Sales down almost 11% at Wet Seal in Q3 FY'12

For the third quarter:

• Net sales were $135.5 million compared to net sales of $152.1 million for the prior year third quarter.
• Consolidated comparable store sales declined 13.5%. Comparable store sales for Wet Seal declined 13.5% and for Arden B declined 13.8%.
• Operating loss was $24.8 million, compared to operating income of $6.1 million, or 4.0% of net sales, in the prior year third quarter.
• The current year quarter included $2.1 million in professional fees to defend against a shareholder proxy solicitation to replace a majority of the Company's board members. The proxy solicitation ultimately led to an agreement to replace four of the Company's seven board members during the quarter.
• The current year quarter included $1.0 million in incremental legal fees for employment-related litigation and $0.6 million in charges for estimated settlement costs for various employment-related matters. The prior year quarter included a $1.3 million reversal of accrued incentive compensation expense, which reflected reduced expectations for achievement of incentive targets for the fiscal year.
• The current year and prior year quarters included $6.5 million and $0.7 million in non-cash asset impairment charges, respectively. Excluding the impact of these non-cash charges and the current year proxy solicitation costs, operating loss would have been $16.2 million in the current year quarter, compared to operating income of $6.8 million, or 4.5% of net sales, in the prior year quarter.
• Net loss was $14.8 million, or $0.17 per diluted share, as compared to net income of $3.7 million, or $0.04 per diluted share, in the prior year quarter. Excluding the after-tax effect of the non-cash asset impairment charges and proxy solicitation costs, net loss in the current year quarter would have been $9.7 million, or $0.11 per diluted share. Excluding the after-tax effect of the non-cash asset impairment charges, net income in the prior year quarter would have been $4.1 million, or $0.05 per diluted share.
• As of quarter-end, the Company's inventory per square foot was up 3% versus the prior year quarter, with Wet Seal up 5% and Arden B down 7%.
• The Company ended the quarter with $126.3 million of cash and cash equivalents and no debt. Due to the timing of quarter-end, the Company had not yet paid $9.6 million of its November rents and other landlord costs at that time. Typically, including at the end of the prior year quarter, the Company had made these payments during the quarter being reported.

The Company issued the following statement:

"While business in the third quarter remained challenging, we were encouraged by early signs of progress. Adjustments made to our merchandise assortment contributed to improved sales trends as we moved through the quarter. We began to transition Wet Seal back to its roots of being a fast fashion retailer, offering a broad assortment of on-trend merchandise at value price points that align with the tastes of the young teens to early 20's target customer. We believe we are now on a path that will lead to improved financial performance.