Wet Seal's Comps Decline in June

Zacks

Same-store sales at Wet Seal Inc. (WTSLA), a specialty retailer of fashionable and contemporary apparel and accessory items, plunged 9.0% year over year in the five-week period ended June 30, 2012. This compares unfavorably with the 7.3% increase in same-store sales in the year-ago period. Total sales slipped 7.5% in June 2012 to $53.6 million from the year-ago period.

Comparable sales in the Wet Seal stores declined 8.5% year over year, compared to a 7.5% increase in the year-ago period. Arden B stores reported a year-over-year decline of 11.9% versus a 6.6% increase in June 2011.

Total sales in Wet Seal stores slipped 7.1% year over year to $45.6 million and Arden B stores’ total sales declined 9.9% to $8.0 million in June 2012.

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

However, e-commerce performed better than last year and sales declined 5% in June 2012 versus a 17% decrease in the year-ago period. The improvement resulted from the company’s efforts to increase sales through expanding its online business and realigning e-commerce merchandising with its stores.

Comparable-store sales in June were in line with management’s guidance. The company continues to promote its sales to keep inventory at manageable levels.

Store Update

As of June 30, 2012, Wet Seal operated a total of 553 stores in 47 states and Puerto Rico, including 470 Wet Seal stores and 83 Arden B stores. The company had closed one Arden B store during the month of June 2012.

As of fiscal 2011, the company operated 558 retail stores in 47 states and Puerto Rico.

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 expects second-quarter fiscal 2012 loss per share to be in the range of 3 cents to 6 cents compared to prior-year quarter’s earnings of 2 cents a share.

The Zacks Consensus Estimate is pegged at a loss of 5 cents a share for second quarter of fiscal 2012.

During its first-quarter earnings conference call, the company announced its plans to open a 20 – 22 Wet Seal stores, for fiscal 2012, down  from the previously announced plan of opening 25 –30 stores. The company also plans to bring down the number of Arden B stores from the current 84 stores to approximately 64 to 69 stores by the end of fiscal 2012.

Conclusion

Management is geared up 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 the recent quarters on the back of higher SG&A expenses and promotion activities, limited infrastructure, highly competitive nature of the women’s apparel industry and seasonal nature of the same are matters of concern.

Wet Seal faces stiff competition from American Eagle Outfitters Inc. (AEO) and Gap Inc. (GPS). Currently, Wet Seal carries a Zacks #4 Rank, which translates into a short-term Sell rating with a long term Neutral recommendation.

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

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