Wet Seal Inc.’s (WTSL) second-quarter fiscal 2014 adjusted loss of 15 cents per share was wider than the Zacks Consensus Estimate of 10 cents and management’s guidance range of a loss 9 to 12 cents due to lower-than-expected comparable store sales (comps). Results were also wider than a loss of 1 cent incurred in the year-ago quarter due to weak top line.
Following a comprehensive review of the Arden B business carried out by Wet Seal, the business was wrapped up in Jul 2014 to reduce the cost of operation.The Arden B results are till the business shutdown.
Consolidated Revenues and Margins
Wet Seal's net sales in the reported quarter slipped 11.7% to $121.2 million from $137.2 million in the prior-year period due to lower comps during the quarter. Net sales also missed the Zacks Consensus Estimate of $124.0 million by 2.3%.
During the second quarter, comps declined 12.4% due to an 11.1% fall in comps at Wet Seal and 22.8% decline at Arden B. Comps also compared unfavorably with a gain of 3.4% in the previous year mainly due to weak mall traffic.
During the reported quarter, Wet Seal opened four and closed two Wet Seal stores and shuttered three Arden B stores.
Gross profit dipped 35.1% to $26.4 million compared with $40.7 million a year ago. The gross margin shrank 780 basis points to 21.8% versus 29.6% a year ago due to lower merchandise margins and higher occupancy costs. Wet Seal suffered an operating loss of $11.1 million, compared to $1.1 million income incurred a year ago.
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 trendy and competitively priced apparel for girls aged 13 to 19 years. Net sales at Wet Seal Stores slipped 9.8% to $108.72 million. Same-store sales slipped 11.1% compared with an increase of 3.8% in the previous year due to lower traffic at the stores.
ArdenB Stores: These stores offer apparels for women aged 25 to 39 years which include dresses of contemporary fashion, sportswear and accessories suitable for any occasion. Net sales of $12.45 million at the Arden B stores declined 25.4% from the year-ago quarter. Same-store sales slipped 22.8% as against a gain of 1.3% in the prior year due to lower traffic.
Financial Updates
The company had cash and cash equivalents of $40.3 million as of Aug 2, 2014, up from $46.0 million as of May 3, 2014. Inventory per square foot was down 7.9% from the prior year.
Third-Quarter Fiscal 2014 Guidance
Wet Seal expects to report net loss per share in the 22 to 28 cents range in the third quarter of 2014, wider than the Zacks Consensus Estimate of a loss of 8 cents. It expects comparable store sales to decline in the range of mid-to-high teens.
In fiscal 2014, Wet Seal expects to open nine Wet Seal stores, primarily at outlet centers and off-mall locations. It plans to close 48 Wet Seal locations including 15 stores converted from Arden B. Some of them will be operated temporarily as Wet Seal or Wet Seal Plus stores until late fiscal 2014.
Wet Seal currently carries a Zacks Rank #3 (Hold). Other stocks in the retail sector that are worth considering include Citi Trends Inc.(CTRN), Foot Locker Inc.(FL) and Express Inc. (EXPR). While Citi Trends sports a Zacks Rank #1 (Strong Buy), Foot Locker and Express carry a Zacks Rank #2 (Buy).
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