PSUN

Pacific Sunwear of California, Inc. (PSUN)

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Industry: Consumer Services
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Pacific Sunwear of California (PSUN)

Q4 2011 Earnings Call

March 13, 2012 4:30 pm ET

Executives

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

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

Michael Kaplan - Chief Financial Officer and Senior Vice President

Analysts

Dorothy S. Lakner - Caris & Company, Inc., Research Division

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

Marni Shapiro - The Retail Tracker

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

Jeffrey P. Klinefelter - Piper Jaffray Companies, Research Division

Pamela Nagler Quintiliano - Oppenheimer & Co. Inc., Research Division

Alex Pham - Wedbush Securities Inc., Research Division

Travis Williams - Stephens Inc., Research Division

Janine M. Stichter - Telsey Advisory Group LLC

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 Q4 and Year End 2011 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to 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 our fiscal fourth quarter and year end 2011 financial results. My name is Craig Gosselin. I'm 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 March 20, 2012. It can be accessed at (855) 859-2056 or (404) 567-3406, passcode 59622538. The call will also be archived on the PacSun website at www.pacsun.com through midnight on May 23, 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 the 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 uncertainty 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, March 13, 2012. 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 PacSun. It is 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

Good afternoon, and thank you for joining us today. Michael's going to get into more detail on some of the accounting changes, but I'm going to speak to 2 things very briefly as a result of the December transactions. And the first of that being that we're now required to break out continuing operations versus discontinued operations as a result of the stores that we announced that we would be closing. So through the P&L, you'll hear us speak to discontinuing operations of ongoing stores.

The second is there now is derivative accounting, which Michael will explain that ties to the preferred stock that was issued to Golden Gate Capital and the transaction in December.

So as we look at the fourth quarter and the end of the year, sales from continuing operations were $234 million versus $238 million last year and for the total year were $834 million versus $837 million for 2010. As we stated in the press release, our overall business, which includes all stores opened during the fourth quarter, improved as we got further into the holiday-selling season, moving from a minus 3 comp store sales at the time of our last conference call to flat for the fourth quarter.

Given the highly promotional nature of the holiday season, we were also encouraged by our 150 basis point improvement in merchandise margins for continuing stores and the decline in non-GAAP net loss, which I will speak to in a moment.

GAAP net loss per share for the quarter was $0.56 as compared to $0.53 per share for the same period a year ago. On a non-GAAP basis, excluding store closure-related charges of $7 million and the loss on derivative liability, which Michael will explain as I said, and using the normalized annual income tax rate of approximately 37%, we reported a net loss of $0.19 per share as compared to a $0.31 loss on a comparable basis in the same period last year.

Comparable sales, which includes results for all stores opened during the fourth quarter, for Men's was a plus one, while the Women's side of the business was a minus one. Overall, the biggest shift we are seeing in our business is growth in our emerging and proprietary brands, offset by declines in some of our key heritage brands.

From a category perspective, denim and footwear had significant growth in both genders, while fleece, outerwear and Women's fashion tops fell short of our expectations.

Consistent with what we announced in December, we closed 119 stores during fiscal 2011, including 87 store closures during Q4 and ended the year with a store count of 733 stores. We continue to anticipate the closure of approximately 110 additional stores in 2012, with the vast majority of those closures taking place in the fourth quarter.

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