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 9.4% year over year in the five-week period ended February 2, 2013. This compares favorably with the 13.0% decline in same-store sales in the year-ago period.

The improvement during the month was mainly due to strong performance in the Arden B stores. Total sales climbed 23.3% from the year-ago period to $40.0 million in January 2013.

Comparable sales in the Wet Seal stores declined 13.4% year over year, compared with a 13.0% slip in the year-ago period. Arden B stores reported a year-over-year rise of 22.8% versus a 12.7% fall in January 2012.

Total sales in Wet Seal stores climbed 17.2% year over year to $32.02 million and Arden B stores’ total sales soared 55.3% to $8.0 million in January 2013.

Improvement in business trends during January 2013 helped comparable store sales to gain during the month. Sales in the Arden B stores benefited partially from shift in New Year’s Eve sales from fiscal December last year to the first week of January this year. The shift benefited business considerably.

However, e-commerce performed better than other divisions and sales went up 29.8% in January 2013. The improvement resulted from the company’s efforts to increase sales through the expansion of its online business. Excluding the shift of New Year’s Eve sales from fiscal December last year to the first week of January this year, e-commerce sales increased 6.5% during the month.

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

With consumers regaining confidence, Jan 2013 was strong for most retailers, including Gap Inc. (GPS), Ross Stores Inc. (ROST) and Costco Wholesale Corporation (COST) which registered comps growth of 8%, 4% and 4%, respectively.

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 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 its seasonal nature are matters for concern.

Headquartered in Foothill Ranch, California, Wet Seal is a specialty retailer of fashionable and contemporary apparel and accessory items and carries Zacks Rank #3 (Hold).

 
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