This summary is based on the fourth quarter fiscal 2007 earnings call conducted by The Wet Seal Inc. (WTSLA) on March 27, 2008.
Management:
CEO and President: Edmond Thomas
CFO: Steve Benrubi
VP of Financial Planning and Analysis: Jennifer McEntee
Key Investor Issues:
- Quarterly diluted EPS were 13 cents versus net loss of 7 cents last year quarter.
- Full year net sales increased 8.3% from $564.3 million to $611.2 million.
- The company repurchased 3,593,700 shares for $20.1 million during the year.
Fiscal 2007 Financial Highlights
- The consolidated comparable store sales dipped 1.1% versus 6.1% increase in 2006.
- Comparable stores sales for Wet Seal rose 1.2% and eased 8.2% for Arden B.
- Operating income was $19.3 million, or 3.2% of net sales versus $15 million, or 2.7% of net sales in the past year.
- Cash and cash equivalents were $100.6 million compared with $105.3 million last year.
Fourth-Quarter Financial Highlights:
The net sales for the 13-week period ended February 2, 2008 were $179.6 million compared with $166.4 million for the 14-week period ended February 3, 2007.
The net sales included $3.7 million ‘breakage’ benefit due to a reduction of deferred revenues for unredeemed gift cards, gift certificates and store credits outstanding for more than three years from respective issuance dates.
- The management reported that the extra week in the last year increased reported net sales by $9.4 million in the same period.
- The consolidated comparable store sales dipped 1.4%. The comparable store sales for Wet Seal rose by 2.1% and decreased by 12.5% for Arden B.
- During the quarter, Internet sales increased by 1.6% from the last year quarter.
Quarter gross profit was $57.4 million at a rate of 32.7% versus $55.9 million, or rate of 33.6% in the prior year Q4.
The 90 basis point decrease and adjusted gross margin are a result of a 20 basis points decrease in merchandise margins and 70 basis points de-leveraging on buying on occupancy cost.
The reported operating income was $11.3 million compared with $4.8 million in the fourth quarter fiscal 2006.
- The quarter operating income was 6.3% of net sales versus 2.9% same quarter in 2006. The operating income during the quarter was partially offset by $3.7 million in non-cash asset impairment charges. This was primarily to fully impair goodwill associated with the Arden B division.
- The management also reported $2.3 million in stock compensation expense and $300,000 of cash compensating expense related to Wet Seal merchandise agreement. The non-cash asset impairment charges were $400,000.
The quarter net income of $12.2 million was an improvement from a net loss of $5.7 million in the last year quarter.
The net loss in the previous year included $11 million of non-cash interest expense to write-off unamortized discounts, deferred financing costs and accrued interest on conversions of the company’s convertible notes.
The quarter CapEx was $5.2 million and the full year amount was $38.6 million.
- About $25.1 million was for construction of new stores.
- The generated cash flows from operations in Q4 were $28.5 million,
- The company received tenant improvement allowance of $10.9 million in fiscal 2007. This is related to new store construction, ultimately resulting in net capital expenditures for the year of $27.7 million.
- The depreciation expense for the fiscal 2007 fourth quarter and full year was $3.7 million and $13.7 respectively.
The company addressed costs issues across a broad spectrum of organizational activities.
