<PAGE>
THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
----- THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED NOVEMBER 2, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
----- THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-18632
THE WET SEAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 33-0415940
(State of Incorporation) (I.R.S. Employer Identification No.)
64 FAIRBANKS
IRVINE, CALIFORNIA 92718
(Address of principal executive offices) (Zip code)
(714) 583-9029
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
The number of shares outstanding of the registrant's Class A Common stock
and Class B Common stock, par value $.10 per share, at December 10, 1996 were
10,618,566 and 2,912,665, respectively. There were no shares of Preferred
stock, par value $.01 per share, outstanding at December 10, 1996.
<PAGE>
THE WET SEAL, INC.
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of November 2, 1996 (unaudited)
and February 3, 1996............................................3-4
Consolidated Statements of Operations (unaudited)
for the 13 and 39 weeks ended November 2, 1996 and
October 28, 1995..................................................5
Consolidated Statements of Cash Flows (unaudited)
for the 39 weeks ended November 2, 1996 and
October 28, 1995..................................................6
Notes to Consolidated Financial Statements......................7-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...........................10-17
PART II. OTHER INFORMATION................................................18
SIGNATURE PAGE...................................................19
<PAGE>
THE WET SEAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(unaudited)
November 2, February 3,
1996 1996
------------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $78,544,000 $57,153,000
Other receivables 519,000 523,000
Merchandise inventories 25,283,000 16,241,000
Prepaid expenses 5,006,000 428,000
Deferred tax charges 1,100,000 1,100,000
------------- ------------
Total current assets 110,452,000 75,445,000
------------- ------------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Leasehold improvements 57,407,000 55,438,000
Furniture, fixtures and equipment 22,224,000 21,606,000
Leasehold rights 4,017,000 2,009,000
Construction in progress 2,000 9,000
------------- ------------
83,650,000 79,062,000
Less accumulated depreciation (49,807,000) (41,015,000)
------------- ------------
Net equipment and leasehold improvements 33,843,000 38,047,000
------------- ------------
OTHER ASSETS:
Deferred tax charges and other assets 4,437,000 3,461,000
Goodwill, net of accumulated amortization of
$555,000 and $521,000 as of November 2, 1996
and February 3, 1996, respectively 577,000 611,000
------------- ------------
Total other assets 5,014,000 4,072,000
------------- ------------
$149,309,000 $117,564,000
------------- ------------
------------- ------------
<PAGE>
THE WET SEAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
November 2, February 3,
1996 1996
------------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $32,630,000 $19,491,000
Accrued liabilities 22,936,000 22,813,000
Income taxes payable -- 3,354,000
Current portion of long-term debt 2,000,000 3,736,000
------------- ------------
Total current liabilities 57,566,000 49,394,000
------------- ------------
LONG-TERM LIABILITIES:
Long-term debt 3,764,000 5,264,000
Deferred rent 5,839,000 5,171,000
------------- ------------
Total long-term liabilities 9,603,000 10,435,000
------------- ------------
Total liabilities 67,169,000 59,829,000
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STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value, authorized
2,000,000 shares; none issued and outstanding -- --
Common Stock, Class A, $.10 par value,
authorized 20,000,000 shares;
10,618,566 and 5,687,066 shares issued and
outstanding at November 2, 1996 and February 3,
1996, respectively 1,062,000 568,000
Common Stock, Class B Convertible, $.10 par value,
authorized 10,000,000 shares;
2,912,665 and 6,807,665 shares issued and
outstanding at November 2, 1996 and February 3,
1996, respectively 291,000 681,000
Paid-in capital 54,638,000 38,568,000
Retained earnings 26,149,000 17,918,000
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Total Stockholders' Equity 82,140,000 57,735,000
------------- ------------
$149,309,000 $117,564,000
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------------- ------------
</TABLE>
<PAGE>
THE WET SEAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
13 Weeks Ended 39 Weeks Ended
---------------------------- ----------------------------
November 2, October 28, November 2, October 28,
1996 1995 1996 1995
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
SALES $95,571,000 $88,674,000 $270,502,000 $163,396,000
COST OF SALES, (including buying, distribution
and occupancy costs) 69,152,000 67,013,000 200,259,000 127,149,000
------------- ------------ ------------- ------------
GROSS MARGIN 26,419,000 21,661,000 70,243,000 36,247,000
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE 20,046,000 19,066,000 58,005,000 36,432,000
INTEREST INCOME, NET (834,000) (330,000) (1,916,000) (900,000)
------------- ------------ ------------- ------------
NET OPERATING EXPENSES 19,212,000 18,736,000 56,089,000 35,532,000
------------- ------------ ------------- ------------
INCOME BEFORE PROVISION FOR INCOME TAXES 7,207,000 2,925,000 14,154,000 715,000
PROVISION FOR INCOME TAXES 3,013,000 1,103,000 5,923,000 297,000
------------- ------------ ------------- ------------
NET INCOME $4,194,000 $1,822,000 $8,231,000 $418,000
------------- ------------ ------------- ------------
------------- ------------ ------------- ------------
NET INCOME PER COMMON SHARE $0.30 $0.15 $0.61 $0.03
------------- ------------ ------------- ------------
------------- ------------ ------------- ------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 13,526,605 12,492,586 13,114,293 12,349,030
------------- ------------ ------------- ------------
------------- ------------ ------------- ------------
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 13,838,943 12,492,586 13,508,126 12,349,030
------------- ------------ ------------- ------------
------------- ------------ ------------- ------------
</TABLE>
<PAGE>
THE WET SEAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
39 Weeks Ended
----------------------------
November 2, October 28,
1996 1995
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $8,231,000 $418,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 9,229,000 7,656,000
Loss on disposal of equipment and leasehold improvements 70,000 13,000
Changes in operating assets and liabilities, net of acquisition:
(Increase) decrease in:
Other receivables 4,000 (516,000)
Tax refund receivable 59,000
Merchandise inventories (9,042,000) (7,106,000)
Prepaid expenses (4,578,000) (389,000)
Other assets (976,000) (40,000)
(Decrease) increase in:
Accounts payable and accrued liabilities 14,743,000 13,168,000
Income taxes payable (3,354,000) (1,000)
Deferred rent 668,000 712,000
------------- ------------
Total adjustments 6,764,000 13,556,000
------------- ------------
Net cash provided by operating activities 14,995,000 13,974,000
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in equipment and leasehold improvements (6,542,000) (2,017,000)
Cash paid for acquisition, less cash acquired (20,000)
------------- ------------
Net cash used in investing activities (6,542,000) (2,037,000)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (3,236,000) -
Proceeds from issuance of stock 16,174,000 7,000
Proceeds from issuance of debt - 10,000,000
------------- ------------
Net cash provided by financing activities 12,938,000 10,007,000
------------- ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 21,391,000 21,944,000
CASH AND CASH EQUIVALENTS beginning of period 57,153,000 25,369,000
------------- ------------
CASH AND CASH EQUIVALENTS end of period $78,544,000 $47,313,000
------------- ------------
------------- ------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $432,000 $290,000
Income taxes, net 10,288,000 336,000
</TABLE>
SCHEDULE OF NONCASH TRANSACTIONS:
During the thirty-nine weeks ended November 2, 1996, the Company reduced
certain estimated liabilities assumed in connection with the acquisition of
Contempo Casuals. As a result, a reduction in accounts payable of
$1,481,000 was recorded with a corresponding reduction in fixed assets.
During the thirty-nine weeks ended October 28, 1995, the Company
acquired the assets of Contempo Casuals for common stock valued at
$1,178,000.
<PAGE>
THE WET SEAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION:
The information set forth in these consolidated financial statements
is unaudited except for the February 3, 1996 balance sheet. These statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information, the instructions to Form 10-Q and Rule 10-01
of Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
The accompanying consolidated financial statements consolidate the
accounts of Contempo Casuals, Inc. ("Contempo") which was acquired on July 1,
1995. All significant intercompany transactions have been eliminated.
In the opinion of management, all adjustments, consisting only of normal
recurring accruals, necessary for a fair presentation have been included. The
results of operations for the 13 and 39 weeks ended November 2, 1996 are not
necessarily indicative of the results that may be expected for the year ending
February 1, 1997. For further information, refer to the financial statements
and notes thereto included in the Company's Annual Report for the year ended
February 3, 1996.
Certain reclassifications have been made to conform the October 28, 1995
financial statements to the November 2, 1996 financial statements.
<PAGE>
NOTE 2 - NEW ACCOUNTING PRONOUNCEMENTS:
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation" which became effective for the Company beginning February 4, 1996.
SFAS No. 123 requires expanded disclosures of stock-based compensation
arrangements with employees and encourages (but does not require) compensation
cost to be measured based on the fair value of the equity instrument awarded.
Companies are permitted, however, to continue to apply APB Opinion No. 25, which
recognizes compensation cost based on the intrinsic value of the equity
instrument awarded. The Company will continue to apply APB Opinion No. 25 to
its stock based compensation awards to employees and will disclose the required
pro forma effect on net income and earnings per share.
NOTE 3 - LOAN PAYABLE TO BANK AND LINES OF CREDIT:
On July 1, 1996, the Company renewed its three bank credit facilities which
consisted of two revolving lines of credit for an aggregate of $30,000,000 and
which expire on July 1, 1998, and one term loan for $10,000,000 which expires on
July 31, 2000. The borrowings under the two revolving credit lines bear
interest at the bank's prime rate or, at the Company's option, the London
Interbank Offered Rate (LIBOR) plus 1.75% for both facilities. The Wet Seal
facility is guaranteed by Contempo. The Contempo facility is guaranteed by Wet
Seal and is also secured by the stock of Contempo. As of November 2, 1996 there
were no borrowings against either of the lines.
The Company's five year amortizing term loan in the amount of
$10,000,000 is repayable in twenty equal quarterly installments of $500,000
which commenced October 31, 1995. The borrowing bears interest at the bank's
prime rate or, at the Company's option, LIBOR plus 1.75%. The term loan is
guaranteed by Contempo. All of the above facilities are subject to certain
financial covenants and conditions with which the Company was in compliance as
of November 2, 1996.
<PAGE>
NOTE 4 - EARNINGS PER COMMON SHARE:
Earnings per common share are based on the weighted average number of
common and common stock equivalent, if dilutive, shares outstanding during the
periods.
NOTE 5 - ISSUANCE OF STOCK:
On May 24, 1996 the Company completed its previously announced public
offering of 3,565,000 shares of its Class A Common Stock, of which 765,000
shares were sold by the Company and 2,800,000 were sold by Selling Stockholders.
The shares were sold to the public at an initial offering price of $20 per
share. The net proceeds to the Company from the sale of the 765,000 shares were
$14,459,000. The proceeds are being used for general corporate purposes, which
may include repayment of certain indebtedness, remodeling and opening of stores
and upgrading of the Company's point-of-sale system.
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
On July 1, 1995, the Company acquired Contempo Casuals. The
transaction was accounted for under the purchase method. During the second
quarter ended August 3, 1996, the Company reduced certain estimated liabilities
assumed in connection with the acquisition of Contempo Casuals. As a result, a
reduction in accounts payable of $1,481,000 was recorded with a corresponding
reduction in fixed assets.
The acquisition of Contempo Casuals increased the number of stores the
Company operates by 237 stores. As of November 2, 1996 the Company operated 361
stores as compared to 368 stores as of October 28, 1995, the end of the third
quarter of fiscal 1995.
Acquiring Contempo Casuals enabled the Company to significantly reduce
fixed expenses as a percentage of sales through the consolidation and
integration of the two companies' management teams, corporate offices and
distribution centers. This process was substantially completed at the time of
the acquisition.
The following discussion and analysis of financial condition and
results of operations include a comparison of the results of operations for the
third quarter year to date of fiscal 1996, which contained the full period
results of both the Wet Seal stores and the Contempo Casuals stores, to the
third quarter year to date of fiscal 1995, which contained the full period
results of the Wet Seal stores, and only the July 1995 to October 1995 results
for the Contempo Casuals stores, due to the fact that the Contempo Casuals
acquisition occurred on July 1, 1995. Therefore, the results of operations for
the third quarter year to date of fiscal 1996 are not directly comparable to the
third quarter year to date of fiscal 1995. The third quarter results, however,
are comparable given that both the current year and the prior year period
contain the full impact of the Contempo acquisition.
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
Management's discussion and analysis should be read in conjunction
with the Company's Consolidated Financial Statements and the Notes related
thereto.
RESULTS OF OPERATIONS
THE 13 WEEKS ENDED NOVEMBER 2, 1996 (THIRD QUARTER OF FISCAL 1996) AS COMPARED
TO THE 13 WEEKS ENDED OCTOBER 28, 1995 (THIRD QUARTER OF FISCAL 1995)
Sales in the 13 weeks ended November 2, 1996 were $95,571,000 compared
to sales in the 13 weeks ended October 28, 1995 of $88,674,000, an increase of
$6,897,000 or 7.8%. The dollar increase in sales was primarily due to an
increase of 10.5% in the comparable store sales for the combined Wet Seal and
Contempo chains. Comparable store sales is calculated based on the 13 weeks
ended November 2, 1996 compared to the same 13 week period ended November 4,
1995. This increase in sales due to the comparable store sales is slightly
offset by the fact that there were 361 stores opened at the end of the current
year third quarter as compared to 368 stores opened at the end of the prior year
period. Additionally, the third quarter of fiscal 1996 started and ended one
week later than the third quarter of fiscal 1995 resulting in a historically
'net' weaker 13 weeks of sales in the third quarter of fiscal 1996 as compared
to the 13 weeks of sales in the third quarter of fiscal 1995.
Cost of sales, including buying, distribution and occupancy costs, was
$69,152,000 in the third quarter of fiscal 1996 compared to $67,013,000 in the
third quarter of fiscal 1995, an increase of $2,139,000. The dollar increase in
cost of sales was due to the increase in the sales. As a percentage of sales,
cost of sales decreased from 75.6% in the third quarter of fiscal 1995 to 72.4%
in the third quarter of fiscal 1996, a decrease of 3.2%. This decrease in cost
of sales as a percentage of sales was related to a decrease in occupancy costs
of 2.1%, a decrease in distribution costs of 0.6%, and a decrease in the cost of
merchandise of 0.5%. The decreases in occupancy costs and distribution costs
were associated primarily with the improved leverage in fixed costs which was
due to the increase in comparable store sales. The decrease in the cost of
merchandise was due to an increase in the initial markup rates in the third
quarter of fiscal 1996 as compared to the third quarter of fiscal 1995.
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED:
Selling, general and administrative expenses were $20,046,000 in the
third quarter of fiscal 1996 compared to $19,066,000 in the third quarter of
fiscal 1995, an increase of $980,000 or 5.1%. The dollar increase in selling,
general and administrative expenses was primarily related to the increase in
sales. As a percentage of sales, selling, general and administrative expenses
decreased from 21.5% in the third quarter of fiscal 1995 to 21.0% in the third
quarter of fiscal 1996, a decrease of 0.5%. The decrease as a percentage of
sales was related to the leverage of the fixed components of this expense as a
result of the increase in the comparable store sales.
Interest income, net, was $834,000 in the third quarter of fiscal 1996
compared to $330,000 in the third quarter of fiscal 1995, an increase of
$504,000. The increase was due to an increase in the average cash balance
invested in the current year period as compared to the prior year.
Due to the factors noted above, net income was $4,194,000 in the third
quarter of fiscal 1996 compared to $1,822,000 in the third quarter of fiscal
1995. As a percentage of sales, net income was 4.4% in the third quarter of
fiscal 1996 compared to 2.1% in the third quarter of fiscal 1995.
<PAGE>
THE 39 WEEKS ENDED NOVEMBER 2, 1996 (THIRD QUARTER YEAR TO DATE OF FISCAL 1996)
AS COMPARED TO THE 39 WEEKS ENDED OCTOBER 28, 1995 (THIRD QUARTER YEAR TO DATE
OF FISCAL 1995):
Sales in the 39 weeks ended November 2, 1996 were $270,502,000
compared to sales in the 39 weeks ended October 28, 1995 of $163,396,000, an
increase of $107,106,000 or 65.5%. The dollar increase in sales was primarily
due to the acquisition of Contempo Casuals. The increase in sales is also due,
to a significantly lesser extent, to the 10.6% increase in comparable store
sales for the combined Wet Seal and Contempo chains.
Cost of sales, including buying, distribution and occupancy costs, was
$200,259,000 in the third quarter year to date of fiscal 1996 compared to
$127,149,000 in the third quarter year to date of fiscal 1995, an increase of
$73,110,000. The dollar increase in cost of sales was due to the increase in
the number of stores as a result of the acquisition of Contempo Casuals. As a
percentage of sales, cost of sales decreased from 77.8% in the third quarter
year to date of fiscal 1995 to 74.0% in the third quarter year to date of
fiscal 1996, a decrease of 3.8%. This decrease in cost of sales as a
percentage of sales was related primarily to a decrease in occupancy costs of
2.9%, a decrease in buying and distribution costs of 0.6%, and a decrease in the
cost of merchandise of 0.3%. The decrease in occupancy costs was associated
primarily with a decrease in depreciation resulting from the lower net book
value per store of the depreciable assets of Contempo Casuals, as compared to
Wet Seal, as well as to the improved leverage in fixed costs related to the
increase in the comparable store sales. The decrease in the buying and
distribution costs relate to the improved leverage in the fixed components of
these costs related to the increase in comparable store sales. The decrease in
the cost of merchandise was due to the increase in the initial markup rates.
Selling, general and administrative expenses were $58,005,000 in the
third quarter year to date of fiscal 1996 compared to $36,432,000 in the third
quarter year to date of fiscal 1995, an increase of $21,573,000. The dollar
increase in selling, general and administrative expenses was primarily due to
the acquisition of Contempo Casuals which served to substantially increase the
number of stores.
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
As a percentage of sales, selling, general and administrative expenses
decreased from 22.3% in the third quarter year to date of fiscal 1995 to 21.4%
in the third quarter year to date of fiscal 1996, a decrease year to date of
0.9%. The decrease as a percentage of sales was related to the economies of
scale the Company achieved as a result of the Contempo acquisition and to the
increase in comparable store sales. The decrease was most notable in store
payroll expense.
Interest income, net, was $1,916,000 in the third quarter year to date
of fiscal 1996 compared to $900,000 in the third quarter year to date of fiscal
1995, an increase of $1,016,000. The increase was due primarily to an increase
in the average cash balance invested and was partially offset by an increase in
interest expense in fiscal 1996.
Income tax provision was $5,923,000 in the third quarter year to date
of fiscal 1996 compared to $297,000 in the third quarter year to date of fiscal
1995.
Net income was $8,231,000 in the third quarter year to date of fiscal
1996 compared to $418,000 in the third quarter year to date of fiscal 1995. As
a percentage of sales, net income was 3.0% in the third quarter year to date of
fiscal 1996 compared to 0.3% in the third quarter year to date of fiscal 1995.
The Company's return to profitability, which began in the second half of fiscal
1995, was related in part to the acquisition of Contempo Casuals. With this
acquisition, the Company achieved significant economies of scale in areas such
as buying, distribution and general and administrative costs. At the same time,
the acquisition enabled the Company to reduce its average depreciation cost per
store due, in part, to the favorable acquisition price. Also contributing to
the improvements in profitability is the increase in comparable store sales.
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
LIQUIDITY AND CAPITAL RESOURCES
Working capital at November 2, 1996 was $52,886,000 compared to
$26,051,000 at February 3, 1996, an increase of $26,835,000. The Company's
primary source of working capital has historically been cash flows from
operating activities. Net cash flows provided by operating activities for the
39 weeks ended November 2, 1996 was $14,995,000 compared to $13,974,000 for the
39 weeks ended October 28, 1995. Inventory increased $9,042,000 at November 2,
1996 compared to the fiscal year end due to the seasonal nature of the business;
inventory levels are typically at a low point at year end. The accounts payable
and accrued liabilities increase of $14,743,000 more than offset this increase
in inventory due to the terms of the payments in relation to the receipt of the
inventory.
In the third quarter year to date of fiscal 1996, the Company invested
$6,542,000 in equipment, leasehold improvements and leasehold rights. These
expenditures related primarily to the purchase of leasehold rights for three
stores that the Company opened and seven additional stores that the Company will
open in the fourth quarter of this fiscal year. The Company currently estimates
that the capital expenditures for the remainder of fiscal 1996 will be
$4,400,000. These planned expenditures relate primarily to store openings and
remodels as well as to a new point-of-sale system.
Cash provided by financing activities was $12,938,000 in the third
quarter year to date of fiscal 1996 due to the proceeds received from the sale
by the Company of 765,000 shares of Class A Common Stock in a public offering
which closed on May 24, 1996.
In July 1996, the Company renewed its lines of credit with Bank of
America National Trust and Savings Association ("Bank of America") in an
aggregate principal amount of $30,000,000 (the "Revolving Credit Facilities"),
and a five year amortizing term loan with Bank of America in the amount of
$10,000,000 (the "Term Loan"). In connection with the Contempo Casuals
acquisition, the Company entered into the Term Loan to satisfy certain net worth
requirements related to the assignment of leases. As of November 2, 1996, there
were no borrowings under the Revolving Credit
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
Facilities, and the Company was in compliance with all terms and covenants of
such agreements. The Company invests its excess funds primarily in a short-term
investment grade money market fund, investment grade commercial paper and U.S.
Treasury and Agency obligations. Management believes the Company's working
capital and cash flows from operating activities will be sufficient to meet the
Company's operating and capital requirements in the foreseeable future.
SEASONALITY AND QUARTERLY OPERATING RESULTS
The Company's business is seasonal by nature with the Christmas season
(beginning the week of Thanksgiving and ending the first Saturday after
Christmas) and the back-to-school season (beginning the last week of July and
ending the first week of September) historically accounting for the largest
percentage of sales volume. In the Company's three fiscal years ended February
3, 1996, the Christmas and back-to-school seasons accounted for an average of
approximately 32% of the Company's annual sales, after adjusting for sales
increases related to new stores. The Company does not believe that inflation
has had a material effect on the results of operations during the past three
years. However, there can be no assurance that the Company's business will not
be affected by inflation in the future.
STATEMENT REGARDING FORWARD LOOKING DISCLOSURE
Certain sections of this Quarterly Report on Form 10-Q, including the
preceding "Management's Discussion and Analysis of Financial Condition and
Results of Operations," contain various forward looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Exchange Act, which represent the
Company's expectations or beliefs concerning future events. The Company
cautions that these statements are further qualified by important factors that
could cause actual results to differ materially from those in the forward
looking statements, including, without limitation, the sufficiency of the
Company's working capital and cash flows from operating activities, a decline in
demand for the merchandise offered by the Company, the ability of the Company to
obtain adequate merchandise supply, the
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
ability of the Company to gauge the fashion tastes of its customer and provide
merchandise that satisfies customer demand, the effect of economic conditions,
the effect of severe weather or natural disasters and the effect of competitive
pressures from other retailers.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS.
The Company is not party to any material legal proceedings, other than ordinary
routine litigation incidental to the Company's business.
ITEM 2 - CHANGES IN SECURITIES. Not Applicable
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES. Not Applicable
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable
ITEM 5 - OTHER INFORMATION. Not Applicable
ITEM 6(A) - EXHIBITS. Not Applicable
ITEM 6(B) - REPORTS ON FORM 8-K. Not Applicable
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The Wet Seal, Inc.
(Registrant)
Date: December 16, 1996 /S/KATHY BRONSTEIN
-------------------------- ------------------------------
Kathy Bronstein
Vice Chairman and Chief
Executive Officer
(Principal Executive
Officer)
Date: December 16, 1996 /S/EDMOND THOMAS
-------------------------- ------------------------------
Edmond Thomas
President and
Chief Operating Officer
Date: December 16, 1996 /S/ANN CADIER KIM
-------------------------- ------------------------------
Ann Cadier Kim
Vice President of Finance
and Chief Financial
Officer (Principal
Financial and Accounting
Officer)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE WET
SEAL, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED
STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-1-1997
<PERIOD-START> AUG-4-1996
<PERIOD-END> NOV-2-1996
<CASH> 78,544,000
<SECURITIES> 0
<RECEIVABLES> 519,000
<ALLOWANCES> 0
<INVENTORY> 25,283,000
<CURRENT-ASSETS> 110,452,000
<PP&E> 83,650,000
<DEPRECIATION> 49,807,000
<TOTAL-ASSETS> 149,309,000
<CURRENT-LIABILITIES> 57,566,000
<BONDS> 0
0
0
<COMMON> 1,353,000
<OTHER-SE> 80,787,000
<TOTAL-LIABILITY-AND-EQUITY> 149,309,000
<SALES> 95,571,000
<TOTAL-REVENUES> 95,571,000
<CGS> 69,152,000
<TOTAL-COSTS> 20,046,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (834,000)
<INCOME-PRETAX> 7,207,000
<INCOME-TAX> 3,013,000
<INCOME-CONTINUING> 4,194,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,194,000
<EPS-PRIMARY> 0.31
<EPS-DILUTED> 0.30
</TABLE>
