'We will continue to closely monitor inventory levels' - Wet Seal
The Wet Seal Inc, a leading specialty retailer to young women, announced results for its fiscal first quarter ended May 2, 2009, and introduced guidance for the second quarter of fiscal 2009. The company provided segment information on Wet Seal and Arden B in Exhibit B.
For the First Quarter:
• Net sales for the fiscal quarter ended May 2, 2009, were $132.0 million compared to net sales of $142.4 million for the fiscal quarter ended May 3, 2008.
• Consolidated comparable store sales decreased 7.3%. Comparable store sales for Wet Seal decreased 7.9% and for Arden B decreased 4.1%.
• Operating income was $5.2 million, or 3.9% of net sales, compared to $8.7 million, or 6.1% of net sales, in the first quarter of fiscal 2008.
• Current year and prior year first quarter stock compensation expense included benefits of approximately $0.9 million and $0.9 million, respectively, primarily due to higher than previously estimated forfeitures of unvested stock awards resulting from executive and other employee departures from the Company over the past two years.
• Net income was $5.0 million, or $0.05 per diluted share, as compared to $8.9 million, or $0.09 per diluted share, in the prior year quarter.
• The first quarter earnings per diluted share of $0.05 was near the high end of the Company's initially announced guidance and exceeded the Company's most recently announced guidance for the quarter of approximately $0.04 per diluted share.
Ed Thomas, chief executive officer, commented, "We remained focused on executing on key initiatives during the first quarter. We were very pleased to see early signs of a turnaround in our Arden B business, which generated healthy operating income in excess of $2.5 million in the first quarter and delivered positive comparable store sales for the first month in two years in April.
While Wet Seal results were pressured by a difficult retail environment and were impacted by inventory mix issues identified early in the quarter, we maintained strong operational discipline and continued with our store remodeling efforts and several merchandising initiatives that we expect will improve store level productivity and profitability at this division."
Mr. Thomas continued, "As of quarter-end, inventory per square foot declined 4.0% versus the prior year quarter, with Arden B down 21.4% and Wet Seal up 0.9%. While unit inventories at Arden B are up versus the prior year to support the increased sales volume associated with recent price reductions, strong inventory management resulted in continued decline in inventory investment and increased inventory turns. The slight inventory increase at Wet Seal was due mainly to a strategy to increase depth in our most popular denim styles. That said, we will continue to closely monitor inventory levels and maintain tight controls based on the current environment."
The Company generated cash flows from operationsof $1.8 million during the 13 weeks ended May 2, 2009, and ended the quarter with $139.2 million of cash and cash equivalents and $2.9 million of long-term debt, comprised of Convertible Notes, net of discount.
Store Openings and Closings
The Company opened one Wet Seal store and closed four Arden B stores during the first quarter. At May 2, 2009, the Company operated 493 stores in 47 states, the District of Columbia and Puerto Rico, including 410 Wet Seal stores and 83 Arden B stores.
Capital Expenditures and Depreciation
During the first quarter, the Company incurred capital expenditures of $6.9 million, of which $6.0 million was for construction of new stores and remodels of existing stores. The Company recognized tenant improvement allowances of $0.2 million associated primarily with new store construction, resulting in net capital expenditures for the quarter of $6.7 million.
Depreciation in the first quarter totaled $3.6 million as compared to $3.6 million in the prior year first quarter.