Investor Meeting
November 2007
0
Disclaimer
This presentation contains forward-looking statements. Forward-looking statements
are based on current expectations and projections about future events and are
subject to risks, uncertainties and assumptions about our Company, economic and
market sectors and the industry in which we do business, among other things. These
statements are not guarantees of future performance, and we undertake no
obligation to publicly update any forward-looking statements whether as a result of
new information, future events or otherwise. Actual events and results may differ
from those expressed in any forward-looking statements due to a number of factors.
Factors that could cause our actual performance, future results and actions to differ
materially from any forward-looking statements include, but are not limited to, those
discussed in risk factors within our Form 10-K for the fiscal year ended February 3,
2007, and our Form 10-Q for the fiscal quarter ended August 4, 2007, as filed with the
Securities and Exchange Commission.
1
Who We Were in 2001
One of the largest national mall-based specialty retail chains focused on young
women’s apparel operating 571 stores in 44 states, Puerto Rico and
Washington, D.C., with four concepts:
Wet seal (406 stores) - junior fast-fashion apparel brand
Contempo Casual (51 stores) – converting to Wet Seal
Arden B with (84 stores) - young contemporary woman (20-40)
Zutopia (30 stores) – tween fashion brand
Arden B mix included significant fashion basics and wear-to-work merchandise
2
Who We Were in 2001 (cont’d)
Sales of $590 million, a same-store sales increase of 4.7%, operating
margin of 7.8%; and an ROE of 16%+
Wet Seal and Arden B generated similar operating margins
Cash and cash equivalents of $132M;inventory turnover of nearly 7x; no
debt; market capitalization of $594M.
3
Who We Were in 2001 (cont’d)
Comprehensive merchandising information systems in place to support
growth
Central information source for merchandise, inventory management, purchasing, replenishment,
receiving and distribution.
Converted to a new point-of-sale software program in fiscal 2002, in order to enhance customer
service capabilities at the store level
Integrated planning, allocation and distribution functions
Planners and allocators work with District/Regional Directors and merchandise buyers to manage
inventory levels and coordinate the allocation of merchandise to each store
Approximately 18% of retail receipts imported from foreign vendors
Daily, store-ready merchandise deliveries and regular markdowns to speed
sale of slow-moving inventory:
Unsold merchandise periodically shipped to clearance stores
4
Consistently profitable through Fiscal 2001
5
Who We Are Now
California based specialty fashion apparel retailer with two distinct contemporary
brands:
Wet Seal with 396 stores as of the end of F3Q07
Arden B with 94 stores as of the end of F3Q07
In Fiscal 2007, forecasted sales of $600 to $603 million and operating margin of 1.6% to
2.2%
Forecasted cash and marketable securities at $100M; inventory turnover of 6x; debt of
$3.6 million;
Current market capitalization of approximately $200 million.
Competition includes:
Wet Seal
Aeropostale Gap
American Eagle Old Navy
Charlotte Russe Pacific Sunwear
Express Urban Outfitters
Forever 21 Target
Arden B
bebe
BCBG
Banana Republic
Zara
6
Who We Are Now - Wet Seal
Brand position: Founded in 1962, junior
apparel brand that is trend-focused and value
competitive
Target: 13 to 19 year-old seeking wear-now
fashion at a value
Stores: Average 4,000 square feet and
generated $321 in sales/sq ft in fiscal 2006
7
Who We Are Now – Arden B.
Brand Position: Launched in 1998, fashion
brand for the feminine contemporary woman
with sex appeal
Target: 25 to 35 year-old with core focus on 28
year olds
Stores: Average 3,200 square feet and
generated $459 in sales/sq ft in fiscal 2006
8
Financial Performance 2002 – 2007E
Operating margin adjusted to exclude benefit for Arden B loyalty program sales adjustment, asset impairments,
store closure costs and Michael Gold non-cash stock compensation expense.
9
Strategic Opportunities and Action Plan – Wet Seal
Operating margins have deteriorated as investments in infrastructure failed to drive
sales growth, particularly in Arden B
Merchandise margin opportunities exist:
Wet Seal:
Strategic Opportunities:
Planning and allocation
Merchandise mix
Markdown cadence
2008 Action Plan:
Complete store profiles and integrate into planning and allocation
Implement size optimization
Conduct focus groups and market research
Increase focus on key categories/expand bottoms offering
Add denim brands to the mix
Employ management in weekly review of inventory position and markdown plans
10
Merchandise margin opportunities exist:
Arden B:
Strategic Opportunities:
Merchandise mix
Inventory management
Sourcing
Price rationalization
Fit enhancements
2008 Action Plan:
Better align merchandise mix with customer needs
Conduct focus groups and market research
Offer a trend-right not leading-edge assortment
Create better balance of wear-to-work, everyday and occasion
Add fashion basics across key categories
Employ management in weekly review of inventory position and markdown plans
Hire new head of sourcing for Arden B and Wet Seal
Reassess sourcing process
Employ more consistent pricing practices and better promotional discipline
Strategic Opportunities and Action Plan – Arden B
11
Store operations:
Strategic Opportunities:
Better alignment of incentive compensation with performance
Utilization of customer feedback
New store productivity
2008 Action Plan:
Establish stronger accountability – develop incentive plans aligned with sales
growth and profitability
Re-align both divisions by February 2008 to reduce costs
Eliminate excess tasks to facilitate greater focus on sales
Increase store visits by senior management
Employ more detailed analysis and monitoring of new store performance
Strategic Opportunities and Action Plan – Store Operations
12
Real Estate:
Strategic Opportunities:
Improve new store economics
Address pressure from rising occupancy and store construction costs
Test off-mall locations
2008 Action Plan:
Rebuild the pipeline for store growth
Rationalize current deals in the pipeline/reduce 2008 store openings
Increase senior management involvement in site review and new store economic
analysis
Strategic Opportunities and Action Plan – Real Estate
13
Marketing:
Strategic Opportunities:
Better align to divisional merchandise strategies
Build connection to customers
Redeploy marketing spend to focus on more effective channels, i.e. grassroots
marketing
Capitalize on internet database
2008 Action Plan:
Layout specific plans for each division by January 2008
Conduct focus groups for both divisions/store manager feedback
Increase emphasis on visual and grass roots
Optimize direct mail campaign
Raise the focus on customer acquisition
Increase use of internet to drive store traffic
Strategic Opportunities and Action Plan - Marketing
14
IT:
Strategic Opportunities:
Increased efficiency/lower operating costs
Systems development
2008 Action Plan:
Conduct independent review of infrastructure to determine immediate cost
savings
Develop short term and long term systems strategies
Install better project management and cost controls
Physical Distribution and Transport:
Strategic Opportunities:
Facilitate more efficient store operations
2008 Action Plan:
Deliver merchandise floor-ready
Resume daily shipping to stores
Strategic Opportunities and Action Plan – IT and Distribution
15
Grow Retail Store Base
Wet Seal
600 – 700 Store
Opportunity
63 Net New Stores in FY2007
Arden B
200 – 250 Store
Opportunity
4 Net New Stores in FY2007
Wet Seal vs. The Competition
(1)
Management estimate.
(2)
Industry Average includes Abercrombie & Fitch, Aéropostale, American Eagle, Charlotte Russe,
Express, Forever 21, Gap, Hot Topic, J. Crew, Limited, Old Navy, Pacific Sunwear and Urban
Outfitters. North American stores only for Gap, Old Navy and Urban Outfitters.
Arden B vs. The Competition
(1) Management estimate.
(2)
Industry Average includes Anthropologie, Banana Republic, BCBG, bebe, Club Monaco, Express,
J. Crew, Limited and Zara.
16
Financials
Steve Benrubi, CFO
17
Store Count and Total Sales
18
EPS History: 2001 – 2007E
19
Fiscal Third Quarter Income Statement Results
20
$000's
Net Sales
$150,277
100.0%
$143,272
100.0%
Gross Profit
43,034
28.6%
48,127
33.6%
Selling General & Administrative
45,914
30.6%
46,095
32.2%
Asset Impairment
1,567
1.0%
-
-
Operating Income (Loss)
(4,447)
-3.0%
$2,032
1.4%
Net Income (Loss)
($3,319)
-2.2%
$2,401
1.7%
Diluted EPS
($0.04)
$0.02
Diluted Shares Outstanding (000's)
90,015
101,493
2007
2006
Balance Sheet Results as of the End of Fiscal Third Quarter
21
November 3, 2007
October 28, 2006
Cash and marketable securities
80,062
$
77,099
$
Inventory
51,830
44,640
Other current assets
16,038
9,077
Net PPE
72,164
50,293
Long-term assets
5,656
6,540
Total assets
225,750
$
187,649
$
Current liabilities
74,650
$
65,275
$
Total debt
3,350
7,274
Other long-term liabilities
31,248
24,469
Convertible preferred stock
2,167
9,441
Shareholders' equity
114,335
81,190
Total liabilities & shareholders' equity
225,750
$
187,649
$
Business Outlook
Fourth Quarter Fiscal 2007
Comps -4% to -6%
EPS $0.03 to $0.06
Fiscal 2007 free cash flow $10 - $13 million (after capital investment
of $14 million in new stores)
Fiscal 2008
Net Store Openings 20 to 25
Tax rate 3%
22
Investment Highlights
Well-Established Brands:
Wet Seal - fashion and value oriented retailer to teens
Arden B – fashion brand for young women
Retail Expansion Opportunity: Wet Seal operates 396 stores with
potential for 600-700; Arden B operates 94 stores with potential
for 200-250
Increased Store Productivity Potential: Merchandising, planning &
allocation and operational initiatives underway
Significant Operating Income Recovery Potential: WTSLA forecasts
a 1.6% - 2.2% operating margin in FY 2007 well below historical
peak of 8%
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