PSUN

Pacific Sunwear of California, Inc. (PSUN)

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Pacific Sunwear of California (PSUN)

Q3 2011 Earnings Call

December 07, 2011 4:30 pm ET

Executives

Gary H. Schoenfeld - Chief Executive Officer, President and Director

Michael Kaplan - Chief Financial Officer and Senior Vice President

Craig E. Gosselin - Senior Vice President of Human Resources, General Counsel and Secretary

Analysts

Brian Czenszak

Erinn E. Murphy - Piper Jaffray Companies, Research Division

David E. Griffith - Roth Capital Partners, LLC, Research Division

Lee J. Giordano - Imperial Capital, LLC, Research Division

Jeffrey Wallin Van Sinderen - B. Riley & Co., LLC, Research Division

Marni Shapiro - The Retail Tracker

Christine Chen - Needham & Company, LLC, Research Division

Betty Y. Chen - Wedbush Securities Inc., Research Division

Andrew Burns - D.A. Davidson & Co., Research Division

Presentation

Operator

Good afternoon. My name is Jamaria, and I will be your conference operator today. At this time, I would like to welcome everyone to the Pacific Sunwear Q3 2011 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to our host, Mr. Craig Gosselin. Sir, you may begin your conference.

Craig E. Gosselin

Good afternoon, and welcome to the Pacific Sunwear of California Conference Call announcing the company's fiscal third quarter 2011 financial results. This is Craig Gosselin, Senior Vice President, General Counsel and Head of Human Resources. This call is being recorded and the playback will be available starting today, approximately 2 hours after the call through midnight on December 14, 2011. It can be accessed at (855) 859-2056 or (404) 567-3406, passcode 30247379. The call will also be archived on the PacSun website at pacsun.com through midnight on March 12, 2012.

Your speakers today are Gary Schoenfeld, Chief Executive Officer; and Michael Kaplan, Chief Financial Officer. [Operator Instructions]

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 2010 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 in the Investor Relations section on our website at pacsun.com. All information discussed on the call is as of today, December 7, 2011. Pacific Sunwear undertakes no duty to update this information to reflect future events or circumstances.

This call, the webcast and its replay are the property of Pacific Sunwear. It's not for rebroadcast or use by any other party without the prior written consent of PacSun. With that said, I'll now turn the call over to Gary.

Gary H. Schoenfeld

Thank you, Craig. Good afternoon, and thank you all for joining us on what we think is a pretty exciting afternoon for PacSun. For those of you that have had the chance to read our press release, you can see that we have quite a bit of information to share with you on this call. For those of you that haven't, let me start with the 4 key headlines and then get into more detail. I will speak more about the real estate and financing transactions, and Michael will comment more on Q3 performance and Q4 guidance.

Item one is our announcement that we will be closing nearly 200 underperforming stores by the end of next year. Approximately 75 of these are through buyouts of longer-term leases and 100 to 125 are through expirations or kick-outs.

Item two is we have secured a new $100 million credit facility with Wells Fargo Capital Finance and an additional $60 million senior secured term loan with Golden Gate Capital.

Item three is Q3 results and Q4 guidance. We had a minus 3% comp for Q3 and generally ended up at the higher end of our expectations. Our Q4 guidance includes a comp range of minus 3% to positive 2%, and Michael will get into more detail on both of those.

Item four is an announcement that the board has adopted a shareholder protection rights plan.

So it's quite a bit of information to cover between Michael and I. We'll look forward to then taking your questions once we get through our opening comments.

As I said in the release, the combination of our real estate negotiations and financing transactions greatly enhances our financial and operating position and represents another critical step forward in our turnaround of PacSun. In the 2 years that I've been here, we have aggressively gone after a number of key merchandising, field and operational initiatives to fix the business. We still have more to do to reestablish our brand identity and emotional connection with our customers, but I believe we are on the right path to make this happen.

As we discussed at our last call, it had become increasingly evident that in order for us to be successful, we needed to take further action to exit poor performing stores. As we stated in today's release, we have reached agreements with each of our top 5 landlords, as well as a number of other landlords across the country, the net result of which will be the exiting of nearly 200 underperforming stores by the end of fiscal 2012. These stores that we will be closing had average sales of $600,000 and a negative 9% comp over the last 12 months, compared to $1.1 million in sales and a minus 1% comp for the remaining 600 stores that we expect to be operating at the beginning of fiscal 2013.

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