WTSLA The Wet Seal - Class A (MM)

Same-store sales at Wet Seal Inc. (WTSLA), a specialty retailer of fashionable and contemporary apparel and accessory items for women, plunged 9.7% year over year in the five-week period ended December 29, 2012. This compares unfavorably with the 3.7% decline in same-store sales in the year-ago period.

The decline was mainly due to lower transactions in all the stores. Total sales slipped 8.3% from the year-ago period to $73.0 million in December 2012.

Comparable sales in the Wet Seal stores declined 9.4% year over year, compared with a 2.5% slip in the year-ago period. Arden B stores reported a year-over-year decline of 11.5% versus a 10.2% fall in December 2011.

Total sales in Wet Seal stores slipped 7.2% year over year to $62.9 million and Arden B stores’ total sales declined 14.7% to $10.1 million in December 2012.

The decline in total sales and comparable sales period could be attributable to the slower pace of economic recovery and lower spending by domestic customers.

However, e-commerce performed better than other divisions and sales went up 10.4% in December 2012. The improvement resulted from the company’s efforts to increase sales through the expansion of its online business.

Comparable-store sales in December were below management’s expectations. The company continues to promote its sales to keep inventory at manageable levels.

Future Planning

Wet Seal announced that it is conducting a capital planning review, which includes the review of the company’s cash position.

Wet Seal maintained its guidance and expects fourth-quarter fiscal 2012 loss per share to be in the range of 3 cents to 6 cents.

The Zacks Consensus Estimate is pegged at a loss of 6 cents a share for the fourth quarter of fiscal 2012.

During its third-quarter earnings conference call, the company announced plans to close four Wet Seal stores and fifteen Arden B stores at the end of the fourth quarter. For fiscal 2012, the company narrowed its capital expenditure plan to a range of $20 million to $21 million from previously announced guidance range of $20 million to $22 million. The company expects to close four Wet Seal stores and twenty net Arden B stores at the end of fiscal 2012.

In order to align the company's sales reporting frequency other specialty apparel retailers, Wet Seal announced that it will discontinue the reporting of monthly sales figures from the first quarter of fiscal 2013. Instead, it will report sales on a quarterly basis on the first Thursday following the close of each quarter.

Conclusion

Management plans to make its women’s tops stocks more trendy and increase the variety available in its stores. We are encouraged by the company’s efforts to increase its penetration in the e-commerce business and transition into full-price online selling.

However, declining operating income in recent quarters on the back of higher SG&A expenses and promotion activities, limited infrastructure, the highly competitive nature of the women’s apparel industry and the seasonal nature of the same are matters for concern.

Wet Seal faces stiff competition from American Eagle Outfitters Inc. (AEO) and Gap Inc. (GPS). Currently, Wet Seal holds a Zacks #3 Rank (short-term Hold rating).

Headquartered in Foothill Ranch, California, Wet Seal is a specialty retailer of fashionable and contemporary apparel and accessory items.

 
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