Pacific Sunwear Loss Narrower-than-Expected - Analyst Blog

Pacific Sunwear of California Inc. ( PSUN ) posted narrower-than-expected loss for first-quarter fiscal 2014. However, weakness in the women's business and persistent tough promotional environment compelled Pacific Sunwear to issue cautious second-quarter fiscal 2014 guidance, dragging down the stock price by nearly 10% in the after market trading hours.

The quarterly adjusted loss from continuing operations came in at 11 cents per share, narrower than the Zacks Consensus Estimate of a loss per share of 13 cents, and a loss of 14 cents per share reported in the prior-year quarter.

On a reported basis, the company posted a loss of 15 cents per share from continuing operations, as against loss of 35 cents per share reported in the year-ago quarter.

Detailed Performance

This Anaheim, CA-based specialty retailer reported net sales of $171.1 million, which was almost in line with the Zacks Consensus Estimate of $171.0 million but grew 2.9% year over year.

Same-store sales for the quarter rose 3%, marking the 9th consecutive quarter of positive same-store sales. E-commerce sales grew 6.0% year over year and represented 7% of total sales in the first quarter.

Gross profit increased 6.9% to $44.7 million with the gross margin expanding 100 basis points to 26.0%. Margin expansion was driven by improvement in merchandise margins partly run down by deleveraging of buying an occupancy cost.

Operating loss was $7.4 million compared with an operating loss of $11.0 million in the prior-year quarter.

Selling, general and administrative (SG&A) expenses in the reported quarter were approximately $52.0 million, down 1.4% from prior-year quarter.

Financial Update

Pacific Sunwear ended the quarter with cash and cash equivalents of nearly $20.0 million, long-term debt of $86.6 million and shareholders' equity of $8.1 million. The company's inventory position was down 7.5% year over year to $95.9 million, however, it has increased over 15.0% since Feb 2014.

Store Update

During the quarter, this sports and fashion retailer opened and closed 1 outlet each, taking the total number of outlets to 618 outlets as against 638 a year ago. Going ahead, management expects to shut down 10-20 stores in fiscal 2014 (with majority closures in the fourth quarter) while it expects to open 4 new stores in the year.

Going Forward

In the second quarter of fiscal 2014, the company expects to post loss between 2-8 cents as against earnings of 2 cents in the second quarter of fiscal 2013. Management projects revenues between $200 million and $210 million. Currently, the Zacks Consensus Estimate stands at earnings of 2 cents for the second quarter.

Moreover, management forecasts same-store sales in the band of negative 5% to flat. Gross margin (including buying, distribution and occupancy) is projected to be around 26%-29% and SG&A is expected to range from $56 million to $58 million in the coming quarter.

Pacific Sunwear currently has a Zacks Rank #3 (Hold).

Key Picks from the Sector

Better-ranked stocks in the retail sector include Citi Trends, Inc. ( CTRN ), American Apparel, Inc . ( APP ) and Foot Locker, Inc. ( FL ). Citi Trends sports a Zacks Rank #1 (Strong Buy) while American Apparel and Foot Locker carry a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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