Foothill Ranch, CA—Wet Seal Inc. reported Thursday that it swung into a $85.8 million loss hit by taxes and other costs while its sales edged down as it struggles to return to fast fashion merchandising strategy.
For the quarter ended Feb. 2, the teen-oriented retailer posted a loss of $85.8 million, or 97 cents a share, compared with profit of $1.1 million, or a penny a share, a year ago. (The latest quarter had one week more than the year-earlier period.) Provision for income taxes soared to $60.3 million compared to $1.1 million the year earlier, while asset impairment charges in the fourth quarter more than tripled to $8 million.
Excluding such one items as asset write-downs, the adjusted loss was $4.8 million, or 6 cents a share, compared with adjusted earnings of 3 cents a year ago. Analysts’ average estimate expected a larger loss of $5.3 million.
Net sales edged declined 1% to $161.7 million, ahead of analysts’ consensus estimate for $160.9 million. Comparable store sales decreased 8.3%. By division, comp store sales declined 9.1% at Wet Seal and 3.1% at Arden B.
Operating loss was $25.5 million, or 15.8% of net sales, compared to operating income of $2.2 million, or 1.4% of net sales, in the prior year quarter. Gross margin narrowed to 24.8% from 30.4%.
Back to ‘Fast Fashion Roots’
“Fiscal 2012 was a challenging year for the company, marked by changes in leadership, strategic direction and brand positioning, which had a significant impact on our financial performance,” said John D. Goodman, who became chief executive in January, filling the vacancy left after former CEO Susan McGalla was fired in July 2012.
“During the past two months, our team has moved quickly to begin stabilizing the business, get back to Wet Seal’s fast fashion roots and prepare for growth,” Goodman said. “Additionally, we have taken meaningful action to reduce expenses, control inventories and leverage the core strengths of our team members.”
The company has now reported four consecutive quarters of losses and forecast a per-share loss of 3 cents to 6 cents on net revenue of $135 million to $139 million in its first quarter 2013. Comparable store sales are expected to decline in the mid single-digits, versus a 7.7% decrease in the quarter a year ago.
However, with its cost-cutting plan and a new merchandise strategy in the works, the company hopes to return to profitability in this fiscal year.
Spending this year will be mostly for store remodels as well as 19 new Wet Seal outlet stores.
“Our merchandising and field organizations are excited about our renewed focus on the core customer and we are effecting change in the assortments as quickly as possible,” Goodman said. “At the same time, we’re improving the visual presentation in the stores and developing marketing programs and partnerships designed to influence our Wet Seal customers.”
Goodman said merchandising changes at Arden B. were also implemented “enabling us to gain traction in key product categories and drive improvement in overall business trends.”