wet seal - causes of bankruptcy and next steps
TRANSCRIPT
Wet SealCauses of Bankruptcy and Next Steps
January 16, 2015
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Overview
• On January 15, 2015 Wet Seal (WTSL) filed bankruptcy in support
of its efforts to restructure.
• Shifts in consumer shopping patterns have challenged a number of
teen-focused apparel retailers.
• In recent months teen-focused retailers Deb Shops, Delia’s, Love
Culture have filed for bankruptcy, each of them struggling with the
same challenges that have beset Wet Seal.
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• The company has seen
unimpressive revenue trends
over recent years
• Sales per square foot, a key
metric in retail, declined by
13.0% between 2009 and 2013
Sales and Profitability
$220
$230
$240
$250
$260
$270
$280
$290
480,000
500,000
520,000
540,000
560,000
580,000
600,000
620,000
640,000
2009 2010 2011 2012 2013
Sale
s p
er
sq
. ft
Net
Sale
s (
$000s)
Sales Trends
15.0% 20.0% 25.0% 30.0% 35.0%
2009
2010
2011
2012
2013
Gross Margin
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• Despite same store sales,
perhaps the most commonly
watched of retail metrics, being
negative in three out of five
years, store count increased
between 2009 and 2013
Footprint
470
480
490
500
510
520
530
540
550
560
570
2009 2010 2011 2012 2013
Store Count
-12.0%
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
2009 2010 2011 2012 2013
Same Store Sales
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Liquidity
Week Number 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Fcst
Actual/Forecast Fcst Fcst Fcst Fcst Fcst Fcst Fcst Fcst Fcst Fcst Fcst Fcst Fcst Fcst Fcst Fcst Total
Week Ending 17-Jan 24-Jan 31-Jan 7-Feb 14-Feb 21-Feb 28-Feb 7-Mar 14-Mar 21-Mar 28-Mar 4-Apr 11-Apr 18-Apr 25-Apr 2-May
Cash Flows
Sales Receipts 765 844 829 2,267 3,485 3,853 3,590 3,731 4,307 4,515 4,347 4,204 4,453 5,395 4,735 3,973 55,293
Operating Disbursements 3,912 5,251 8,064 2,495 5,177 3,715 8,474 2,470 4,546 3,516 8,865 2,808 4,545 4,304 6,552 6,818 81,512
Operating Cash Flow (3,147) (4,407) (7,235) (228) (1,692) 138 (4,884) 1,261 (239) 999 (4,518) 1,396 (92) 1,091 (1,817) (2,845) (26,219)
Non-Operating Disbursements 566 472 147 100 106 691 104 89 94 975 92 114 84 93 920 114 4,761
Freight/Utility Deposits 0 250 250 250 250 0 0 0 0 0 0 0 0 0 0 0 1,000
Net Cash Flow (3,713) (5,129) (7,632) (578) (2,048) (553) (4,988) 1,172 (333) 24 (4,610) 1,282 (176) 998 (2,737) (2,959) (31,980)
Available Line Calculation
Borrowing Base 8,973 8,909 9,067 10,069 10,648 10,940 10,928 11,915 12,139 12,459 12,563 13,706 14,148 14,469 15,058 14,492 14,492
Less: Current Balance Outstanding - - - - - - - 2,653 2,809 2,788 3,338 5,934 6,375 5,377 5,973 8,549 8,549
Net Availability 8,973 8,909 9,067 10,069 10,648 10,940 10,928 9,262 9,330 9,671 9,225 7,772 7,773 9,092 9,085 5,943 5,943
Plus: Ending Bank Cash 18,971 13,129 9,104 5,296 3,645 2,864 1,594 1,500 1,500 1,562 1,500 1,500 1,500 2,065 1,500 1,500 1,500
Total Liquidity 27,944 22,038 18,171 15,365 14,293 13,804 12,522 10,762 10,830 11,233 10,725 9,272 9,273 11,157 10,585 7,443 7,443
• The weekly cash forecast prepared by financial advisor FTI Consulting highlights the
strains that Wet Seal is under.
• During the forecast period the company will have operating cash flow of ($26.2
million), with net cash flow of nearly ($32 million).
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Key Points in Bankruptcy
• Incremental financing (DIP) that would be otherwise unavailable
– “At present, the teen retail sector is in such distress that even potential lenders
who might typically make distressed loans have been reticent to advance funds
into this sector” - Derek Pitts, managing director with Houlihan Lokey
• Rationalize physical footprint
– Ability to handle negotiations with landlords for 338 stores closed on January 7
– Increase focus on ecommerce
• Scale down cost structure
– Reduced gross profit dollars from the elimination of a large number of stores will
require a careful recalibration of central SG&A
• New ownership
– By converting the $20 million DIP facility into an 80.0% ownership stake, B. Riley
Financial Inc. will become majority owner of Wet Seal
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• David Johnson is a founding partner of ACM Partners. His
advisory experience spans North America and ranges from
pre-revenue startups to Fortune 500 companies.
• David’s writing has appeared in several industry
publications, and he has lectured at the University of
Chicago, Northwestern University, the University of
Wisconsin-Madison, the University of Illinois-Chicago and
Loyola University Chicago.
• David earned his MBA from the University of Chicago. His
undergraduate studies were completed at Fairleigh
Dickinson University. David can be reached at
[email protected] or 312-505-7238.
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David Johnson
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• ACM Partners is a boutique financial advisory firm providing due
diligence, performance improvement, restructuring and turnaround
services.
• David Johnson can be contacted at:
– Email: [email protected]
– Ph: 312-505-7238
• For more information visit: www.acm-partners.com.
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About ACM Partners
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