Pacific Sunwear Narrows Q1 Loss

On a GAAP basis, the company reported a loss from continuing operations of $15.6 million, or 23 cents per share, for the first quarter of fiscal 2012, compared to a loss from continuing operations of $28.7 million, or 43 cents per share, for the first quarter of fiscal 2011. The loss from continuing operations for the company's first quarter of fiscal 2012 included a non-cash gain of $6.3 million, or $0.09 per share, related to a derivative liability that resulted from the issuance of the Convertible Series B Preferred Stock (the “Series B Preferred”) in connection with the term loan financing the Company completed in December 2011.

On a non-GAAP basis, excluding the non-cash gain on derivative liability and using a normalized annual income tax rate of approximately 37 percent, the company's loss from continuing operations for the first quarter of fiscal 2012 would have been $13.7 million, or 20 cents per share, as compared to a loss from continuing operations of $18.1 million, or 27 cents per share, for the same period a year ago.

“We had a strong second half of the quarter that led to sales at the high end of our guidance and gross margins which exceeded plan, resulting in close to a $10 million improvement in our pre-tax operating results compared to the first quarter of last year,” said Gary H. Schoenfeld, president and chief executive officer. “As we begin to re-establish PacSun's relevance and connection with our target customers, we achieved positive comps in both genders for the first time since 2005 and are optimistic that these positive trends can continue as reflected in our guidance for the second quarter.”

Financial Outlook for Second Fiscal Quarter of 2012

The company's guidance range for the second quarter of fiscal 2012 contemplates a non-GAAP net loss from continuing operations of between 11 cents and 16 cents per share.

The forecasted second quarter non-GAAP loss from continuing operations per share guidance range is based on the following assumptions:

    Same-store sales of negative 1 to plus 4 percent;
    Gross margin rate, including buying, distribution and occupancy, of 24 percent to 26 percent;
    SG&A expenses in the range of $62 million to $64 million; and
    A normalized annual income tax rate of approximately 37 percent.

The company's second fiscal quarter of 2012 guidance range excludes the quarterly impact of the change in the fair value of the derivative liability due to the inherently variable nature of this financial instrument.

Discontinued Operations

In accordance with applicable accounting literature and consistent with the Company's financial statement presentation in its fiscal 2011 annual report, the Company has reclassified the results of operations of its closed stores as discontinued operations for all periods presented, as applicable.

Derivative Liability

In fiscal 2011, as a result of the issuance of the Series B Preferred in connection with the Company's $60 million senior secured term loan financing with an affiliate of Golden Gate Capital, the Company recorded a derivative liability equal to approximately $15.0 million, which represents the fair value of the Series B Preferred upon issuance. In accordance with applicable U.S. GAAP, the Company has marked this derivative liability to fair value through earnings and will continue to do so on a quarterly basis until the shares of Series B Preferred are either converted into shares of PacSun common stock or until the conversion rights expire (December 2021). The Company's second fiscal quarter of 2012 earnings guidance excludes the quarterly impact of the change in the fair value of the derivative liability due to the inherently variable nature of this financial instrument.