Wet Seal Management Discusses Q3 2013 Results - Earnings Call Transcript

Dec. 4.13 | About: The Wet (WTSL)

Wet Seal (NASDAQ:WTSL)

Q3 2013 Earnings Call

December 04, 2013 5:00 pm ET

Executives

Christine Greany

John D. Goodman - Chief Executive Officer and Director

Steven H. Benrubi - Chief Financial Officer, Principal Accounting Officer, Executive Vice President and Corporate Secretary

Analysts

Edward J. Yruma - KeyBanc Capital Markets Inc., Research Division

Elizabeth O. Pierce - Ascendiant Capital Markets LLC, Research Division

Jeffrey Wallin Van Sinderen - B. Riley Caris, Research Division

Marni Shapiro - The Retail Tracker

Jeremy Hamblin - Dougherty & Company LLC, Research Division

Stephanie S. Wissink - Piper Jaffray Companies, Research Division

Operator

Greetings, and welcome to the Wet Seal, Inc. Third Quarter Fiscal 2013 Earnings Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ms. Christine Greany of The Blueshirt Group. Thank you. Ms. Greany, you may begin.

Christine Greany

Good afternoon, everyone. Thank you for joining us today. Presenting on today's call will be John Goodman, Chief Executive Officer; and Steve Benrubi, Chief Financial Officer.

Before we begin, I would like to remind you that today's call may contain forward-looking statements. Information and factors that could cause our actual results to differ materially from the forward-looking statements, as well as reconciliations of non-GAAP to GAAP financial measures, are included in today's press release, as well as our most recent annual report on Form 10-K. These documents are available on our corporate website, wetsealinc.com. The company assumes no obligation to publicly update or revise our forward-looking statements to reflect subsequent events or circumstances.

With that, I would like to turn the call over to John to begin. John?

John D. Goodman

Thanks, Christine, and good afternoon, everyone. Welcome to our third quarter earnings call. I'll begin with an overview of our third quarter performance and operating highlights, and we'll then discuss our position for holiday. Following my remarks, Steve will provide a detailed review of our third quarter financial results and fourth quarter outlook.

Although our third quarter results did not meet the forecast we laid out in August, we were able to achieve slightly positive comp store sales and generate 350 basis points of improvement in merchandise margins. This is especially notable against the backdrop of a very tough retail climate in September and October, when mall traffic declined precipitously.

During the quarter, we exercised strict expense control and inventory management. These are 2 of our core operating tenets, which have become increasingly important in today's soft sales environment.

Our third quarter SG&A rate declined 250 basis points versus a year ago, and inventories were down at both Wet Seal and Arden B, enabling us to enter the holiday season with appropriate inventory levels. As part of our efforts to remain competitive and drive sales, we stepped up our promotional levels in recent weeks and went deeper on Black Friday. We were managing the business conservatively and operating with lean inventory levels.

To that end, we fully intend to move through the product during the holiday season in order to enter January in a clean position. When we see signs of a demand picking up, we are poised to leverage the strong relationships we have with our vendors and quickly chase in the goods as needed.

Now I'll turn to product and merchandising. In the third quarter, at Wet Seal, we saw strength in many categories, including accessories, footwear, dresses and sweaters. Our teams have done a good job getting ready for the holiday season. We're putting together appropriate trends, we have the right promotional cadence for the current environment and we're seeing evidence that our marketing programs are starting to break through. Our social media campaigns and partnerships with emerging musical artists are continuing to generate a high level of attention and engagement.

Some of our featured celebrities in the fourth quarter will include: Bonnie McKee, Fifth Harmony; Jazz in 5 [ph] and 5 Seconds of Summer. On the digital front, we launched our newly created show, The Intern, on AwesomenessTV, one of the top YouTube channels focused on teens. The Intern provides an inside look at the marketing world at Wet Seal, as 2 young women go head-to-head on the various challenges of working in a retail environment. We're also planning additional product integrations for the AwesomenessTV show, IMO, which has proven to be an effective way for us to reach a highly targeted and relevant customer base.

From a mobile perspective, we've really stepped up our game following our e-commerce replatform. Our website now has responsive design, which provides us with the capability to drive additional transactions online using text messaging. Specifically, we've developed new in-store signage, promotions and employee incentives to drive sign-ups. We've also created some innovative programs to help us differentiate the Wet Seal brand.

By way of example, during Black Friday weekend, we offered an exclusive doorbuster promotion with ABC family, where all entries were done via mobile. The winner will visit the set of our favorite show, meet the cast, and receive $1,000 gift card.

We were pleased with the rollout of the Crush by ABC Family line in late October. This month, we're participating in ABC Family's 25 Days of Giveaways, which offers Wet Seal and Crush merchandise as prizes. We're also working with social media influencers and [indiscernible] to promote the line. We'll begin product tie-ins during the week of January 7 in connection with the season premiere of key shows.

Merchandise worn by the characters will be immediately available to our customers both in-store and on the Wet Seal website. As we anticipated, we're finally in collaboration with ABC family to be an effective marketing tool and terrific exposure for our brand.

Moving now to e-commerce. Our third quarter sales decline primarily reflects the system limitations we were under prior to implementing a new Demandware platform, as well as the operational focus on ensuring a smooth transition. We successfully launched a new system late October, which has resulted in a marked improvement in functionality. We know it's imperative that we build a more relevant e-commerce presence, and we're now much better positioned to do so.

Our core [ph] customer is always on her mobile and expects to have the ability to transact from any device. I am pleased to note that we've seen an increase in the conversion rates since our replatform was completed.

Turning to Arden B. In the third quarter, we had strong performance in knit tops, non-denim bottoms and jewelry. The stores are beginning to more fully reflect the influence of Tamara Chamberlain, who joined the company in late spring. We think the new product looks very good, and we're fairly well positioned for holiday. Inventory levels are somewhat light, so we'll be chasing in the goods in the coming weeks.

From a marketing perspective, we're employing select digital and social strategies, including special promotions and contests to help drive traffic and sales.

Before turning the call over to Steve, I'll update you on our new store openings. Between late October and mid-November, we opened 20 new Wet Seal stores, 19 of those in key outlet centers. Our Wet Seal Plus store, which opened in October at Clovis corner in the California Central Valley, is performing well and we continue to see good response to our Jr. Plus business on our e-commerce site. Looking ahead, we anticipate the company will pursue additional Wet Seal store openings in outlet centers and off-mall locations.

There is no question this holiday season will continue to be highly promotional throughout the mall. We're working diligently to manage the factors within our control. While we have guarded expectations, we feel good about our inventory levels at Wet Seal, as well as our merchandising and marketing initiatives and our promotional calendar. Equally important, we're keeping a tight rein on expenses. When I joined the company in January, we put together an ambitious agenda and began executing right out of the gate. We made a great deal of progress quickly and continue to see evidence that our strategies have had a positive impact on the business.

As you well know, mall traffic shifted dramatically in September. And since that time, the environment has remained tough. Throughout this year, our team has demonstrated a strong commitment to Wet Seal and worked hard to position the company for consistent, profitable growth over the long term. We're focused on disciplined execution in the current environment and believe the business is positioned to regain momentum when the retail climate improves.

Now I'll introduce Steve to review the financials.

Steven H. Benrubi

Thanks, John, and good afternoon, everyone. Net sales for the third quarter came in at $127.7 million, down 5.8% versus a year ago, including a decrease of $2.8 million, due to the retail calendar shift, while consolidated comparable store sales increased just under 1%. From a regional perspective, we saw relatively stronger performance in the West and Southeast.

On a comp store basis, combined average unit retail was up slightly to $9.60. Transactions per store were up 5%, and units per transaction declined 5%.

Combined e-commerce sales in the third quarter were down 18.9% versus a year ago, which largely reflects our focus on transition to our new Demandware platform, which went live near the end of the quarter. Despite the decline, we were able to generate an improvement in merchandise margin with a more disciplined approach to promotional pricing.

As John noted, the new e-commerce platform has already had a positive impact on conversion rates and puts us on a level-playing field as we compete for her attention and shopping dollars.

In the Wet Seal division, third quarter net sales were $114.9 million, down 2.6% versus last year, including a decrease of $2.7 million due to the retail calendar shift, while comparable store sales increased 1.7%. E-commerce sales decreased 18.4% to $6 million.

On a comp store basis, AUR increased 1.1% to $8.95. Transactions per store were up 5.7%, and UPT was down 5.1%. At Arden B, net sales were $12.8 million. That's down 27.5% versus last year and primarily reflects having 22 fewer stores in operation versus a year ago, as well as the difficult retail environment.

Comparable store sales were down 6.7% and e-commerce sales declined 21% to $1.3 million. On a comp store basis, AUR increased 2.8% to $28.30. Transactions were down 5.3%, and UPT was down 3.9%.

Returning to the income statement. Third quarter gross profit came in at $28.9 million. That's up 11.2% compared to $26 million last year. Gross margin improved 350 basis points to 22.7% versus 19.2% in the third quarter of 2012. The year-over-year improvement reflects an increase of 350 basis points in merchandise margin.

Occupancy cost deleveraged by 40 basis points, including about $430,000 of pre-opening costs, which was offset by a collective decline of 40 basis points in buying, distribution, and planning and allocation costs.

Third quarter selling, general and administrative expense was $38.7 million or 30.3% of sales. That's down 12.8% on a dollar basis and 250 basis points as a percentage of sales compared to the prior year and included about $240,000 of pre-opening costs.

Selling expense in the third quarter totaled $30.6 million or 24% of sales, reflecting a year-over-year decline from $31.5 million or 23.3% of sales in the third quarter of 2012. G&A expenses were also down, coming in at $8.1 million compared to $12.9 million a year ago. As a percentage of sales, G&A declined 320 basis points to 6.3%. As a reminder, the third quarter of last year included $2.1 million in professional fees to defend against a proxy solicitation and $1 million in incremental legal fees.

Third quarter operating loss was $14.9 million compared to $24.8 million last year. The results include noncash asset impairment charges of $5.1 million in this year's quarter and $6.5 million in last year's quarter. The 2012 period also includes the professional fees and legal costs I just mentioned.

Provision for income taxes was $49,000 compared to a benefit for income taxes of $10 million last year. We ceased recording benefits for income taxes on pretax losses upon establishing evaluation allowance against our deferred tax assets at the end of fiscal 2012.

Net loss in the third quarter was $14.9 million, or $0.18 per diluted share, which compares to net loss of $14.8 million or $0.17 per diluted share in the prior year period. On a non-GAAP basis, which excludes the after-tax effect of the asset impairment charges, adjusted net loss was $9.9 million or $0.12 per diluted share. That compares to a non-GAAP adjusted net loss of $9.7 million or $0.11 per diluted share in the third quarter of 2012.

Moving now to the balance sheet. Inventories at quarter end stood at $42.6 million, down 7.8% versus last year. This was in line with our expectations and reflects our strategy to ensure the company was in a clean position at the start of the holiday season. Inventory per square foot was down 5% versus a year ago, with Wet Seal down 3% and Arden B down 20%.

The company remains in strong financial condition and ended the quarter with $66 million of cash and cash equivalents and short-term investments and no debt. This level of cash provides us with the ability to remain nimble in today's operating environment and the flexibility to plan for unit growth in 2014.

Capital expenditures totaled $7 million in the third quarter, which includes spending related to 10 new store openings during the period, as well as preparation for another 12 new openings that occurred in November. We expect fiscal 2013 net capital expenditures to be in the range of $22 million to $23 million, with roughly 3/4 of our planned expenditures being store-related.

Now I'll turn to our financial guidance for the fourth quarter of 2013. Our expectations are as follows: Net sales in the range of $134 million to $137 million; a comparable store sales decrease in the high single to low double digits; gross margin in the range of 21.9% to 23.2%; SG&A between 31.7% and 32.4%; and operating loss ranging from $11.6 million to $14.1 million; and we expect a net loss in the range of $0.14 to $0.17 per diluted share.

Thanks for your time this afternoon. Now I'll ask the operator to open up the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question is from Ed Yruma of KeyBanc.

Edward J. Yruma - KeyBanc Capital Markets Inc., Research Division

I guess, first, I wanted to drill in on your comp guidance. Is that indicative of kind of the performance that you're seeing quarter to date? Obviously, you guys are up against an easier compare. So I want to kind of drill on it as to why it was as conservative as it looks?

John D. Goodman

Well, I think if you look at the -- this is John. If you think -- look at November, where we were running into a -- November was a difficult start to the month. I think we were pleased with our Black Friday performance. We did see improvement in that -- in the comp during that period of time. But before that, the November, early part of it was difficult. So as we look into December and January, we're taking a cautious, conservative approach because we feel like based upon traffic in the malls and what we saw in the September and October timeframe, we believe that it's prudent to be cautious going into the fourth quarter.

Edward J. Yruma - KeyBanc Capital Markets Inc., Research Division

Got it. And I guess, how should we think about -- you did indicate obviously that Black Friday was a little bit more promotional than you would have liked. How do we think about the margins that you observed around that time where maybe comps got a little bit better? Are you seeing margins that are meaningfully off of last year's or are you able to affect kind of stronger gross margins?

John D. Goodman

We feel good about where we are from a margin in terms of the pickup to LY [ph] go forward. We think, because we're managing the inventory very tightly, we also looked at the promotional cadence, where last year we were BOGO 70. This year, we were BOGO 80. So slightly different in terms of our promotional cadence for Black Friday weekend. If you will go forward, we really feel very good about our inventory positions. We feel good about how to manage the margin accordingly, but also being conscious of the promotional cadence that our competitors, as well as us, were in the middle of, we've also taken a cautious approach to the margin. But we believe that we will be better than flat or better than we were last year for margin for fourth quarter gross margin.

Edward J. Yruma - KeyBanc Capital Markets Inc., Research Division

Got it. And my final question on Arden B. You've had some tough results there recently. How do you think -- and I know it's still roughly small business, but I guess how do you think about the longer term dynamic there? Is it still TBD for another couple of quarters? And I guess, what do you need to see to make a decision on that business?

John D. Goodman

Yes. Well, we see Arden -- we're encouraged by our regular price selling in Arden. And as I mentioned in the script that we are a little bit light in terms of inventory. We're actively going after inventory as we speak. So we're really -- as the legacy product is waving off and we're getting the new product in there, we're encouraged by the sell-throughs that we're getting on Tamara's new product in the team. So we feel like we're headed in the right direction. It's still too early to call. But we feel like directionally, we feel much better about where the business is headed.

Operator

The next question is from Liz Pierce of Ascendiant Capital Markets.

Elizabeth O. Pierce - Ascendiant Capital Markets LLC, Research Division

So 2 questions. One is kind of more big picture and one is more specific. But regarding the big picture as we think longer term about the business model, particularly since last year wasn't comparable given where you were in terms of migrating to getting back to the old kind of fast fashion strategy, I mean help us think about directionally, particularly at this quarter in your guidance for Q4 for margin pressure. How we should be thinking? Like what does the model do? How -- directionally, can you help us think about next year and the year after where the potential is, what the margins can be? And I guess, layering into that, what if traffic isn't going to be always event-driven?

Steven H. Benrubi

Hi, Liz, it's Steve. I'll talk a little bit to the margin. I mean, as John had spoken to and certainly you're hearing and seeing the September and October period and really as we saw, carrying it in November has been a very challenging retail environment from an aggressiveness level of promotional cadence throughout the mall. It took a big turn, really, late August, and it's continued there. And from a margin standpoint, you can expect that there would be pressure on a go forward, as long as we see this kind of environment and we're going to be cautious and manage, assuming this continues for the time being. And when we see improvement there, we'll go after it. But clearly, over the last 3 months period, that challenge will put pressure for as long as it continues on margin. But we look forward to a point and to be ready for taking advantage of opportunity when it does come down the road.

John D. Goodman

And I would just add to that, that we picked up the 350 basis points in the third quarter. And as you look at fourth quarter, as I just noted before, that we continue to make improvement on the margins. So I feel like we're not going backwards in terms of improving the margin. Yes, we're up against weaker comparisons, I completely understand. But it feels like we're doing the right things as best as we can and it's a very difficult environment right now. So that will be certainly something we're looking at everyday around margin and how that relates to inventory at this point.

Elizabeth O. Pierce - Ascendiant Capital Markets LLC, Research Division

Then I guess, my question is, is there a way you can get your average cost down? And what else can be done? I mean, how should we think about the margin of the business a year from now, 2 years from now? Can it be 25, can it be 29, can it be low 30s? I think that's the thing that's -- if this is the new normal, what are you going to do to get that margin back kind of up at least a little bit closer to historical level?

John D. Goodman

Well, that's certainly something we're working towards and it's also looking at -- it's a lot of factors that will be involved that we'll -- that we are looking at as we speak. But certainly, e-commerce is an opportunity to -- from a margin perspective, as well as looking where our stores are located and opportunities, whether they'll be off-mall or outlet malls, for more productivity. So as you think about the margin going forward, that's certainly something we'd like to get back to the levels where we were all comfortable with. And that's where we're working towards right now. I think, as Steve alluded to, the pressure that is out there in a macro environment is making us take a cautious approach. But we are looking at our cost and our retails and looking at our IMUs and working with the right vendors. And all those things are being looked at. But certainly, improving the margin is one of the most important things we'll be doing.

Elizabeth O. Pierce - Ascendiant Capital Markets LLC, Research Division

And then, John, just to follow up. I think in your comments, you've said something about the Jr. Plus doing well online. How did it do in the, I think, it's the 30 stores? I noticed in a couple of stores, it had shifted toward the back of the store.

John D. Goodman

Yes, the Jr. Plus business is doing quite well. We're pleased with it out of the gate so far, even the 30 stores, as well as the Clovis store, as well as online. So we feel good about the direction where we're going. One of the things that happened is it was always planned to be in the back of the store in its own little world and section. We really thought we want to make it more environment-friendly. And that's kind of how we pictured it. Some of the stores had said it as we went out of gate, we weren't really as we expanded the assortment. That was always -- the goal was to bring it to the back of the store and create a whole shop and an environment for that girl. So that's why you saw that shift back and -- but it wasn't indicative of any slower selling.

Operator

The next question is from Jeff Van Sinderen of B. Riley & Co.

Jeffrey Wallin Van Sinderen - B. Riley Caris, Research Division

John, I know you guys were a little more promotional, I think you said for Black Friday weekend this year. And just wondering when you think about the whole of Q4, are you expecting to be more promotional overall versus last year? And then, I guess, how should we think about merchandise margins? I think you said that gross margin would be flat or better in Q4. Maybe you can just touch on those.

John D. Goodman

Yes. As you said, flat is certainly the direction where we want to be in terms of the margins. So as you look at some of the margin degradation, you should see improvement going to the December-January timeframe. We really believe that we're in a good inventory position, so we can be selective about how the promotions are running and how, strategically, we're going to run their promotions in the store. So you'll see us do different things. Obviously, the competition will heat up and will make us do things. But we think we have a good cadence of how we want it laid out and we're prepared to go up or down accordingly. But I would say with where we are in inventory in both brands, we have the ability to manage the margin in a much better place.

Jeffrey Wallin Van Sinderen - B. Riley Caris, Research Division

Okay. And then maybe you can just -- is there more color maybe you can give us on kind of what you were seeing in terms of traffic conversion? I know you said the first part of November was tough and it ramped for Black Friday weekend. Just wondering how much of a delta there was there? And then also, maybe you can just give us your thoughts on the extent of a lull that we typically get at this time before -- about a week before Christmas, if you think that's happening or going to happen this year, any of that.

John D. Goodman

Well, I think what we saw in November, it was a venture, I mean whether it's Veterans Day or, obviously, Black Friday, which really started earlier this year on Thursday night, most of our stores opened at 8:00 on Thursday night. So I think it has become much more event-driven. I think that that's what we saw during the month of November. Our comps did pick up significantly over where we were tracking going into Black Friday weekend. And the same thing was pretty similar to that in Veterans Day. So it has become much more event-driven. In terms of discussing December and go forward, we're watching the business carefully at this point in time and we'll watch the traffic patterns as it takes shape in the month of December.

Jeffrey Wallin Van Sinderen - B. Riley Caris, Research Division

Okay. And then just one last one, and I'll let someone else in. You're -- with Demandware in place now, I know you said you expect e-comm to get better. Just wondering if you think that means positive comps for Q4, or is that more of a Q1 event. Where do you think we are in that process?

John D. Goodman

Well, we are encouraged by demand, where our conversion went up significantly. We're also pleased with our Cyber Monday performance. So as we look at it, we are definitely making good strides going forward in e-commerce. We've had some technology glitches as we implemented the system, as I called out. But we feel better about where we're headed from an e-commerce perspective and certainly, from a conversion. It was very, very nice to see that immediately, when we put the system in place, our conversion went up significantly. So that was really good news. And as we get more -- watching that grow on mobile, it's very, very important because mobile, as some of my competitors and everyone is talking about, mobile is incredibly important for us. And we saw that really take shape even more so during the Cyber Monday activity.

Jeffrey Wallin Van Sinderen - B. Riley Caris, Research Division

And at this point, you feel like you've worked out the glitches?

John D. Goodman

We still have a few more glitches but we feel really good about where we are from a system standpoint. Our system was able to handle significant demand on Monday, which was very good to see because it was a big day. And for that to handle it, we're very pleased with that.

Operator

The next question is from Marni Shapiro of The Retail Tracker.

Marni Shapiro - The Retail Tracker

Can you talk a little bit about the shopper that's coming online and in-store at Wet Seal? Are you finding that you are getting your last [ph] shopper or is it a new shopper who's discovering you online? And is she then coming into stores? Are you seeing that kind of crossover? Is it -- I'm just curious about that. And then can you also just quickly touch on or clarify Arden B, the comps were tough. But was that due to the lack of inventory or was it the heritage product that had to get moved out and marked down significantly and the new products selling out, and you probably didn't have enough of the new product?

John D. Goodman

All right. So if I take, first of all, the online business, as well as the store business, we are seeing the existing customer come back, but we're getting new customers. I was in stores during the Black Thursday night, Friday, really seeing a cross-section of different customers. What we know now, as we're looking at it through our surveys but also through the traffic patterns, is that that girl is pre-shopping online first significantly and looking at her shopping list before she enters the mall. So that's really important for us to get her was -- and make sure the site is what it needs to be. And that's what's really encouraging, is that our site is much more mobile and active now and be able to show the brand as it should be. It was not that way a month ago. So we are seeing the girl do pre-shopping and then go into the store. We did see a cross-section of different people during the Black Friday weekend. All of our employees were out there in terms of -- headquarters people as well, working in stores. So I think it was important to see who the customer is, what the dynamic is and how that shifted through the course of the early evening into the morning and into the afternoon on Friday. So that's the question one, we are seeing that cross-section and we are feeling there's the existing customer and getting a new customer. The second piece with Arden B, I think, what I would say to you is that there was legacy inventory we called out from third quarter that we're digging out of. We've done a good job of finally digging out of that inventory. I think we were taking a cautious approach with regards to the inventory that we're putting in for the newer product to make sure that it's stuck so we weren't going to be stuck with inventory. We were very pleasantly surprised with the sell-throughs of a lot of the new product that came in. And now, it's a matter of getting back into those businesses today that we -- that performed well for us. So we are chasing a bit more than I'd like in Arden B right now, but we're actively in the marketplace as we speak, getting back some of the inventory either from a replenishment or from new goods that we're putting into the store.

Marni Shapiro - The Retail Tracker

Yes, that store was the -- literally, the racks were bare by Friday late afternoon. It was amazing to me. And I just have to make one call-out. That Zebra Onezee [ph] at Wet Seal, oh my -- beyond. I mean, just ridiculous, amazing. I'll take the rest of my questions offline.

Operator

The next question is from Jeremy Hamblin of Dougherty & Company.

Jeremy Hamblin - Dougherty & Company LLC, Research Division

I wanted to ask a couple of quick follow-ups just on some of the prior questions. One is in terms of thinking about the guidance for Q4 and the composition of that between Wet Seal and Arden B. Should I think that Arden B is currently comping down or, implied in that guidance, is comping down more than Wet Seal? Or how do the 2 concepts break down in terms of the overall guidance?

Steven H. Benrubi

The overall for the quarter, it's very similar between the 2 brands in terms of the comp performance expectations. So no big call-out differential there.

Jeremy Hamblin - Dougherty & Company LLC, Research Division

Okay. And then just in terms of the percentage of traffic that you're seeing on the website from mobile users is about how much at this point?

Steven H. Benrubi

Well, we don't quantify it as much, but it has become significant part of our business, as we looked at desktop decreasing in terms of traffic and the mobile significantly picking up. So it's a big number and it's a big shift that's taking place, whether it be mobile or iPads.

Jeremy Hamblin - Dougherty & Company LLC, Research Division

Okay. And then just the broader level question I wanted to ask, and it's really a follow-up on one of the prior questions is, in terms of the environment that we're seeing right now and much larger, fast fashion peers, as well as other teen retailers struggling and their businesses are so much bigger than yours. Is it really -- can the company turn around the comp trend right now until we see some of those larger peers get out of this pattern of just kind of racing to the downside on promotional levels? I mean, how quickly can this be turned around? Because I feel like earlier this year, you were able to make great progress when not everybody was trying to top last week's discounts. But as we saw over Black Friday and thus far, in the holiday season, it's just been brutal in terms of the promotions that they're running. And it seems like it's really not even giving you an opportunity.

John D. Goodman

Yes, I think if you look at it, that was the BOGO 70 and BOGO 80. We ran BOGO 70 before Black Friday, and the BOGO 80 we ran for Black Friday. I think that was the first time all year we've done an all store event. We were able to stay clear of that. I think we had to be competitive, obviously, in the most busiest time of the year for us. So as we look at it going forward, I believe your product is going to speak for a lot of the performance, and that will be key for us is to really look at how we're merchandising the floor, how we set out some of the key items that we bought and put them together in a more dominant way. So if the customer really sees that value and we just did some work on the stores going into this morning, where I think you'll see much more dominance in terms of some of the price points, some of the key items and really calling out as opposed to doing the whole store event, really honing in on certain key categories and key pricing through that. So we feel like we can hold our own with the big guys. We like to still believe, and we do, that our 4,000 square-foot box gives that girl a really tight edited assortment that she can resonate -- that resonates with her as we have 3 different trends throughout the store right now. So I'm less worried about -- I'm worried obviously about our competition and what they do in terms of promotion. But I feel like we have to really look at what we're doing and how we can win strategically.

Operator

The next question is from Steph Wissink of Piper Jaffray.

Stephanie S. Wissink - Piper Jaffray Companies, Research Division

Three really quick ones for you guys. The first one, I think, John, you had mentioned or Steve earlier that your e-comm and digital initiatives are really where the focus is. But I think you mentioned in your CapEx qualification, about 3/4 of the CapEx is related to stores. If you could just reconcile a little bit of the digital in contrast to the stores' initiatives from a capital spending. And John, I think you've also talked very eloquently about these power weekends. So if you could just give us an update on some of the order of magnitude maybe of the comp variance between the peak and off-peak periods, has that order of magnitude started to consolidate? Or are we still seeing those double digits swing from peak to off-peak? And then last question, as you look at that Arden B concept, just stepping back, 22 fewer stores this year versus last year, what are your thoughts around the scale of that business to really contribute going forward to the operating margin potential of the total enterprise?

Steven H. Benrubi

Okay, Steph. It's Steve. I'll speak briefly to the CapEx and let John handle the other couple of questions you had. Yes, we have expectation -- it's $22 million to $23 million total this year. 3/4 of that is either the 26 new Wet Seal stores that we will have opened by year end, as well as remodels, normal course of bond lease renewals. So I mean, that's where more of the capital-intensive investment is in the business is on the brick-and-mortar side just by its nature. On the IT side, just by way of example, the Demandware platform development and rollout, that was about $1 million. That's really, obviously, not a big capital number for a high-impact item or priority in the business for us going forward. And then beyond that, other normal course, IT upgrades and other rather relatively minor store expenditures during the course of the lease term is what rounds out most of the rest of the spending. So I hope that gives you some lay of the land for the capital side. And I'll give it to John on the other questions.

John D. Goodman

So when you look at peak weekends or heavy traffic weekends versus not, there is still a big gulf between those events that are happening that's still continuing. I think what's really important to note is that tomorrow, we're 3 weeks away from Christmas. So I think the customers are going to realize that 3 weeks from tomorrow, Christmas is coming. So we really see a compact, really time frame to do a lot of business. So a focus for us, I'm sure as well as every other retailer, will be looking at this 3-week period. But if you go back to the November time frame and even earlier than that, when there is a holiday or an event-driven moment, it is significantly better traffic than without it, without a doubt. And then with regard to the Arden B question, I think what we did was take a cautious approach. But what's encouraging and what's really exciting is, as Marni was commenting before, is that the customers coming in, she likes what she sees. We're getting significant regular price sell-through on some -- on the garments that are coming in, whether it be dresses, other categories that are performing very well for us. So we feel like direction, we're in the right place. But again, we're going to take a very cautious approach to the Arden B business right now as we go forward. I hope that answers the questions.

Operator

We have no further questions in queue at this time. I would like to turn the floor back over to management for any closing remarks.

John D. Goodman

I want to thank everybody for attending this call today. We appreciate it. And we will talk to you again soon. Take care.

Operator

Thank you. Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.

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