Wet Seal Suffers Loss on Lower Sales - Analyst Blog

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Wet Seal Inc. ( WTSLA ) reported second quarter fiscal 2012 loss of 7 cents per share compared to year-ago quarter's earnings of 3 cents per share. The loss was in line with the Zacks Consensus Loss Estimate, but was narrower than management's guidance range of a loss of 9 cents to 10 cents. The loss resulted from a decline in sales and margins.

Consolidated Revenue and Margins

Wet Seal's net sales in the reported quarter came down 9.1% to $135.3 million from $148.8 million in the prior-year period. Lower sales in both Arden B as well as Wet Seal stores led to this decline. Sales also fell shy of the Zacks Consensus Estimate of $136.0 million.

The company has suffered sales decline due to its existing policy of buying less from the market and instead incorporate its own design elements. However it has decided to return to a fast-fashion strategy that will attract the young teen customer. It will also start, sourcing more product directly from the market.

During the second quarter, comparable store sales declined 11.1% compared to a growth of 6.0% in the prior-year quarter.

The company opened three and closed four Wet Seal Stores during the second quarter. As of July 28, 2012, the company operated 550 stores in 47 states and Puerto Rico, comprising 82 Arden B stores and 468 Wet Seal stores.

The company suffered an operating loss of $8.6 million compared to an income of $4.4 million incurred in the year-ago quarter.

Segment Details

The company operates through two nationwide, primarily mall-based, chains of retail stores -"Wet Seal" and "Arden B".

Wet Seal Stores : These stores offer apparel for girls aged between 13 to 19 years. The products in these stores are trend-focused and competitively priced. Net sales declined 9.0% to $113.7 million from $125.0 million in the year-ago quarter due to soft results in the in the tops business. Same-store sales declined 11.0% compared to an increase of 6.2% in the prior-year quarter.

Arden B Stores : These stores offer apparel for women aged between 25 to 39 years. The products usually shelved in these stores are dresses of contemporary fashion, sportswear and accessories suitable for any occasion. Net sales at the Arden B stores also came down 9.3% to $21.5 million compared with $23.7 million in the year-ago quarter. Same store sales declined by 11.6% year over year compared to an increase of 5.0% in the year-ago quarter.

Other Financial Updates

The company had cash and cash equivalents of $146.5 million as of July 28, 2012, up from $109.6 million as on July 30, 2011.

As of July 28, 2012, the company used $1.1 million cash from operations compared with $27.0 million in July 30, 2011. Capital expenditure amounted $7.8 million. The company spent $6.6 million for new stores and remodeling of existing stores.


Following the sluggish second quarter results, Wet Seal estimates its third-quarter 2012 loss per share to be in the range of 13 cents to 16 cents versus earnings of 4 cents in the prior-year quarter. The Zacks Consensus Estimate is currently pegged at a loss of 14 cent for the third quarter of fiscal 2012.

For the third quarter, net sales are expected to be between $128 million and $133 million and comparable store sales are expected to decline in the range of 14% to 18%.

Adjusted gross margin is expected to be between 15.3% and 17.6% of net sales and operating loss is expected to be between $18.7 million and $22.5 million.

For fiscal 2012, the company reduced its capital expenditure plan to a range of $20 million to $22 million from previously announced guidance range of $27 million to $29 million.

Zacks Rank

Wet Seal faces stiff competition from American Eagle Outfitters Inc. ( AEO ) and Gap Inc. ( GPS ). Currently, Wet Seal carries a Zacks #4 Rank, which translates into a short-term 'Sell' rating.

AMER EAGLE OUTF (AEO): Free Stock Analysis Report
GAP INC (GPS): Free Stock Analysis Report
WET SEAL INC -A (WTSLA): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Symbols: AEO , GPS , WTSLA

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