Specialty retailer Wet Seal Inc. (WTSL) has decided to shut down 338 retail stores effective Jan 7, 2015 as part of its strategy to shed underperforming assets to reduce cost. Wet Seal revealed the decision of store closure following management’s inability to negotiate successful concessions from the landlords of the stores. The stores contributed almost 48% of its net sales over the nine months ended Nov 1, 2014.
Simultaneously, Wet Seal decided to lay off 3,695 full and part-time employees in these stores.
Wet Seal expects to incur pre-tax charges within $5.4 to $6.4 million, including costs associated with inventory write-off, asset impairments and employee terminations.
Wet Seal has been witnessing declining comparable-store sales for several quarters now due to lower comps at both Wet Seal and Arden B Stores. Moreover, prolonged constrained discretionary spending environment, poor back-to-school season and unemployment are lowering comps further.
IN April, Wet Seal announced its plans to wrap up its Arden B business to reduce its cost of operation. The decision follows the comprehensive review of the business carried out by the company to improve business fundamentals.
In its recently reported second quarter fiscal 2014, Wet Seal reported lower-than-expected revenues and wider than expected losses due to lower-than-expected comps (Read: Wet Seal Q2 Loss Wider than Expected; Sales Miss Estimates).
Management is not too optimistic about the third quarter either. Wet Seal expects to report net loss per share in the 22 to 28 cents range, wider than the Zacks Consensus Estimate of a loss of 8 cents. The guidance also compared unfavorably to a loss of 12 cents incurred a year ago.
The cautious third-quarter outlook shows that revival in consumer spending will take time. It expects comps to decline in the range of mid-to-high teens as against an increase of 1% in the previous year.
Though the company has taken steps to turn its business around, we prefer to wait until these initiatives yield substantial results.
Stocks to Consider
Wet Seal carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the retail apparel/shoe industry include L Brands, Inc. (LB), Tilly’s Inc. (TLYS) and Foot Locker Inc. (FL). All these stocks carry a Zacks Rank #2 (Buy).
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