California, United States – The Wet Seal, Inc., a leading specialty retailer to young women, announced financial results for its fiscal second quarter ended August 2, 2014. The Company also provided its financial outlook for the third quarter of fiscal 2014.
Provides Third Quarter 2014 Financial Guidance
Second Quarter Fiscal 2014:
- Net sales totaled $121.2 million versus net sales of $137.2 million in the second quarter of 2013.
- Consolidated comparable store sales declined 12.4%, including a decline of 11.1% at Wet Seal and a decline of 22.8% at Arden B during the wind down of that business. Comparable store sales results include e-commerce, which alone increased 11.4%, reflecting a 25.1% increase at Wet Seal, offset by a 24.6% decrease at Arden B during its wind down.
- Gross profit decreased to $26.4 million compared to $40.7 million a year ago, while gross margin declined 780 basis points to 21.8% versus 29.6% in the second quarter of 2013. The year-over-year decrease is due to lower merchandise margins and higher occupancy costs as a percentage of sales.
- Operating loss was $23.3 million compared to operating income of $1.0 million in the second quarter of fiscal 2013. The current year and prior year quarters include $12.7 million and $0.2 million, respectively, of non-cash asset impairment charges. Operating loss in the 2014 period also includes a charge of $0.2 million for Arden B exit costs and a $0.7 million benefit for the settlement of the Company’s Supplemental Employee Retirement Plan (“SERP”) liability. Non-GAAP adjusted operating loss, excluding the effect of these charges and benefits, was $11.1 million in the second quarter of fiscal 2014 compared to Non-GAAP adjusted operating income of $1.2 million in the prior year period.
- Net loss totaled $22.0 million, or $0.26 per diluted share, compared to net income of $1.0 million, or $0.01 per diluted share, in the prior year quarter. Non-GAAP adjusted net loss in the second quarter of fiscal 2014, excluding the after-tax effect of the items noted above and a benefit of $2.5 million for gain on warrants and embedded derivatives liabilities, was $12.3 million, or $0.15 per diluted share. Non-GAAP adjusted net income in the second quarter of fiscal 2013, excluding the after-tax effect of asset impairment charges, was $1.2 million, or $0.01 per diluted share.
Ed Thomas, Chief Executive Officer, stated, “Our second quarter results were impacted by underperformance in several merchandise categories, ongoing weakness in mall traffic and the challenging promotional environment, which resulted in lower than anticipated comparable store sales and merchandise margins. However, we did achieve improved results in our Wet Seal e-commerce business, which generated a sales increase of 25.1%.”
Mr. Thomas continued, “I am pleased to be back at Wet Seal. I plan to move quickly to analyze the business and develop an action plan to restore growth — in fact, those steps are already in motion. We have an enduring brand and a talented team of operators to execute our plans in the near-term. Our executive management team and Board of Directors recognize that current operating results and near-term outlook are disappointing to our shareholders. We’re committed to creating shareholder value and expect to report back on our findings and new strategic direction in the coming weeks.”
As of August 2, 2014, the Company had cash and cash equivalents of $40.3 million and $22.2 million in convertible debt, net of discount. Inventory totaled $38.4 million compared to $40.9 million a year ago. After giving effect to final conversion of Arden B stores to Wet Seal and Wet Seal Plus stores at the end of the second quarter, inventory per square foot was down 7.9% versus a year ago.
As previously announced, in fiscal 2014 the Company expects to open 9 new Wet Seal stores, primarily in outlet centers and off-mall locations, and now estimates it will close 48 Wet Seal locations, primarily upon lease expirations. These store closures include 15 stores converted from Arden B that will be operated temporarily as Wet Seal or Wet Seal Plus stores until late fiscal 2014. During the second quarter of fiscal 2014, the Company opened 4 and closed 2 Wet Seal stores and closed 3 Arden B stores. As ofAugust 2, 2014, the Company operated 531 stores in 47 states and Puerto Rico, including 480 Wet Seal stores and 51 Arden B stores. Immediately following the end of the fiscal second quarter, the Company transitioned 30 of the Arden B stores to Wet Seal Plus stores and 19 of the Arden B stores to Wet Seal stores, and the remaining 2 Arden B stores were closed in August 2014.
Third Quarter Fiscal 2014 Financial Outlook
For the third quarter of fiscal 2014, the Company expects loss per diluted share, before non-cash asset impairments, severance, Arden B exit costs and fair value adjustment for warrants and embedded derivatives, to be in the range of $0.22 to $0.28. The guidance is based on a comparable store sales decline, including e-commerce, in the mid to high teens.
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Source: The Wet Seal, Inc.