Comparable store sales up during Q2 - Wet Seal

23 Aug '11

5 min read

Depreciation in the second quarter totaled $4.8 million as compared to $4.0 million in the prior year second quarter.

Capital Transactions
Under a $56.7 million stock repurchase program approved by its Board of Directors, during the second quarter the Company repurchased 8,778,525 shares of its Class A common stock at a total cost of $39.4 million. Under this program, through July 30, 2011, the Company had repurchased 10,660,825 shares of its Class A common stock at a total cost of $46.1 million.

Subsequent to July 30, 2011, the Company repurchased an additional 2,314,957 shares of its Class A common stock at a total cost of $10.6 million, which completed the $56.7 million stock repurchase program. Upon completion of the stock repurchase program on August 15, 2011, the Company had 90,511,267 shares of its Class A common stock outstanding.

For the third quarter of fiscal 2011, earnings are estimated in the range of $0.05 to $0.06 per diluted share. The guidance is based on the following major assumptions:

• Total net sales between $159 million and $161 million versus $146.4 million in the third quarter of fiscal 2010.
• Comparable store sales increase in the mid-single digits versus a 0.1% decrease in the prior year third quarter.
• Gross margin rate between 31.5% and 32.1% of net sales versus 30.4% in the prior year third quarter, with expectations of an increase in merchandise margin.
• SG&A expense of 26.7% of net sales versus 25.9% in the prior year third quarter, with the increase mainly driven by increased stock compensation for stock awards granted upon hire of the Company's chief executive officer and chief operating officer and increased incentive compensation expense.
• Operating income between $7.6 million and $8.8 million versus operating income of $5.1 million in the prior year third quarter. The prior year third quarter operating income included $1.6 million in non-cash asset impairment charges.
• Interest income of less than $0.1 million versus interest income of less than $0.1 million in the prior year third quarter.
• Income tax expense of between $3.0 million and $3.4 million versus income tax expense of $2.6 million in the prior year third quarter. In the prior year third quarter, the Company elected a tax method change, upon filing its 2009 federal tax return, that resulted in the reduction of deferred tax assets related to its charitable contribution carry-forwards of $0.5 million. This decrease was recorded as a non-cash deferred income tax charge and increased the effective tax rate for the quarter.
• Net new store openings of 2 stores at Wet Seal and 4 stores at Arden B.
• Weighted-average diluted shares outstanding of between 90 million and 91 million shares.

For all of fiscal 2011, the Company now expects to have 20 net Wet Seal store openings and 3 net Arden B store openings. The Company forecasts fiscal 2011 net capital expenditures will be approximately $22 million to $23 million, of which approximately $17 million to $18 million will be for construction of new stores or remodeling of existing stores upon lease renewals and/or store relocations.

The Wet Seal Inc

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