Pacific Sunwear of California, Inc. reported its fifth consecutive quarter of positive comps and improved margins in the first quarter ended May 4 thanks in part to the strong performance of its Womens business.
The apparel retailer exceeded analyst expectations by reporting sales from continuing operations of $169.8 million in the first quarter ended May, up 4.6 percent from the first quarter ended April 28, 2012. Comparable store sales increased 2 percent and e-commerce revenues grew 11 percent. Womens comps increased up 7 percent, while Mens comped down 2 percent. Footwear comps were also up. Sales are approaching $300 per square foot.
Gross margin grew 12.1 percent $42.7 million, or 25.1 percent of revenues, up 160 basis points compared with the year earlier period. SG&A expenses declined 3.8 percent to $53.8 million, resulting in an operating loss of $11.1 million, compared with an operating loss of $17.8 million in the first quarter of 2012.
Loss from continuing operations surged to $24.2 million, or 35 cents per diluted share, compared to a loss from continuing operations of $15.2 million, or 22 cents per diluted share. The big swing was due to a non-cash loss of $9.3 million, or 13 cents per diluted share reflecting a change in the fair market value of a derivative liability tied to preferred stock issued in 2011 to secure a $60 million term loan financing. In the first quarter of 2012, PSUN reported a non-cash gain of $6.3 million, or $0.09 per diluted share, from derivative liabilities.
CEO Gary Schoenfeld said the growth in Womens during the quarter validated PSUNs decision to age up its target consumer from tweens and young teens to a much more fashion-savvy 17-to-24 year old.
Schoenfeld said he expects new brands such as Kendall & Kylie, Brandy Melville, Diamond Supply Co., Vans and Young & Reckless and a fashion shift to high-rise fits , will continue to drive comps growth for Womens in the second quarter.
On the Mens side, emerging brands, footwear and accessories were offset by softness in shorts, board shorts and heritage Tees. Schoenfeld said the latter have declined as some brands have wound down collaborations with energy drinks that had significantly lifted sales in the past. Men are also shying away from more fashion forward prints and patterns and sticking with basic and older styles.
While RVCA and Volcom will continue to be a prominent part of PSUNs Mens apparel mix, Nike and Vans will become more important as will smaller brands such as Diamond Supply Co, Us Versus Them, JSLV, Rook, Neff, DGK and Riot Society, Schoenfeld said.
In the third quarter, PSUN anticipates comparable store sales to grow between 1 and 5 percent and a gross margin of between 28 and 30 percent. PSUN ended the quarter with 638 stores, including a 10,000-square-foot pop-up store that will operate from Memorial Day through Labor Day in the heart of SoHo on Broadway in lower Manhattan. The store will showcase the companys shift toward brands by presenting Nike, Hurley and Vans more prominently and offering emerging brands such as Beats by Dre, Stance, and Rook.
The company closed eight stores in the first quarter and expects to close another 20 to 30 the balance of the year.