Wet Seal Inc. (WTSLA) filed Quarterly Report for the period ended 2010-10-30.
Wet Seal Inc. has a market cap of $330.7 million; its shares were traded at around $3.25 with a P/E ratio of 15.5 and P/S ratio of 0.6. WTSLA is in the portfolios of Columbia Wanger of Columbia Wanger Asset Management, Jim Simons of Renaissance Technologies LLC, Whitney Tilson of T2 Partners Management, LP, Chuck Royce of Royce& Associates, Mario Gabelli of GAMCO Investors.
Highlight of Business Operations:guaranteed by the U.S. Government under the TLGP, have maturities that are greater than one year and are carried at amortized cost plus accrued income. Short-term and long-term investments are carried at amortized cost due to our intent to hold to maturity. Short-term and long-term investments on the condensed consolidated balance sheets were $25.4 million and $25.9 million, respectively, at October 30, 2010. Any unrealized gains or unrealized losses on held to maturity investments are considered temporary and are not recorded unless an other than temporary impairment has occurred. Factors considered that could result in the necessity to impair include intention to sell, more likely than not being required to sell the security before recovery of the securitys amortized cost basis and whether we expect to recover the entire amortized cost basis of the security. We have considered all impairment factors and have determined that an other than temporary impairment has not occurred as of October 30, 2010.
At least quarterly, we assesses whether events or changes in circumstances have occurred that potentially indicate the carrying value of long-lived assets may not be recoverable. Our evaluations during the 13 and 39 weeks ended October 30, 2010, and October 31, 2009, indicated that operating losses or insufficient operating income existed at certain retail stores, with a projection that the operating losses or insufficient operating income for those locations would continue. As such, we recorded non-cash charges of $1.6 million, $2.7 million, $0.3 million and $1.9 million during the 13 and 39 weeks ended October 30, 2010, and October 31, 2009, respectively, within asset impairment in the condensed consolidated statements of operations, to write down the carrying values of these stores long-lived assets to their estimated fair values.
During our third quarter of fiscal 2010, we determined we previously had interpreted federal tax rules incorrectly pertaining to expiration of charitable contribution carry forwards available to offset future taxable income. We also identified certain other minor errors in our deferred income taxes. As a result, we had overstated our net deferred tax assets, benefit for income taxes and net income by approximately $6.6 million as of the end of fiscal 2009. The overstatement had no net impact on the statement of cash flows or total cash flows from operating activities for fiscal 2009. We do not believe this amount is material to the fiscal 2009 financial statements. However, we have corrected deferred tax assets and stockholders equity on our consolidated balance sheet as of January 30, 2010, from amounts previously reported, to correct this overstatement. Presentation of our statement of operations, statement of cash flows and statement of stockholders equity and comprehensive income for fiscal 2009, to be reported in the Companys Form 10-K for the period ended January 29, 2011, will reflect the $6.6 million correction to reduce the benefit for income taxes and net income and to decrease the deferred tax asset and accumulated deficit balances, and the first and second quarterly filings on Form 10-Q in fiscal 2011 will reflect the corrections related to the first two quarters of fiscal 2010.
Our effective income tax rate for the 39 weeks ended October 30, 2010, was approximately 51%. This rate was increased due to $2.8 million in interest charges incurred in the first fiscal quarter upon the conversion of our remaining Secured Convertible Notes (the Notes) and Series C Convertible Preferred Stock (the Preferred Stock), which are not tax-deductible, and the $0.5 million non-cash deferred income tax charge previously discussed. The impacts of these charges were increases in the effective income tax rates in the first fiscal quarter, third fiscal quarter and the 39 weeks ended October 30, 2010, of approximately 16%, 10% and 11%, respectively.
Selling expenses increased $1.2 million from the prior year to $30.0 million. As a percentage of net sales, selling expense was 20.5% of net sales, or 10 basis points higher, as a percentage of net sales, than a year ago.
General and administrative expenses increased approximately $0.7 million from the prior year to $7.9 million. As a percentage of net sales, general and administrative expenses were 5.3%, or 20 basis points higher, than a year ago.
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