The Wet Seal, Inc. (Nasdaq: WTSLA), a leading specialty retailer
to young women, today announced a corporate workforce reduction and
certain other cost-saving and investment initiatives. The Company
also announced the resignation of President and Chief Operating
Officer Ken Seipel and implementation of a $25 million share
repurchase program.
Workforce Reduction and Other Cost-Saving and Investment
Initiatives
As part of a strategic business review, the Company has
implemented a workforce reduction of 35 positions, of which a
portion are currently vacant positions, to align with its current
business requirements. Thirty-two positions were eliminated in the
Company's corporate offices and three were eliminated in the field.
Including the additional impact of eliminating the Chief Operating
Officer position, as discussed further below, the workforce
reductions are expected to result in annualized pre-tax savings of
approximately $3.8 million beginning in fiscal 2013, and the
Company expects to incur one-time severance charges of
approximately $1.3 million in its fiscal 2012 fourth quarter.
The Company also announced planned fiscal 2013 cost reductions
of approximately $2.5 million for store labor through staffing
efficiency measures and approximately $2.1 million for several
other cost savings plans.
In the fourth quarter of fiscal 2012, the Company also executed
early lease terminations for two Arden B stores that had lease
terms extending beyond fiscal 2013. As a result, these stores will
close at the end of fiscal 2012. These stores incurred fiscal 2012
operating losses of approximately $1.0 million.
Beginning in late fiscal 2012, in collaboration with the U.S.
Equal Employment Opportunity Commission, the Company also initiated
new investments in its Human Resources function, which are expected
to bring many needed, value-added services to the Company’s field
and corporate teams in the areas of hiring, training and
development and employee relations. Such investments include the
addition of HR field generalist positions, development and
execution of training programs, and implementation of automated
application tracking and performance review systems, diversity
initiatives and other employment administration tools. The Company
estimates these investments will be at a recurring annual cost of
$1.9 million, beginning in fiscal 2013. The Company also expects to
incur approximately $2.0 million in incremental legal fees in
fiscal 2013 for its defense in certain employment-related
litigation that arose in prior years. These legal fees do not
include the cost, if any, that the Company would incur to settle
such legal matters.
Resignation of President and Chief Operating Officer
Ken Seipel, the Company’s President and Chief Operating Officer,
has resigned, effective immediately, to pursue other professional
opportunities.
Concurrently, the Company has eliminated the Chief Operating
Officer position. John Goodman, the Company’s Chief Executive
Officer, will assume direct leadership over the store operations,
e-commerce and construction functions, while Steve Benrubi, the
Company’s Chief Financial Officer, will assume direct leadership
over the information technology and real estate functions.
Summary of Cost-Saving and Investment Initiatives
The Company expects the above initiatives to generate fiscal
2013 net pre-tax savings of $5.5 million, as follows ($ in
millions):
Fiscal 2013
Savings
(Costs)
Workforce Reductions
$ 3.8
Store Labor Efficiencies
$ 2.5
Other Cost Reductions
$ 2.1
Elimination of Operating Losses
Upon Two Arden B Store
Early Lease Terminations
$ 1.0
Human Resources Investments
$(1.9)
Increased Legal Defense Costs
$(2.0)
Net Savings
$ 5.5
Assuming the Company's forecasted effective income tax rate of
39%, the Company estimates the above net cost savings will benefit
fiscal 2013 diluted earnings per share by $0.04.
The Company’s organizational review continues and could lead to
identifying additional investment needs at a later date. If made,
such investments would reduce the net savings noted above.
Implementation of $25 million Share Repurchase
Program
The Company today announced that its Board of Directors has
authorized a $25 million share repurchase program, to be executed
through open market or privately negotiated transactions. The
timing and number of shares repurchased will be determined by the
Company's management based on its evaluation of market conditions
and other factors. The repurchase program may be suspended or
discontinued at any time.
Based on the Company's closing share price on January 31, 2013,
the $25 million under the share repurchase program represents
approximately 10% of the Company's total market capitalization. The
repurchase program will be funded using existing cash and cash
equivalents on hand, which the Company estimates will be
approximately $113 million at the end of fiscal 2012 on February 2,
2013. This cash position reflects payment of February rents and
other landlord costs by that time, which is typical. At the end of
fiscal 2011, however, due to the relatively early timing of that
fiscal year-end date, the Company had not yet paid its February
rents and other landlord costs of approximately $9.5 million. As a
result, the Company incurred cash payments for thirteen months of
rents and other landlord costs in Fiscal 2012.
CEO Comments
Mr. Goodman commented: "The Company is in process of reviewing
various business strategies and practices, with the goal of
increasing operational efficiency and profitability and aligning
our workforce to our current business needs. We are in the early
stages of implementation. We very much appreciate the past
contributions of the affected team members.
“I would also like to thank Ken Seipel for his efforts over the
past two years, especially in his leadership role in the second
half of 2012. During that time, Ken partnered with Steve Benrubi to
successfully begin restoring our fast fashion model in the midst of
Board leadership change and a vacancy in the Chief Executive
Officer position. We appreciate Ken’s stewardship during that
challenging period for the Company, and we wish him well in his
future professional endeavors.
"With these actions addressed, we now have a leaner and more
nimble and entrepreneurial organization. Our team is now better
structured to take quick and decisive actions to improve
merchandising and increase efficiencies throughout all functional
areas. To that end, we continue to work diligently towards
restoring profitability and positioning the Company to make
additional investments to drive future growth.
“Lastly, we are also pleased to be announcing our $25 million
share repurchase program. We believe this amount and our execution
plans for this program strike an appropriate balance between
maintaining a more efficient capital structure for our shareholders
and ensuring our financial strength while we stabilize our
operating cash flows.”
About The Wet Seal, Inc.
Headquartered in Foothill Ranch, California, The Wet Seal, Inc.
is a leading specialty retailer of fashionable and contemporary
apparel and accessory items. As of December 29, 2012, the Company
operated a total of 555 stores in 47 states, the District of
Columbia and Puerto Rico, including 475 Wet Seal stores and 80
Arden B stores. The Company's products can also be purchased online
at www.wetseal.com or www.ardenb.com. For more company information,
visit www.wetsealinc.com.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995: This news release contains forward-looking
statements as that term is defined in the Private Securities
Litigation Reform Act of 1995. These forward-looking statements
include, but are not limited to, statements that relate to the
Company's expected fiscal 2013 pre-tax savings and diluted earnings
per share impact from today's workforce reductions and other
cost-saving and investment initiatives, its estimated one-time
charges related thereto in the fourth quarter of fiscal 2012, its
forecasted fiscal 2013 effective income tax rate or any other
statements that relate to the intent, belief, plans or expectations
of the Company or its management. All forward-looking statements
made by the Company involve material risks and uncertainties and
are subject to change based on factors beyond the Company's
control. Accordingly, the Company's future performance and
financial results may differ materially from those expressed or
implied in any such forward-looking statements. Such factors
include, but are not limited to, those described in the Company's
filings with the Securities and Exchange Commission. This news
release contains results reflecting partial year data and
non-fiscal data that may not be indicative of results for similar
future periods or for the full year. The Company will not undertake
to publicly update or revise its forward-looking statements even if
experience or future changes make it clear that any projected
results expressed or implied therein will not be realized.
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