Pacific Sunwear Q2 Net Halved on Slowing Comps…

Pacific Sunwear of California, Inc. had one of its toughest quarters in recent memory, with a slight increase in sales that was trumped by a mid-singles comp sales decrease and building, bloated inventories. The combination cut the bottom line contribution in half for the quarter and sent PSUN shares down sharply for the second week in a row, declining more than 20% over the last two weeks.

At PacSun, men’s apparel had a positive comp for the second quarter with shorts and board shorts said to be strong and polos also up. Basic denim comped positively for July, but overall guys denim was negative due to weakness in branded fashion denim, except for Levi’s, which is in 200 stores now and will be in all stores by October.

Management described the juniors business in PacSun as “very challenging” during a conference call with analysts. Swim and short were “very strong,” but the tee business remained “very difficult.” Basic denim comps have improved dramatically with the introduction of a new assortment. However, as in guys, the branded fashion denim business has been very difficult. Fleece was tough in both guys and girls, while accessories was a mixed bag.

Sneakers continue to be “significantly negative.” In juniors, the company was “very pleased” with the performance of the new Roxy slip-on assortment and feels the decline in juniors skate can be offset by mid-September. In guys footwear, management pointed towards new Nike product as performing well, along with Vans, which is riding the popularity of the vulcanized look.
Demo had a “very disappointing quarter” as both guys and girls comped negatively.

Looking ahead, the company pointed to the early point of time in the BTS period as a reason for an inability to accurately predict third quarter results, but assuming a continuation of the negative mid-single digit second quarter comp trend, the company expects earnings in the range of 22 cents to 30 cents per diluted share.