Pacific Sunwear’s Q2 Loss Widens on Derivative Charge

Pacific Sunwear of California, Inc. reported sales in the second quarter ended Aug. 2 were $215.2 million versus net sales from continuing operations of $197.3 million for the second quarter of fiscal 2012 ended July 28, 2012. Comparable store sales increased 3 percent.

On a GAAP basis, the company reported a loss from continuing operations of $19.2 million, or 28 cents per diluted share, for the second quarter of fiscal 2013, compared to a loss from continuing operations of $18.0 million, or 27 cents, for the second quarter of fiscal 2012. The loss from continuing operations for the company's second quarter of fiscal 2013 included a non-cash loss of $21.2 million, or 31 cents per diluted share, compared to a non-cash loss of $8.2 million, or 12 cents per diluted share, for the second quarter of fiscal 2012 related to the 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 loss on the derivative liability and store closure related charges, and using a normalized annual income tax rate of approximately 37 percent, income from continuing operations for the second quarter of fiscal 2013 was $1.2 million, or 2 cents per diluted share, as compared to a loss from continuing operations of $6.1 million, or 10 cents per diluted share, for the same period a year ago. The 53rd week retail calendar shift contributed approximately 3 cents per share of the 12 cents per diluted share improvement compared to last year.

“We are pleased with our strong performance as evidenced by our sixth consecutive quarter of both positive comparable store sales growth and higher merchandise margins,” said Gary H. Schoenfeld, President and Chief Executive Officer. “We believe our customers are beginning to recognize and appreciate our diverse lens toward California lifestyle and our curated assortment of great brands and distinctive style which together are reestablishing PacSun's unique identity.”

Financial Outlook for Third Fiscal Quarter of 2013

The company's guidance range for the third quarter of fiscal 2013 contemplates a non-GAAP loss per diluted share from continuing operations of between negative $0.09 and negative $0.04 and includes the impact of the 53rd week retail calendar shift.

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

• Comparable store sales from negative 1 percent to plus 3 percent;
  
• An estimated $13 million reduction in revenue, a nearly 300 basis point decrease in gross margin, and a corresponding reduction of approximately $0.06 per diluted share as a result of the 53rd week retail calendar shift;
  
• Revenue from $202 million to $209 million;
  
• Gross margin rate, including buying, distribution and occupancy, of 25 percent to 27 percent;
  
• SG&A expenses in the range of $55 million to $57 million; and
  
• Applicable non-GAAP adjustments are tax effected using a normalized annual income tax rate of approximately 37 percent.
  
• The company's third fiscal quarter of 2013 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.