Pacific Sunwear of California, Inc. (PSUN)
Q4 2009 Earnings Call
March 11, 2010 4:30 pm ET
Craig Gosselin – SVP, General Counsel and Human Resources
Gary Schoenfeld – President and CEO
Mike Henry – SVP and CFO
Adrienne Tennant – FBR Capital Markets
Janet Kloppenburg – JJK Research
Tracy Hogan – Credit Suisse
Jeff Van Sinderen – B. Riley
Liz Dunn – Thomas Weisel Partners
Lee Giordano – Imperial Capital
Stacy Pak – SP Research
Dana Telsey – Telsey Advisory Group
Betty Chen – Wedbush Securities
Paula Torch – Needham and Company
Previous Statements by PSUN
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Hi, good afternoon everyone, and welcome to the Pacific Sunwear of California conference call announcing our fiscal fourth and yearend 2009 quarterly financial results. This is Craig Gosselin; I am Senior Vice President, General Counsel and Head of Human Resources. This call is being recorded and the playback will be available starting today approximately two hours after the call through midnight on March 18, 2010. It can be accessed at 800-642-1687 or 706-645-9291, pass code 59365693. The call will also be archived on the PacSun website at pacsun.com through midnight on May 19, 2010.
Your speakers today are Gary Schoenfeld, Chief Executive Officer; and Mike Henry, Chief Financial Officer, and the call today will be limited to one hour. Before I turn the call over to Gary, I’d like to note that statements and discussions during today’s call will contain forward-looking information about our future financial performance and prospects. Our actual results could differ materially from those contained in our forward-looking statements. Risks and uncertainties that could cause our business and financial results to differ materially from those in the forward-looking-statements are included in our fiscal 2009 Form 10-K and in subsequent filings we made with the SEC, as well as in the earnings press release we issued today.
These documents can also be found on the Investor Relations on our website pacsun.com. All information discussed today is as of today's date, PacSun undertakes no duty to update this information to reflect future events or circumstances. This call, the webcast and its replay are the property of PacSun, not for rebroadcast or used by any other party without the prior written consent of PacSun.
With that said I’ll now turn the call over to Gary.
Thank you, Craig. Good afternoon and thank you for joining us today. I will start with a few brief comments about our Q4 results and then step back and talk more about the priorities for fixing our business and the progress we are making. Mike will then provide you with more of the fourth quarter financial details, our guidance for Q1 of 2010 as well as share some additional metrics regarding how we are looking at the year as a whole.
Fourth quarter comps were down 19% in line with our expectations. Excluding a non-cash reserve against deferred tax assets, we had a loss for the quarter of $0.26 capping another very difficult year for PacSun. Yet as difficult as the business has been, there were a few important bright spots including improving trends in our young men's business, of more than 800 basis points improvement and overall merchandise margins, and a 16% reduction in inventory, which coupled with a $26 million tax refund contributed to a strong year-end cash balance of $93 million.
Certainly when I joined I knew that we would need to move quickly to begin to dig our way out of a fairly deep hole as we can't continue to see our business decline like it has over the past two years. I believe the steps we are taking will begin to stem this decline and hopefully get us back to positive comps by Q4 of this year.
Specifically I'm going to outline the six key initiatives in areas of focus that are fundamental to fixing our business. First is strategy. The strategy I outlined last August remains the foundation for turning our business around tied directly to brands and product. We have made great progress in reconnecting with our heritage brands, and are excited about making brands like Fox, Volcom, Hurley, DC, Billabong, Roxy, Bams [ph] and Nike, and others, important destinations and reasons to come first to PacSun.
We have also redefined the role of our own proprietary brands as a complement to our heritage brands, and giving us the necessary flexibility in denim and certain other categories to compete with the many vertical retailers that have come to dominate much of the retail landscape. Additionally we are adding a select number of emerging brands, which combined with our heritage and proprietary brands give us the capability for offering 15 to 22-year old guys and girls an unmatched selection of fashionable and authentic product.
Second is organization and culture. With the right strategy and a compelling vision for the future, we have been able to embark upon rebuilding our executive team and transforming the culture within our company. Having now let go of four Senior Vice Presidents and eliminated four additional Vice President positions, I spoke on our last call about the importance of attracting the right level of experience and leadership to help turn this around.
As most of you are aware, Christine Lee joined us three weeks ago as our Senior Vice President, GMM of juniors’ merchandising. Robert Cameron started in January as our SVP of Marketing; and Craig joined us in December as our SVP and General Counsel. Christine brings a great background in apparel and accessories from a company that I think many of us have quite admiration for at Urban Outfitters, and brings the ability to fuse customer insights, fashion trends and brands in ways that I believe will create renewed excitement for our juniors’ customers. Robert comes to us most recently from Levi's with great insights from building brands and creating world-class customer experiences, and Craig brings nearly 20 years of general counsel experience and a high level of professionalism, trust and dependability, which will be integral to our reestablishing a winning and collaborative culture within PacSun.