Wet Seal Posts In-line EPS
Wet Seal Inc. (NASDAQ:WTSLA) reported first quarter 2012 earnings of 2 cents per share, which was sharply lower than the year-ago quarter’s earnings of 8 cents. The earnings exclude the after-tax effect of non-cash asset impairment charges. However, earnings per share (EPS) were in line with Zacks Consensus Estimate.
The year-on-year downfall in the net earnings was due to decline in revenues and same store sales in both Wet Seal and Arden B stores
Consolidated Revenue and Margins
Wet Seal’s net sales in the reported quarter went down to $147.9 million from $156.1 million in the prior-year period. The lower sales in the tops business offset the measures that were taken by the company for a rebound in its Arden B stores. Additionally, sales also missed the Zacks Consensus Estimate of $149 million.
The company opened one and closed four Wet Seal Stores and two Arden B stores in the first quarter. As of April 28, 2012, the Company operated 553 stores in 47 states and Puerto Rico, comprising 469 Wet Seal stores and 84 Arden B stores.
The company suffered an operating loss of $0.4 million compared to an income of $13.3 million incurred in the year-ago quarter. Operating margin came down to 0.3% of net sales compared with8.5% of net sales in the year-ago quarter.
Selling, General and Administrative expenses went up to $40.4 million from $38.8 million in the prior year quarter.
The Wet Seal segment net sales came down year over year to$126.2 million compared with$131.0 million in the year-ago quarter. Same-store sales were a negative 7% compared to an increase of 8.3% in the prior-year quarter. Operating income went down to $9.3 million in the first quarter compared with$18.8 million a year ago.
Net sales at the Arden B stores also came down to $21.7 million compared with$24.9 million in the year-ago quarter. Same store sales declined by 11.4% year over year compared witha decline of 0.1% in the year-ago quarter. The segment suffered operating loss of $1.3 million compared to an income of $2.6 million a year ago.
Other Financial Updates
The company exited the quarter with cash and cash equivalents of $148.1 million as of April 28, 2012, up from $133.1 million as on April 28, 2011. Square footage went up to 2,142 from 2,060 in the year-ago quarter.
The company used $5.1 million cash from operations and incurred capital expenditure of $3.8 million. The company spent $2.4 million for new stores and remodeling of existing stores.
Based on the first-quarter fiscal 2012 results, Wet Seal estimates its second-quarter 2012 EPS to be in the range of 3 cents to 6 cents compared with earnings of 2 cents in the prior-year quarter. The Zacks Consensus Estimate is currently pegged at 2 cents for the second quarter of fiscal 2012 and 16 cents for fiscal year 2012.
For the second quarter, net sales are expected to be between $136 million and $141 million and comparable store sales are expected to decline in the range of 7% and 11%.
Gross margin is expected to be between 24.3% and 26.1% of net sales and operating loss is expected to bebetween $5.0 million and $8.7 million.
For fiscal 2012, the company plans a net 20 – 22 store openings at Wet Seal, down from previously announced plan of opening 25 –30 stores. The company also plans to bring down Arden B store base from the current 84 stores to approximately 64 to 69 stores by the end of fiscal 2012.
Wet Seal faces stiff competition from American Eagle Outfitters Inc. (NYSE:AEO) and Gap Inc. (NYSE:GPS). Currently, Wet Seal carries a Zacks #4 Rank, which translates into a short-term ‘Sell’ rating.