The Wet Seal, Inc. Announces Fourth Quarter and Fiscal 2012 Financial Results
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. (NAS: 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
- Net sales for the 14-week fourth quarter were $161.7 million compared to net sales of $163.2 million for the 13-week fourth quarter in fiscal 2011.
- Consolidated comparable store sales declined 8.3%, including a comparable store sales decline of 9.1% at Wet Seal and 3.1% at Arden B. Comparable store sales for the current year quarter are versus the comparable fourteen weeks from the prior year.
- Operating loss was $25.5 million, or 15.8% of net sales, compared to operating income of $2.2 million, or 1.4% of net sales, in the prior year quarter.
- The current year and prior year quarters included $8.0 million and $2.5 million, respectively, in non-cash asset impairment charges. The current year quarter also included (i) a $6.6 million charge to accrue loss contingencies for several litigation matters, (ii) a $0.2 million benefit to adjust the amount of professional fees incurred 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, (iii) $1.3 million in severance charges for a previously announced workforce reduction, and (iv) a $0.5 million charge for the early termination of two investment banker retention agreements. Non-GAAP adjusted operating loss, excluding the impact of the aforementioned adjustment and charges, was $9.3 million, or 5.8% of net sales in the 2012 fourth quarter, compared to operating income of $4.7 million, or 2.9% of net sales, in the prior year quarter (see reconciliation below of GAAP to non-GAAP financial measures).
- In the fourth quarter of fiscal 2012, the Company recorded a non-cash provision for income taxes of $71.1 million to establish a valuation allowance against its net deferred income tax assets.
- Net loss was $85.8 million, or $0.97 per diluted share, as compared to net income of $1.1 million, or $0.01 per diluted share, in the prior year quarter. Non-GAAP adjusted net loss in the fourth quarter of 2012, excluding the after-tax effect of the proxy solicitation cost adjustment, as well as the asset impairment, loss contingency, severance and investment banker early termination charges, and the provision for income taxes to establish the deferred tax asset valuation allowance, was $4.8 million, or $0.06 per diluted share, which equaled the Company's most recent guidance for the quarter. For the fourth quarter of fiscal 2011, non-GAAP adjusted net income, excluding the after-tax effect of the asset impairment charges, was $2.6 million, or $0.03 per diluted share.
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
- Net sales for the 53-week period were $580.4 million compared to net sales of $620.1 million in the 52-week period of fiscal 2011.
- Consolidated comparable store sales declined 10.1%, including a comparable store sales decline of 10.1% at Wet Seal and 9.9% at Arden B.
- Operating loss was $70.3 million, or 12.1% of net sales, compared to operating income of $25.0 million, or 4.0% of net sales, in fiscal 2011. Operating loss for fiscal 2012 included (i) $27.0 million in non-cash fixed asset impairment charges, (ii) $7.1 million in loss contingency charges for several litigation matters, (iii) $1.9 million in professional fees to defend against the shareholder proxy solicitation, (iv) $1.3 million in severance charges for the previously announced workforce reduction, and (v) a $0.5 million charge for the early termination of two investment banker retention agreements. Operating income for fiscal 2011 included $4.5 million in non-cash fixed asset impairment charges. Non-GAAP adjusted operating loss, excluding the impact of the aforementioned charges, was $32.5 million, or 5.6% of net sales in fiscal 2012, compared to non-GAAP adjusted operating income, excluding $4.5 million in asset impairment charges, of $29.5 million, or 4.8% of net sales, in fiscal 2011.
- Fiscal 2012 includes the aforementioned non-cash provision for income taxes of $71.1 million to establish the valuation allowance against the Company's net deferred income tax assets.
- Net loss was $113.2 million, or $1.28 per diluted share, compared to net income of $15.1 million, or $0.16 per diluted share, in fiscal 2011. Non-GAAP adjusted net loss in fiscal 2012, excluding the after-tax effect of the asset impairment, loss contingency, proxy solicitation, severance and investment banker early termination charges, and the provision for income taxes to establish the deferred tax asset valuation allowance, was $19.0 million, or $0.22 per diluted share. Non-GAAP adjusted net income in fiscal 2011, excluding the after-tax effect of non-cash asset impairment charges, was $17.8 million, or $0.19 per diluted share.
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."
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.
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:
- Total net sales between $135 million and $139 million versus $147.9 million in the first quarter of fiscal 2012.
- Comparable store sales decline in the mid single-digits, versus a 7.7% decrease in the prior year quarter.
- Gross margin rate between 26.2% and 27.7% of net sales versus 29.5% in the prior year quarter, with the decline driven primarily by lower merchandise margin.
- SG&A expense between 29.6% and 30.2% of net sales versus 27.3% in the prior year quarter. The expected year-over-year increase reflects the incremental legal fees noted earlier and the deleveraging effect of anticipated comparable store sales decline.
- Operating loss between $2.7 million and $5.4 million versus operating loss of $0.4 million in the prior year quarter.
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 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.
|The Wet Seal, Inc.|
|Condensed Consolidated Balance Sheets|
(Dollars in 000's)
|February 2,||January 28,|
|Cash and cash equivalents||$||42,279||$||157,185|
|Other current assets||15,467||6,215|
|Total current assets||159,228||215,367|
|Net equipment and leasehold improvements||64,225||88,324|
|LIABILITIES AND STOCKHOLDERS' EQUITY|
|Accounts payable - merchandise||$||16,978||$||18,520|
|Accounts payable - other||18,116||8,269|
|Current portion of deferred rent||2,289||2,561|
|Total current liabilities||63,730||54,446|
|Other long-term liabilities||1,908||1,924|
|Total stockholders' equity||128,732||241,072|
|Total liabilities and stockholders' equity||$||226,506||$||330,533|
Exhibit A (Continued)
|The Wet Seal, Inc.|
|Condensed Consolidated Statements of Operations|
(Dollars in 000's, Except Share Data)
|14 Weeks Ended||13 Weeks Ended||53 Weeks Ended||52 Weeks Ended|
|February 2,||January 28,||February 2,||January 28,|
|Selling, general & administrative expenses||57,575||44,886||183,790||165,933|
|Operating (loss) income||(25,489||)||2,220||(70,289||)||25,000|
|Interest (expense) income, net||(11||)||(6||)||(39||)||61|
|(Loss) income before provision for income taxes||(25,500||)||2,214||(70,328||)||25,061|
|Provision for income taxes||60,310||1,091||42,903||9,979|
|Net (loss) income||$||(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 $14,689 for the 52 weeks ended January 28, 2012.|
Exhibit A (continued)
|The Wet Seal, Inc.|
|Consolidated Statements of Cash Flows|
(Dollars in 000's)
|Fiscal Year Ended|
|February 2,||January 28,|
|CASH FLOW FROM OPERATING ACTIVITIES:|
|Net (loss) income||$||(113,231||)||$||15,082|
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities
|Depreciation and amortization||17,497||19,371|
|Amortization of premium on investments||-||690|
|Amortization of deferred financing costs||107||108|
|Amortization of stock payment in lieu of rent||-||61|
|Loss on disposal of equipment and leasehold improvements||667||172|
|Deferred income taxes||43,913||8,991|
|Stock-based compensation tax short falls||(1,320||)||(665||)|
|Changes in operating assets and liabilities:|
|Income taxes receivable||(86||)||(200||)|
|Prepaid expenses and other assets||(8,980||)||8,112|
|Other non-current assets||9||(134||)|
|Accounts payable and accrued liabilities||8,897||(2,057||)|
|Income taxes payable||-||(60||)|
|Other long-term liabilities||(139||)||(133||)|
|Net cash (used in) provided by operating activities||(26,191||)||61,900|
|CASH FLOWS FROM INVESTING ACTIVITIES:|
|Purchase of equipment and leasehold improvements||(20,406||)||(26,486||)|
|Investment in marketable securities||(67,694||)||-|
|Proceeds from maturity of marketable securities||-||50,000|
|Net cash (used in) provided by investing activities||(88,100||)||23,514|
|CASH FLOWS FROM FINANCING ACTIVITIES:|
|Proceeds from exercise of stock options||19||1,071|
|Payment of deferred financing costs||-||(139||)|
|Repurchase of common stock||(634||)||(54,523||)|
|Net cash used in financing activities||(615||)||(53,591||)|
|(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS||(114,906||)||31,823|
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD||157,185||125,362|
|CASH AND CASH EQUIVALENTS, END OF PERIOD||$||42,279||$||157,185|
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||?
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