Pacific Sunwear saw year-on-year comps improve as the third quarter progressed into October, but the company still fell short of the double-digit gains seen last year. Still, the d.e.m.o. format appears to have made some good moves on the merchandising front as the urban fashion format posted a double-digit comp store sales gain in October. Management still feels they are a “bit heavy” on the active end of the apparel business at d.e.m.o., but is moving aggressively to promote it out of the stores.

Management hinted that Denim could be the biggest opportunity at both formats as they admitted that the mix was definitely top heavy at this point. A broadening of the apparel mix, coupled with the expansion of footwear at PacSun, has prompted the company to expand a number of stores this year and next. Some of the new stores will be in the 7,500 to 8,500 square foot range, about double the size of the current model that averages 3,000 sf.

At PacSun, comp sales in the Guys business was up 5.5% for the quarter and the Girl’s business increased 8.5% for the quarter. At d.e.m.o., the Guys business comped down 3.0% for the period, while the Girls business jumped 17% for the quarter. The Guys business started to move back into positive territory in October, and the Girls business jumped more than 20% to finish the quarter.

Total transactions per comp store were up in the low-single-digits and the average sale ticket per comp store was up mid-single-digits. Average unit retail was up in mid-singles as well.

PSUN is still attempting to move more sales to the Girl’s side of the business, but they will take a small step back this year at PacSun as Guys is estimated to be about 53% of the business versus 52% last year. They made much more progress on the d.e.m.o. side, which can be tracked back to product misses in Guys, as the Girls business is expected to increase to 65% of the total versus 60% of sales last year.

The PacSun non-Apparel business, which includes Footwear and Accessories, is approaching 40% of sales, with Footwear representing as much as 17% of the business. At d.e.m.o., the combined non-Apparel business is just 15% of sales. Private label is about 35% of PacSun business and roughly 15% of d.e.m.o. sales.

The PacSun e-commerce business saw sales increase 37% for the nine-month YTD period. The d.e.m.o. e-commerce business is expected to launch in mid 2005.

Gross margin improved 30 basis points on a “slight improvement” in merchandise margins and third quarter SG&A declined 120 basis points to 20.6% of sales. Management said that higher IMU was offset a bit by higher markdowns.

Spring carryover inventory was said to be down double-digits from last year’s level and inventory per store was said to be down slightly. The inventory increase reported at quarter-end was attributed to goods on the water.

The company opened 31 news stores in the third quarter, with PacSun bowing 18 new stores and two outlets, while d.e.m.o. opened 11 new doors. The company said they will have added 113 new stores and expanded 35 of their most productive stores by year-end, giving them a 15% increase in square footage for the year. PSUN sees adding 120 new stores in 2005, including 10 PacSun outlets, 70 PacSun stores, and 40 new d.e.m.o. stores. With the expansion of 30 to 35 of better doors in 2005, the company sees total square footage increasing another 15% next year.

PSUN is forecasting is for same-store sales growth of 5% for the fourth quarter and management said they are comfortable with the current consensus estimates of 52 cents per share. That pegs full year fiscal 2004 EPS guidance at $1.36 per share.