Focus on the core customer and fast changing fashion will help it to upturn its comps positive
The Wet Seal, Inc. (NASDAQ:WTSL) had deviated a bit from its core customers in the last one or two years,but now it is back to that core and its fashion heritage, realizing the importance of delivering value to its core customer group – the 16-year-old girl. It has put merchandise and strategies in place to serve its loyal customers.
The company has re-imaged its in-store visual appearance and lowered its merchandise to eye level. It will stick to the strategy of fast fashion where it will observe and react quickly according to fashion trends and demand. Wet Seal intends to provide trendy categories of clothes with minimum lead time for stocking. Its overall emphasis will be to serve its core customers with best value propositions, something that will help it to drive comp growth.
Increased use of social and digital media will help it to drive online sales
The Wet Seal, Inc. (NASDAQ:WTSL)’s online sales are just 6% of the company’s total sales, a figure that is very low compared to its peers. It has the potential to increase online sales to 20% in the long term through its omni-channel initiatives. The company will emphasize more on social media for connecting with its customers.
The average 16-year-old-girl is very active on social platforms such as Internet, mobile and malls. As a result, Wet Seal will organize in-store promotions and contests which can be accessed through these platforms. It has also entered into partnerships with musical artists such as Olly Murs and Emblem3 for promotional programs. The company will have one integrated platform that can be accessed through multiple devices to provide a smooth customer experience.
New outlets, store remodel and relocation will drive growth in the long term
The Wet Seal, Inc. (NASDAQ:WTSL) has an opportunity to increase its stores base with its fast fashion concept in place. It is expected to open 19 stores this fiscal year, with most of the stores being in outlet centers. It has strong growth opportunities across its three store formats – traditional, outlets and off-mall locations.
The company also has long term plans to increase its current base from 465 stores to 700-750 stores. The company’s capital expenditure plan for the year is around $22 million to $24 million. It will spend 75% of this on store modeling and relocations. Its new outlet stores and other key investments in second half of this fiscal year will drive its growth in the long term.
Peer analysis
In the specialty women’s apparel segment, The Wet Seal, Inc. (NASDAQ:WTSL)’s primary peers are L Brands Inc (NYSE:LTD) and bebe stores, inc. (NASDAQ:BEBE).
L Brands Inc (NYSE:LTD) has expanded its stores base across its brands in international markets. It will increase company-owned stores along with its franchise stores, which are a major source of royalty revenues. It has increased its offerings in its Victoria’s Secret brand and added new categories such as shoes, handbags and accessories. It has also increased its promotions in the first quarter of this year to drive comp growth, though this has been at the expense of a loss in margins. It has returned more cash to its shareholders through increased dividends and a share buyback program in this fiscal year.
bebe stores, inc. (NASDAQ:BEBE) has a new team leading it through several changes to bring its numbers back to the positive. The company reported negative results in the first quarter of 2013, but it is looking forward to manage its margins with better vendor and inventory management. It will develop its merchandise according to customer reactions. This process will help it to deliver better products to its core customers. It will also come up with relevant visual marketing and promotion tactics to promote its products.
| P/S ratio | Op. margin | 1 Yr. Fwd. P/E | |
|---|---|---|---|
| Wet Seal, Inc. | 0.78 | 2.28% | 21.39 |
| Limited Brands, Inc. | 1.66 | 13.71% | 14.83 |
| Bebe Stores, Inc. | 1.0 | -16.49% | N/A |
Source: Google Finance and Yahoo Finance
Wet Seal has reported operating margin of 2.28% but has the highest one-year forward price-to-earnings ratio of 21.39 among its peers. L Brands Inc (NYSE:LTD) has the highest operating margin of 13.71 among the peers with a price-to-sales ratio of 1.66. bebe stores, inc. (NASDAQ:BEBE) has a negative operating margin of -16.49% and a moderate price-to-sales ratio of 1.0.
Conclusion
The Wet Seal, Inc. (NASDAQ:WTSL) is expected to drive its comps growth with its focus on fast fashion and omni-channel initiatives. It will target its core 16-year-old girl customer group with initiatives to connect through social media and integrated platforms. It will also increase its stores base this year with new outlet stores, which are more suitable for fast fashion. Wet Seal’s overall initiatives will help it drive comps growth and margin levels. As a result, I will recommend a “buy.”
The article Can This Retailer Continue Its Upward Momentum? originally appeared on Fool.com and is written by Ash Sharma.
Ash Sharma has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Ash is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
