May 18, 2012
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PacSun posts narrower loss, banks on Nike to expand margins

May 18, 2012

Teen retailer Pacific Sunwear of California Inc reported a narrower-than-expected quarterly loss, helped by higher gross margins, and said it plans to add higher-priced Nike products to rebuild its brand.

Photo: Pacific Sunwear

PacSun shares were up 22 percent in extended trade. They closed at $1.18 on Thursday on the Nasdaq.

Lackluster merchandise and other missteps have resulted in a continued fall in sales at PacSun for about a year, leading the company to combat an identity crisis.

The retailer would focus on its turnaround strategy by delivering "trend-right" products, Chief Executive Gary Schoenfeld said on a conference call with analysts.

PacSun has struggled to lure customers away from teen apparel chains like Aeropostale Inc, American Eagle Outfitters Inc and Urban Outfitters.

Rival Zumiez, on the other hand, has established a loyal customer base and outdid its peers by expanding its higher-margin portfolio.

PacSun intends to broaden the range of price points across different categories, CEO Schoenfeld said.

"We look forward to adding higher price point Nike Signature products for back-to-school to further propel this part of our business," Schoenfeld said.

He added that Oakley had also relaunched its branded sunglasses at price points in excess of $150.

The company expects gross margins for the second quarter to be in the range of 24 percent to 26 percent, being at or above last year's overall gross margin. This would primarily be driven by merchandise margins.


The surf- and skate-related products retailer's loss from continuing operations narrowed to $15.6 million, or 23 cents per share, from $28.7 million, or 43 cents per share, a year ago.

Excluding items, it posted a loss of 20 cents per share.

Sales at the company, which started as a small surf shop in southern California in 1980, rose marginally to $173.8 million. Same-store sales increased 1 percent.

Rival Zumiez also reported earnings ahead of estimates on improved margins.

For the second quarter, the company expects to lose 11 to 16 cents per share. Wall Street estimates a loss of 14 cents per share.

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