Wet Seal In Default On Loans, Closes Stores and Fires Employees

 

Wet Seal gets (very little) breathing room from lenders, but trouble ahead.

Wet Seal in trouble

It has been tough for clothing retailers as dEliA*s and Deb Stores recently filed for bankruptcy.

Is Wet Seal next?

Today they announced that the Company was closing 338 stores after landlords refused to cave into their demands. Those stores represented about 48% of its sales.

Wet Seal will be left with 173 stores and its e-commerce business. It is firing almost 3,700 employees.

This saga began in late December when the Company failed to make a payment on its convertible note. The lender called the note, which was about $28.8 million plus costs and expenses.

As of November 1, 2014, Wet Seal had about $93 million in total assets against $103.4 million of total liabilities, of which only $59.4 million was classified as current. The convertible note was listed in long-term liabilities at $13.9 million.

So, why couldn’t they cover the debt?

They lost almost $80 million during the 39 weeks ended November 1, 2014. Net sales were $316.3 million, but Cost of Sales and G&A alone were $362.7 million. They were hemorrhaging cash, beginning the period with about $39 million and ending it with about $19 million. The holiday season must have been awful.

The convertible note is payable in shares unless certain conditions are not met. Wet Seal did not announce why they could not pay in shares and did not file the agreements with the lender explaining the nature of the default, other than nonpayment.

Possible vulture candidate for high risk tolerant investors? Ask our clients.

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