Aug 25, 2010
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PacSun turnaround fails to impress, shares fall

Aug 25, 2010

Aug 24 (Reuters) - Revamping efforts at Pacific Sunwear of California Inc (PSUN.O), which has been missing out on key fashion trends, are taking longer than expected as the teen retailer forecast disappointing sales compared with its peers, pushing its shares down 6 percent after the bell.

Pacific Sunwear, PacSun
SoCal inspired PacSun

The company posted a quarterly loss that was narrower than market estimates as lower markdowns helped margins, but it forecast a weak third quarter amid falling sales.

Comparable sales during the second quarter fell 10 percent and is expected to decline 4-9 percent in the third quarter, the retailer of surf and skate board related clothes and merchandise said.

"They are not bettering their performance at the rate of competitors on a same-store sales basis. Same-store sales are very much lagging the peer base," analyst Brian Sozzi of Wall Street Strategies said in an email.

Rival Zumiez Inc (ZUMZ.O), which reported results earlier this month, posted a 9 percent rise in comparable sales for the second quarter.

However, on a conference call with analysts, PacSun said it expects comparable sales to improve as its young men's and junior's segments are picking up and it is bringing in fresh designs for girls.

PacSun is also having a difficult time as price-sensitive teens cut back on purchases and favor lower-priced retailers like Aeropostale Inc (ARO.N), H&M (HMb.ST) and Forever 21.

PacSun, which ended the quarter with $25 million in cash, said it raised about $28 million after the end of the quarter by mortgaging its corporate offices in Anaheim, California and its distribution center in Olathe, Kansas.

"Given cash considerations, the market may be wondering how long the company can exist... this is a company with deep rooted fundamental problems that are going to take some time to correct," analyst Sozzi said.

However, the company said it started exploring alternatives for monetizing real estate assets last fall when liquidity in the capital markets was particularly tight.

Separately, PacSun signed a deal to licence the Modern Amusement brand, a maker of sporty street wear clothes and accessories.

Shares of Anaheim, California-based PacSun have lost about 7 percent of their value since they posted first-quarter results in May, while the larger Nasdaq Composite Index .IXIC has lost around 2 percent.

PacSun shares were at $3.80 in extended trade, after closing at $4.05 on Nasdaq.

(Reporting by Nivedita Bhattacharjee in Bangalore)

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