Pacific Sunwear of California, Inc. reported total sales of $375.4 million for the third quarter, down slightly from total sales of $377.5 million for the same period last year. Same-store sales decreased 6.7% for the quarter. Third quarter GAAP net income was $9.0 million, or 13 cents per diluted share, versus a comparable non-GAAP $38.4 million, or 51 cents per diluted share, for the third quarter of last year. Current year third quarter earnings include an inventory write-down charge of 10 cents per diluted share, primarily for footwear and accessory categories. In addition, current year third quarter earnings include stock compensation and pre-opening rent expenses of 3 cents per diluted share, and a charge of a penny per diluted share attributable to the departure of the company's former CEO as announced on October 2, 2006. Comparable non-GAAP earnings for the third quarter of last year include 3 cents per diluted share in stock compensation and pre-opening rent expenses.
“Although we are disappointed with our third quarter results, we are moving aggressively in an effort to reverse the trend,” commented Sally Frame Kasaks, interim chief executive officer. “One of my first goals as interim CEO has been to improve the appearance of our stores. To accomplish this task, we have changed our inventory strategy to reduce overall inventory density in our stores. I believe that by reducing inventory density, we will improve the presentation and clarity of our merchandise assortments. As a result of the actions we have already taken, inventory per square foot is now down 5.6 percent versus the same quarter a year ago, a significant improvement over our results of recent quarters. This step will allow us to accelerate key holiday deliveries, specifically in junior apparel, which we believe will help drive that business going forward. With lower inventory levels in our stores, we believe we can put our focus on improving our inventory turns, bringing fresh and exciting merchandise to our customers, and making the store environment much more shopper friendly,” Kasaks concluded.
Total sales for the first three quarters (thirty-nine weeks) of fiscal 2006 were $989.0 million, an increase of 2.3% over total sales of $966.5 million for the first three quarters of fiscal 2005. Same-store sales decreased 4.9% for the comparable thirty-nine week period ended October 28, 2006. Fiscal 2006 year-to-date GAAP net income was $30.6 million, or 43 cents per diluted share, versus a comparable non-GAAP $72.1 million, or 95 cents per diluted share, for the first three quarters of fiscal 2005.
A reconciliation of third quarter and year-to-date fiscal 2005 reported GAAP earnings to the non-GAAP measures is set forth below.
Reconciliation of Fiscal 2005 Q3 GAAP Earnings
to Non-GAAP Disclosure
GAAP EPS as originally reported for Q3 2005 $ 0.54
Less impact of stock compensation
and pre-opening rent expenses (0.03)
--------
Adjusted non-GAAP EPS for Q3 2005 $ 0.51
========
GAAP net income as reported for Q3 2005, in $000s $ 40,484
Less stock compensation expenses, tax-effected (1,540)
Less pre-opening rent, tax-effected (575)
--------
Adjusted non-GAAP net income for Q3 2005 $ 38,369
========
Reconciliation of Fiscal 2005 Year-to-Date
GAAP Earnings to Non-GAAP Disclosure
GAAP EPS as originally reported for Q3 2005 $ 1.04
Less impact of stock compensation and
pre-opening rent expenses (0.09)
--------
Adjusted non-GAAP EPS for Q3 2005 $ 0.95
========
GAAP net income as reported for Q3 2005, in $000s $ 79,203
Less stock compensation expenses, tax-effected (5,530)
Less pre-opening rent, tax-effected (1,527)
--------
Adjusted non-GAAP net income for Q3 2005 $ 72,146
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Fourth Quarter Earnings Outlook
At this time, assuming fourth quarter same store sales are in the negative mid-single digit range, the company anticipates earnings in the range of 45 cents to 50 cents per fully diluted share for the fourth quarter.
2007 Store Growth Plans
Given the current trend in the business, the company feels it is prudent to slow the pace of its store openings. As a result, the company currently anticipates opening approximately 40 new stores and expanding/relocating approximately 35 stores during fiscal 2007, primarily focused within the PacSun concept. This will result in total company square footage growth of approximately 4 percent.
PACIFIC SUNWEAR OF CALIFORNIA, INC.
SUMMARY STATEMENTS OF INCOME
(unaudited, in thousands except share and per share data)
Third Quarter Ended Nine Months Ended
---------------------- ----------------------
OCT. 28, OCT. 29, OCT. 28, OCT. 29,
2006 2005 2006 2005
---------- ---------- ---------- ----------
Net sales $ 375,427 $ 377,491 $ 988,996 $ 966,540
Gross margin 106,342 144,439 301,049 352,145
Selling, G&A expenses 92,562 80,905 255,355 228,618
---------- ---------- ---------- ----------
Operating income 13,780 63,534 45,694 123,527
Interest income, net 709 1,566 3,594 3,831
---------- ---------- ---------- ----------
Income before taxes 14,489 65,100 49,288 127,358
Income tax expense 5,506 24,616 18,729 48,155
---------- ---------- ---------- ----------
Net income $ 8,983 $ 40,484 $ 30,559 $ 79,203
========== ========== ========== ==========
Net income per
share, basic $ 0.13 $ 0.54 $ 0.43 $ 1.06
========== ========== ========== ==========
Net income per
share, diluted $ 0.13 $ 0.54 $ 0.43 $ 1.04
========== ========== ========== ==========
Wtd avg shares
outstanding, basic 69,344,402 74,531,489 71,274,716 74,983,286
========== ========== ========== ==========
Wtd avg shares
outstanding, diluted 69,561,420 75,337,910 71,657,385 76,003,452
========== ========== ========== ==========
