RETAIL FINANCE

Wet Seal Discusses Bankruptcy, Other Options During 3rd Quarter Call

During a conference call on Dec. 10, executives of The Wet Seal Inc., discussing third-quarter results, raised the possibility of a company bankruptcy.

In financial documents and statements associated with results for the juniors retailer’s third fiscal quarter, Wet Seal, headquartered in Foothill Ranch, Calif., noted that the juniors company is looking to resolve “immediate liquidity needs.” On Nov. 24, the company hired investment banking company Houlihan Lokey to explore various options. In a Dec. 10 statement, Wet Seal noted that the company’s future may be in flux.

“If the company is unsuccessful in the very near term in its efforts to address its immediate liquidity needs or otherwise experiences delays and difficulties in such efforts, the company may deem it advisable to seek a restructuring or other relief under the provisions of the U.S. Bankruptcy Code,” the company statement said.

For its third quarter, same-store sales declined 14.5 percent. Net sales totaled $104.3 million compared with $114.9 million in the same quarter the previous year. Gross profit was $14.3 million compared with $27.4 million in the same quarter in the previous year. The operating loss for the third quarter was $36.3 million compared with an operating loss of $12.4 million in the same quarter last year. As of Nov. 1, Wet Seal had cash and cash equivalents of $19.1 million and $21.3 million in convertible debt.

The company runs a fleet of 528 stores and forecasts that it will close 60 stores by the end of the fourth quarter when its leases expire. Many of those stores will be Wet Seal outlets and Plus, the retailer’s plus-size stores, which did not perform as well as had been forecasted, said Ed Thomas, Wet Seal’s chief executive officer.

After giving the bad news during the call, Thomas outlined plans to change Wet Seal’s merchandising. Popular juniors merchandiser Christine Lee started work at Wet Seal on Sept. 3. Her work will be on Wet Seal’s shop floors in spring 2015. “Christine Lee is leading the charge to bring [Wet Seal] back to its merchandising roots,” Thomas said.

The Spring ’15 Wet Seal merchandise will emphasize more fashion rather than basics, which it has done in the recent past. Also, expect looks from Wet Seal’s Contempo brand and placement of some third-party brands.

The company will sell more dresses and bottoms and will also introduce an “athleisure” line for the first quarter.