Wet Seal generates positive earnings results

19 Nov '10

5 min read

The Company generated cash flows from operations of $13.7 million during the third quarter, and ended the quarter with $166.9 million of cash, cash equivalents and investments, and no long-term debt.

Capital Expenditures and Depreciation

During the third quarter, the Company incurred capital expenditures of $10.7 million, of which $9.5 million was for construction of new stores and remodels of existing stores. The Company recognized tenant improvement allowances of $2.3 million associated primarily with new store construction, resulting in net capital expenditures for the quarter of $8.4 million.

Depreciation in the third quarter totaled $4.3 million as compared to $3.9 million in the prior year third quarter.

Capital Transactions and Stock Repurchase Program

During the quarter, there were no warrants exercised for the Company's Class A common stock. On November 3, 2010, all of the Company's remaining Series E Warrants expired unexercised. As a result, no warrants to acquire the Company's Class A common stock remain outstanding.

The Company announced on September 7, 2010, that its Board of Directors authorized it to repurchase shares of its Class A common stock for an aggregate purchase price up to $25 million. Under this repurchase program, during the third quarter the Company repurchased 882,300 shares of its Class A common stock at an average price of $3.39 per share, for a total cost, including commissions, of $3.0 million.

Fourth Quarter Fiscal 2010 Guidance

For the fourth quarter of fiscal 2010, earnings are estimated in the range of $0.03 to $0.05 per diluted share. The guidance is based on the following major assumptions:
• Total net sales between $158 million and $163 million versus $151.0 million in the fourth quarter of fiscal 2009.
• Comparable store sales ranging from a decline of 3% to an increase of 1% versus a 4.5% decrease in the prior year fourth quarter.
• Gross margin rate between 28.9% and 30.6% of net sales versus 31.4% in the prior year fourth quarter.
• SG&A expense between 25.1% and 25.5% of net sales versus 24.7% in the prior year fourth quarter.
• Operating income between $5.4 million and $8.9 million versus operating income of $9.6 million in the prior year fourth quarter. Operating income in the current year fourth quarter includes a $0.6 million charge associated with a transition agreement with the Company's interim president and chief executive officer and the prior year fourth quarter included $0.5 million in non-cash asset impairment charges.
• Interest income of less than $0.1 million versus interest expense of $0.2 million in the prior year fourth quarter.
• Income tax expense of between $2.2 million and $3.6 million versus income tax benefit of $71.3 million in the prior year fourth quarter. The prior year fourth quarter included a non-cash tax benefit to reverse a deferred tax asset valuation allowance of $71.3 million.
• Net store openings of 7 stores at Wet Seal and 6 stores at Arden B.

The Wet Seal Inc

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