Wet Seal Inc. (WTSLA) reported fourth quarter 2011 earnings of 3 cents per share that slipped 57.1% from the year-ago period. However, reported earnings per share (EPS) were in line with Zacks Consensus Estimate.
Fiscal 2011 earnings remained flat year over year, at 19 cents per share, in line with the Zacks Consensus Estimate.
The year-on-year downfall in the net earnings was due to decline in revenues. Lower sales in the tops business offset the strong performance in the denim and other elements of bottoms business, resulting in the revenue decline.
Based on the fourth-quarter results and the prior-year quarter’s performance, Wet Seal estimates its first-quarter 2012 EPS to be in the range of 2 cents to 4 cents.
The current Zacks Consensus Estimate for earnings is pegged at 6 cents per share for the first quarter of 2012. The estimate for full year 2012 is 21 cents.
Consolidated Revenue and Margins
Wet Seal’s net sales in the reported quarter went down 1.4% to $163.2 million compared with $165.5 million in the prior-year period. The holiday season and offers also failed to boost sales during the period. Additionally, sales also missed the Zacks Consensus Estimate of $165 million.
However, net sales in fiscal 2011climbed 6.7% year over year to $620.1 million, but missed the Zacks Consensus estimate of $622.0 million.
During the fourth quarter, the company opened nine stores and closed one stores at Wet Seal and it opened four stores, while closed none at Arden B. As of January 28, 2012, the Company operated 558 stores in 47 states and Puerto Rico, including 472 Wet Seal stores and 86 Arden B stores.
The Wet Seal segment net sales remained flat year over year at $138.80 million. Same store sales shrunk 4.6% year over year during the quarter. Sales of $24.3 million at Arden B stores came down from $26.8 million in the year-ago period.
Wet Seal forecasts net sales during the first quarter 2012 to be in the range of $148 million to $150 million.
Operating income plunged 71.1% to $2.2 million year over year, while operating margin inflated 320 basis points in the quarter. Selling, General and Administrative expenses went up by 4.90% compared with the corresponding quarter in the prior year, primarily due to incremental selling and distribution costs.
Other Financial Updates
The company exited the quarter with cash and cash equivalents of $157.2 million as of January 28, 2012, up from $125.4 million as on January 29, 2011. Square footage went up 5.4% from the year-ago quarter. The company generated $31.5 million cash from operations and incurred capital expenditure of $26.5 million. The company spent $54.52 million of cash for the purpose of repurchasing common stock.
Wet Seal faces stiff competition from American Eagle Outfitters Inc. (AEO) and Gap Inc. (GPS). We are encouraged to see that Wet Seal is primarily focusing on improving its current stores, which should generate greater profit in the coming quarters. The company’s balance sheet reveals strength. However, highly competitive nature of the women’s apparel industry and seasonal nature of the same keep us concerned.
Currently, we prefer to rate the stock as Neutral. Further, Wet Seal holds the Zacks #4 Rank, which translates into a short-term ‘Sell’ rating.
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