Pacific Sunwear of California, Inc. saw second quarter net sales increase 9.7% to $344.2 million from $313.7 million for same period last year. Total company same-store sales increased 1.8% during the second quarter of fiscal 2007. By concept, PacSun same-store sales increased 3.0% and demo same-store sales decreased 10.7%. Due to the 53rd week in fiscal year 2006, same-store sales for the second quarter of fiscal 2007 are compared to the thirteen-week period ended August 5, 2006.


For the second quarter of fiscal 2007, the company recorded a net loss of $10.5 million, or 15 cents per diluted share, compared to net income of $9.7 million, or 14 cents per diluted share, for the second quarter of fiscal 2006. Lease termination and other liquidation charges associated with the previously announced 74 demo stores closed accounted for 14 cents per diluted share of the loss. The previously announced store impairment charges related to One Thousand Steps accounted for 8 cents per diluted share of the loss. Excluding the demo lease termination and inventory liquidation charges and the One Thousand Steps store impairment charges, the company had net income of $4.8 million, or 7 cents per diluted share, for the second quarter of fiscal 2007.


“Our second quarter results underscore that while elements of our efforts to improve the PacSun stores are showing progress, we still have a lot of work to do,” commented Sally Frame Kasaks, Chief Executive Officer. “July ended much weaker than we projected, which we believe was in part due to the impact of the late back to school starts in Florida and Texas, two of our most significant markets. On a positive note, strength in our PacSun juniors' business is an indicator that we have identified the right fashion trends for back to school.”

Total sales for the first half were $664.8 million, an increase of 8.4% over total sales of $613.6 million during the first half last year.


Total company same-store sales increased 0.4% during the first half. By concept, PacSun same-store sales increased 1.9% and demo same-store sales decreased 11.5%. Due to the 53rd week in fiscal year 2006, same-store sales for the first half of fiscal 2007 are compared to the 26-week period ended August 5, 2006.


For the first half of fiscal 2007, the company recorded a net loss of $15.6 million, or 22 cents per diluted share, compared to net income of $21.6 million, or 30 cents per diluted share, in the first half of fiscal 2006 ended July 29, 2006. Lease termination and other liquidation charges associated with the previously announced 74 demo stores closed accounted for 17 cents per diluted share of the loss. The previously announced store impairment charges related to One Thousand Steps accounted for 8 cents per diluted share of the loss. Excluding the demo lease termination and inventory liquidation charges and the One Thousand Steps store impairment charges, the company had net income of $1.9 million, or 3 cents per diluted share, for the first half of fiscal 2007.


Financial Outlook


Assuming flat to low-single-digit increases in total company same-store sales, comprised of positive low-single-digits for PacSun and negative mid-teens for demo, the company is comfortable with third quarter GAAP earnings in the range of 10 cents to 13 cents per diluted share. This estimate assumes approximately 300 to 350 basis points in gross margin improvement, offset by a similar increase in selling, general and administrative expenses primarily attributable to planned home office headcount additions, strategic consulting expenses and store payroll and depreciation deleverage.


 

                PACIFIC SUNWEAR OF CALIFORNIA, INC.

                     SUMMARY STATEMENTS OF INCOME

       (unaudited, in thousands except share and per share data)


                       Second Quarter Ended       First Half Ended

                     ———————–   ———————–

                       AUG. 4,     JUL. 29,      AUG. 4,     JUL. 29,

                        2007         2006         2007         2006

                     ———-   ———-   ———-   ———-

 Net sales           $  344,218   $  313,682   $  664,803   $  613,570

 Gross margin            91,020       97,425      173,889      194,708

 Selling,

  G&A expenses          109,606       82,855      201,641      162,794

                     ———-   ———-   ———-   ———-

 Operating

  (loss)/income         (18,586)      14,570      (27,752)      31,914

 Interest income,

  net                       541        1,090        1,511        2,885

                     ———-   ———-   ———-   ———-

 (Loss)/Income

  before taxes          (18,045)      15,660      (26,243)      34,799

 Income tax

  (benefit)/expense      (7,543)       5,950      (10,683)      13,223

                     ———-   ———-   ———-   ———-

 Net (loss)/income   $  (10,502)  $    9,710   $  (15,560)  $   21,576

                     ==========   ==========   ==========   ==========

 Net (loss)/income

  per share, basic   $    (0.15)  $     0.14   $    (0.22)  $     0.30

                     ==========   ==========   ==========   ==========

 Net (loss)/income

  per share, diluted $    (0.15)  $     0.14   $    (0.22)  $     0.30

                     ==========   ==========   ==========   ==========

 Wtd avg shares

  outstanding, basic 69,692,827   71,335,467   69,635,543   72,239,872

                     ==========   ==========   ==========   ==========

 Wtd avg shares

  outstanding,

  diluted            70,064,804   71,866,482   69,986,773   72,783,954

                     ==========   ==========   ==========   ==========