NEW YORK — The Wet Seal Inc. is said to be in talks to sell off its Arden B. division to boost its waning cash position, and could be poised to divest its nonprofitable Wet Seal stores, as well, according to industry sources.
Wet Seal is “going to have to take whatever deal they can get. They don’t have much choice at this point,” said Katharine Rice Galligan, an analyst at Aperion Group.
Divesting Arden B. could fetch some hefty cash. One estimate put the value of the 95-store contemporary women’s chain as worth roughly $100 million.
Wet Seal, which failed to launch an effective turnaround this summer, desperately needs a way to put more cash in its coffers or it might fall into bankruptcy — already perceived as imminent by some analysts — quicker than expected.
On Sept. 28, Wet Seal received $8 million in a junior secured term loan with Back Bay Capital Funding LLC. That followed a net cash boost of $25.9 million on June 30 through a private placement of equity securities. In its most recent quarter, the company widened its loss to $3.20 a diluted share compared with a loss of 45 cents in the year-earlier period; sales dropped 13.9 percent to $105.6 million. Wet Seal ended the second quarter with $36.4 million in cash and cash equivalents, up from $13.5 million in the year-earlier period.
Eric Beder, senior equity analyst at JBHanauer & Co., said in a Wednesday research note that Guess Inc. or Bebe Stores Inc. are well suited to acquire the assets of Wet Seal’s Arden B. unit. “Arden B. offers acquirers a golden opportunity to acquire prime locations in a number of key A and B malls,” Beder wrote.
All told, Guess would be a better fit than Bebe to buy Arden B.’s real estate and Bebe could be a better fit to buy Arden B.’s inventory, said Galligan. Bebe already has stores in many of the “class A” malls where Arden B. shops are, said Galligin, who follows Wet Seal and Bebe.
But Guess, especially with its new Marciano and Accessory concepts, could be looking for prime mall real estate, Beder said.
Bebe, meanwhile, would be a great fit to buy Arden B.’s merchandise inventory. “I’ve joked about how if I blindfolded someone and put them in a Bebe outfit and then put them in an Arden B. outfit, they wouldn’t know the difference,” said Galligan. “I would be surprised if [Bebe] bought the whole [Arden B. inventory and real estate] unless they got it at a fire sale price.”
A telephone call to Bebe was not returned. Guess and Wet Seal executives declined to comment.
On a different note, Kevin Starke, vice president of Imperial Capital LLC, wrote in an Aug. 24 research report that Wet Seal could use Arden B. as the focus of its restructured operations, which would increase profitability of the chain. But if all the Wet Seal stores were closed and only Arden B. remained, it could be “a sales base potentially too small to absorb the overhead of a publicly traded retailer,” Starke wrote.
Regarding the Wet Seal stores, a financial buyer or any retailer focused on the teen market would fit to buy the nonprofitable — and even some profitable — stores, said the analyst, who preferred not to be named. The company operates 468 Wet Seal stores.
“There’s no one course of action that makes the most sense,” the analyst said. “The question is whether all of this happens in or out of bankruptcy.”