Pacific Sunwear Continues to Post Sales Woes…

Pacific Sunwear of California, Inc. announced a three step process to return to relevancy on a conference call with analysts discussing third quarter results. According to interim CEO Sally Kasaks this plan amounts to, “one, our commitment to build juniors, to increase sales and store productivity. Two, our focus to improve the in-store presentation to drive increased unit sales and inventory turn. Three, the initiation of the strategic assessment to help us understand how we can reconnect with our customer.” She sees sales in juniors at Pacsun eventually being level with the guys’ side of the business.

In looking at this quarter’s results specifically, management said that average unit retail was “down slightly,” average transaction value per comp store was flat, and average items sold per transaction were “up slightly” versus the prior year. Total transactions per comp store were down “mid-single digits.”

At PacSun, the young men's apparel businesses posted “mid-single-digit” comps, driven by denim, fleece, and long sleeve knits. For guys during the fourth quarter, the Nike SB6.0 will expand to all stores and the Volcom Creedler will be introduced into 600 doors for holiday. In addition, the retailer will bring Skechers’ Kitson brand into 400 doors.

Giving further detail on the results, management disclosed that of the 960 basis point margin decrease, merchandise margins decreased 680 basis points “almost entirely due to the mark-down reserves taken in the third quarter,” while non-merchandise margin categories, which include buying, distribution, and occupancy costs, were down 280 basis points due to the de-leveraging of these costs against the same-store sales decline.

Looking at the fourth quarter, PSUN is projecting a mid-singles comp sales decrease, leading to diluted earnings per share in the 45 cents to 50 cents range. The company currently anticipates opening approximately 40 new stores and expanding/relocating approximately 35 more stores during fiscal 2007, primarily focused within the PacSun concept, resulting in about 4% square footage growth.