results for its fiscal second quarter ended August 3, 2013. The Company also provided its financial outlook for the third quarter of fiscal 2013.

Second Quarter Fiscal 2013:

• Net sales totaled $137.2 million versus net sales of $135.3 million in the second quarter of 2012.

• Consolidated comparable store sales increased 3.7%, including an increase of 3.9% for Wet Seal and an increase of 2.0% for Arden B.

• Gross profit increased 32% to $40.7 million compared to $30.8 million a year ago, while gross margin expanded 680 basis points to 29.6% of sales versus 22.8% of sales in the second quarter of 2012. The year-over-year increase is primarily attributable to substantial improvement in merchandise margin due to reduced markdown levels.

• Operating income was $1.0 million compared to operating loss of $19.5 million in the second quarter of fiscal 2012. The current year and prior year quarters include $262,000 and $9.0 million, respectively, of non-cash asset impairment charges. Operating loss in the prior year period also includes $1.9 million in CEO severance costs. Non-GAAP adjusted operating income, excluding the effect of the aforementioned charges, was $1.2 million in the second quarter of fiscal 2013 compared to non-GAAP adjusted operating loss of $8.6 million in the prior year period.

• Net income totaled $1.0 million, or $0.01 per diluted share, compared to net loss of $12.4 million, or $0.14 per diluted share, in the prior year quarter. Non-GAAP adjusted net income in the second quarter of fiscal 2013, excluding the after-tax effect of non-cash asset impairment charges, totaled $1.2 million, or $0.01 per diluted share. Non-GAAP adjusted net loss in the second quarter of fiscal 2012, excluding the after-tax effect of non-cash asset impairment charges and CEO severance costs, was $5.8 million, or $0.07 per diluted share.

• At quarter's end, the Company's inventory per square foot was up 2% versus a year ago, including an increase of 3% at Wet Seal and a decrease of 15% at Arden B.

John D. Goodman, Chief Executive Officer, stated, "During the second quarter we achieved strong year-over-year improvement across all of our key financial metrics. We delivered comparable store sales growth of 3.7%, expanded our merchandise margin, reduced expenses and attained profitability. Our performance reflects the benefits of our fast fashion operating model, ongoing progress against our turnaround strategies and strong inventory management."

Balance Sheet and Share Repurchase Program

As of August 3, 2013, the Company had cash and cash equivalents and short-term investments of $79.7 million and no debt. This compares to cash and cash equivalents and short-term investments of $110.0 million at fiscal 2012 year-end and reflects the deployment of cash toward the Company's share repurchase program and payment, net of insurance proceeds, of the class action lawsuit settlement previously announced in May. Inventory totaled $40.9 million compared to $41.5 million a year ago.

During the second quarter of fiscal 2013, the Company completed its $25 million share repurchase program. Under the program, the Company repurchased a total of 5,565,873 shares of its common stock at a weighted average cost of $4.48 per share, for a total cost, including commissions, of $25.0 million. During the second quarter of fiscal 2013, the Company repurchased 4,359,224 shares of its common stock at a weighted average cost of $4.89 per share, for a total cost, including commissions, of $21.4 million. The Company also repurchased a total of 58,416 shares of its common stock during the first half of fiscal 2013 to satisfy employee tax obligations, upon restricted stock vesting, for a total cost of $0.2 million. "We are pleased with the execution of our share repurchase program and to have utilized a portion of the Company's cash to return value to our shareholders," continued Goodman. "This brought improved balance to our capital structure, while also maintaining the Company's strong financial condition.

"As we look at the second half of the year, we're encouraged by how the business is positioned from both a financial and operational perspective. Our product and merchandising initiatives are resonating with customers, and we believe these core strategies, along with new marketing programs and partnerships planned for back-to-school and holiday, will enable us to drive continued growth at both Wet Seal and Arden B. In the late October-early November time frame, we plan to open 22 new Wet Seal stores, primarily in outlet centers, and look forward to embarking on a more aggressive plan for unit growth beginning in fiscal 2014."

Real Estate

During the second quarter of fiscal 2013, the Company opened 1 and closed 1 Wet Seal store and closed 1 Arden B store. As of August 3, 2013, the Company operated 525 stores in 47 states and Puerto Rico, including 464 Wet Seal stores and 61 Arden B stores.

Third Quarter Fiscal 2013 Financial Outlook

For the third quarter of fiscal 2013, the Company estimates net loss per diluted share in the range of $0.02 to $0.03 versus net loss per diluted share of $0.17 in the prior year third quarter. The current year quarter includes approximately $0.8 million, or $0.01 per diluted share, of pre-opening expenses for the Wet Seal stores opening mostly during the late October-early November time frame.

The financial outlook is based on the following assumptions:

• Total net sales between $135 million and $138 million versus $135.5 million in the third quarter of fiscal 2012.

• Comparable store sales increase in the mid-single digits versus a 13.5% decline in the prior year third quarter.

• Gross margin rate between 26.9% and 27.9% of net sales versus 19.2% in the prior year quarter, reflecting an increase of between 770 and 870 basis points driven by improvement in merchandise margin and leveraging benefits of positive comparable store sales on occupancy costs, offset by an estimated $0.4 million of current year new store pre-opening costs.

• SG&A expense between 28.9% and 29.2% of net sales versus 32.8% in the prior year quarter. The current year quarter includes an estimated $0.4 million of new store pre-opening costs. The prior year quarter included $2.1 million in costs associated with a proxy solicitation to replace certain of the Company's board members and $1.6 million in incremental legal fees and settlement costs for various employment-related matters.

• Operating loss ranging from $1.8 million to $2.7 million. In the third quarter of fiscal 2012, operating loss was $24.8 million, including $6.5 million in non-cash asset impairment charges and the aforementioned proxy solicitation and legal costs.

• Fourteen net new store openings at Wet Seal and three store closings at Arden B.

• Weighted-average diluted shares outstanding of approximately 84 million shares.

For all of fiscal 2013, the Company now expects to have net no change in the Wet Seal store count and eight Arden B store closings. The Company forecasts fiscal 2013 net capital expenditures will be approximately $20 million to $22 million, of which approximately $14 million to $16 million will be for construction of new stores or remodeling of existing stores upon lease renewals and/or store relocations.

Conference Call

The Company will host a conference call and Q&A session at 1:30 p.m. Pacific Time today. To participate in the conference call, please dial (877) 407-3982 or (201) 493-6780. 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 September 10, 2013. To access the replay, please call (877) 870-5176 or (858) 384-5517 and provide ID number 417425.

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 August 3, 2013, the Company operated a total of 525 stores in 47 states and Puerto Rico, including 464 Wet Seal stores and 61 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 financial outlook for its third quarter of fiscal 2013, its store opening and capital expenditure plans for its third quarter and/or full year of fiscal 2013, and its merchandising, capital planning and other strategic action plans, or any other statements that relate to the intent, beliefs, 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.