Despite Profit, Sales Decline, Wet Seal Shows Improvement in Q1

In Reports, What's New, Industry News by Jeff Prine

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Foothill Ranch, CA—In what some analysts say is indication that its turnaround is working, Wet Seal Inc. reported Tuesday that first quarter income and sales met or exceeded estimates.

For the quarter ended May 4, Wet Seal posted a profit of $3.1 million, or 3 cents a share, compared with a loss of $273,000, or break-even a share, a year ago. Excluding impairment charges, adjusted earnings edged down to slipped to 1 cent a share from 2 cents a share a year earlier.

Net revenue declined nearly 5.1% to $140.4 million due to lower sales at both its Arden B and Wet Seal stores. Online sales, however, increased 6.8% to $6.5 million.

The figures were in line with analysts’ estimate for earnings of 1 cent a share on sales of $140.3 million.

Comparable store sales declined 2.9%. By division, Wet Seal stores posted a net sales decline of 2.7% to $122.8 million with comp store sales down 3.4% compared to a 7.7% decline a year ago.

‘We Have Stabilized the Business’

At Arden B stores, net sales were down 18.9% to $17.6 million with comparable store sales down 0.9% compared to an 11.4% decline in the year-ago quarter.

According to the company, the sales decline was due to the slow pace of the U.S. economic recovery, lower customer spending, and “unfavorable climate” in the earlier weeks of the quarter.

Wet Seal has undergone has stabilized its executive staff under John D. Goodman, chief executive, who was named in January and who has instituted cost-cutting efforts. “We have effectively stabilized the business,” Goodman said. “We are seeing an increasingly strong response to our product offerings and customer engagement strategies, while at the same time, we have closely managed inventory and significantly improved our merchandise margin.”

During first quarter, gross margin widened to 30.1% from 29.5%. Overhead expenses were down 7.4%, while asset impairment charges slipped 56% to $1.6 million.

Operating income stood at $3.2 million for the quarter compared to an operating loss of $4 million in the prior-year quarter.

For its second quarter, Wet Seal forecast earnings between “break-even” to 2 cents a share with net sales of $138 million to $141 million. Comp store sales are expected to increase in the “mid-single digits.”

Analysts’ consensus expects a loss of 2 cents a share on sales of $132 million.


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