Wet Seal Inc.'s
) third-quarter fiscal 2013 adjusted loss of 12 cents per share
was in line with the Zacks Consensus Estimate. However, it was
wider than a loss of 11 cents incurred in the year-ago quarter.
Higher merchandise margins and tight expense control were offset
by soft revenues during the quarter. The loss was significantly
wider than management's guidance of 2 cents to 3 cents per
Consolidated Revenues and Margins
Wet Seal's net sales in the reported quarter slipped nearly
5.8% to $127.7 million from $135.5 million in the prior-year
period. Sales declined mainly due to a calendar shift compared to
the year-ago quarter. Sales also lagged the Zacks Consensus
Estimate of $134 million by 4.7%.
Categories like accessories, footwear, dresses and sweaters
posted sales gain during the quarter.
During the third quarter, comparable store sales remained
almost flat as 5% gain in transaction per store was offset by a
decline of the same amount in units per transaction. Comps gain
was softer than an increase of 3.6% in the prior quarter.
However, comps were better than a decline of 13.7% in the
Gross profit increased 11% to $28.9 million compared with
$26.0 million a year ago. The gross margin inflated 350 basis
points (bps) to 22.7% versus 19.2% a year ago due to an
improvement of 350 bps in merchandise margin as well as 40 bps
increase in occupancy leverage. Operating loss stood at $9.8
million for the quarter narrowed from an operating loss of $16.2
million in the prior-year quarter due to lower selling, general
and administrative expenses.
Wet Seal operates through two nationwide, primarily mall
based, chains of retail stores - Wet Seal and Arden B.
Wet Seal Stores:
These stores offer apparels for girls aged between 13 to 19
years. The products in these stores are trendy and competitively
priced. Net sales at Wet Seal Stores slipped 2.6% to $114.9
million. Same-store sales gained 1.7% backed by higher
transactions and higher unit per transactions.
These stores offer apparels for women aged between 25 to 39
years. The products usually featured in these stores include
dresses of contemporary fashion, sportswear and accessories
suitable for any occasion. Net sales of $16.7 million at the
Arden B stores declined 27.5% from the year-ago quarter.
Same-store sales slipped 6.7%.
Other Financial Updates
The company had cash and cash equivalents of $27.8 million as
of Nov 2, 2013 compared with $27.8 million as of Aug 3, 2013.
Inventory stood at $42.6 million, up from $40.9 million recorded
at the end of the prior quarter.
Fourth Quarter Guidance Weak
Wet Seal expects to report net loss in the range of 14 cents
to 17 cents in the fourth quarter of 2013..
For the fourth quarter, net sales are expected between $134.0
million and $137.0 million and comparable store sales are
expected to decline in the high-single to low-double digits.
Management's guidance falls short of the Zacks Consensus
Estimate of a loss of 12 cents per share and a sales estimate of
Gross margin is expected between 21.9% and 23.2%, lower than
the year ago levels. Operating loss is expected in the range of
$11.6 million to $14.1 million.
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Wet Seal currently carries a Zacks Rank #4 (Sell). Some
better-ranked stocks to consider in the wholesale sector include
Micheal Kors Inc.
). While Hanesbrands and Quicksilver carry a Zacks Rank #1
(Strong Buy), Micheal Kors has a Zacks Rank #2 (Buy).