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Wet Seal business becomes more challenging

23
Nov '11
The Wet Seal Inc., a leading specialty retailer to young women, announced results for its fiscal third quarter ended October 29, 2011, and introduced guidance for the fourth quarter of fiscal 2011.

For the third quarter:
• Net sales were $152.1 million compared to net sales of $146.4 million for the prior year third quarter.
• Consolidated comparable store sales declined 0.9%. Comparable store sales for Wet Seal declined 0.1% and for Arden B declined 6.3%.
• Operating income was $6.1 million, or 4.0% of net sales, compared to $5.1 million, or 3.5% of net sales, in the prior year third quarter.
• The current year quarter included a $1.3 million reversal of accrued incentive compensation expense, which reflects reduced expectations for achievement of incentive targets for the fiscal year.
• The current year quarter included $0.7 million in non-cash asset impairment charges and the prior year quarter included $1.6 million in non-cash asset impairment charges. Excluding the impact of these non-cash charges, operating income would have been $6.8 million, or 4.5% of net sales, in the current year quarter, compared to $6.7 million, or 4.5% of net sales, in the prior year quarter.
• The prior year quarter included a $0.5 million non-cash income tax charge due to a decrease in deferred tax assets related to a tax method change elected upon filing the 2009 federal tax return.
• Net income was $3.7 million, or $0.04 per diluted share, as compared to $2.6 million, or $0.03 per diluted share, in the prior year quarter. Excluding the after-tax effect of the non-cash asset impairment charges, net income in the current year quarter would have been $4.1 million, or $0.05 per diluted share. Excluding the after-tax effect of the non-cash asset impairment charges and the non-cash charge to decrease deferred tax assets, net income in the prior year quarter would have been $4.0 million, or $0.04 per diluted share.
• As of quarter-end, the Company's inventory per square foot was up 2% versus the prior year quarter, with Wet Seal up 2% and Arden B up 1%.
• The Company generated cash flows from operations of $3.4 million during the third quarter, and ended the quarter with $131.3 million of cash, cash equivalents and short-term investments, and no debt.

Ms. Susan McGalla, chief executive officer of The Wet Seal, Inc., commented, “Building on positive momentum from the first half of the year, our Wet Seal business continued to be strong during the high traffic back-to-school shopping period through August and into early September. As we transitioned to fall, Wet Seal business became more challenging, as our sportswear and outerwear assortments for the season did not perform to our expectations.

“At Wet Seal this year, we also eliminated Halloween costumes and related merchandise, a historically low margin business for us, in order to maintain a brand-right fashion assortment in our stores. This was the right strategic decision for our long-term direction, but also challenged sales results in October.”


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