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Wet Seal's Q4 Loss Narrower than Ests

Zacks Equity Research

Wet Seal Inc.’s(WTSL) fourth-quarter fiscal 2013 adjusted loss of 23 cents per share was narrower than the Zacks Consensus Estimate of a loss of 24 cents. However, it was wider than a loss of 6 cents incurred in the year-ago quarter due to weak top line. Also, the loss was significantly wider than management’s guidance of loss of 14 to 17 cents per share.

Consolidated Revenues and Margins

Wet Seal's net sales in the reported quarter slipped 22.8% to $124.8 million from $161.7 million in the prior-year period due to lower comparable store sales (comps) during the quarter. Net sales also missed Zacks Consensus Estimate of $131.0 million by 4.7%.

During the fourth quarter, comps declined 16.5% due to a 15.4% decline in comps at Wet Seal and 25.0% decline at Arden B. Comps were poor compared to flat comps in the previous quarter. However, comps were better than a decline of 18.0% in the previous year.

Gross profit dipped 41.6% to $23.4 million compared with $40.1 million a year ago. The gross margin shrank 600 basis points (bps) to 18.8% versus 24.8% a year ago due to soft sales. Operating loss widened to $27.3 million compared to $25.5 million in the prior-year quarter as lower selling, general and administrative expenses were more than offset by lower sales.

Segment Details

Wet Seal operates through two nationwide, primarily mall-based, chains of retail stores — Wet Seal and Arden B.

Wet Seal Stores: These stores offer apparel for girls aged 13 to 19 years that are trendy and competitively priced. Net sales at Wet Seal Stores slipped 18.7% to $137.2 million. Same-store sales slipped 15.4% compared to a decline of 9.1% in the previous year due to lower traffic in the stores.

ArdenB Stores: These stores offer apparels for women aged between 25 to 39 years which include dresses of contemporary fashion, sportswear and accessories suitable for any occasion. Net sales of $13.3 million at the Arden B stores declined 45.6% from the year-ago quarter. Same-store sales slipped 25.0% compared to a decline 3.1% in the prior year due to lower traffic.

Financial Updates

The company had cash and cash equivalents of $46.0 million as of Feb 1, 2014 up from $27.8 million as of Nov 2, 2013. Inventory stood at $31.2 million, down from $42.6 million recorded at the end of the prior quarter.

Fiscal Results

For fiscal 2013, adjusted loss of 32 cents per share was in line with the Zacks Consensus Estimate. However, it was wider than a loss of 21 cents incurred a year-ago due to weak top line.

Wet Seal's net sales in the reported quarter slipped 8.7% to $530.1 million from $580.4 million in the prior-year period due to lower comps. Sales also missed Zacks Consensus Estimate of $535.0 million by 1%.

Comps dropped 4.1% due to 3.6% and 7.6% decline at Wet Seal and Arden B stores, respectively. Comps were, however, better than the 7% decline in the prior year.

First Quarter Fiscal 2014 Guidance

Wet Seal expects to report net loss in the 16 to 19 cents per share range in the first quarter of 2014, wider than the Zacks Consensus Estimate of a loss of 2 cents.

In fiscal 2014, Wet Seal expects to open 10 and close 17 Wet Seal stores upon lease expiration. The company also expects to close approximately 13 Arden B stores during the year. Net capital expenditures are expected between $10.5 million and $11.5 million. Approximately $6 to $7 million is expected to be used for remodeling existing stores upon lease renewals and/or store relocations or construction of new ones.

Conclusion

Wet Seal currently carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the retail sector that are worth considering include American Apparel Inc. (APP), Foot Locker Inc. (FL) and Belle International holdings Limited (BELLY). All these stocks have a Zacks Rank #2 (Buy).

Read the Full Research Report on FL
Read the Full Research Report on WTSL
Read the Full Research Report on APP
Read the Full Research Report on BELLY


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