A rebounding young men’s business and scaled-down discounting helped slow the bleeding for Pacific Sunwear in the second quarter ended July 31, but a difficult buying environment and a struggling juniors business caused the retailer to partly miss conservative estimates for the reporting period.
Total sales for the Anaheim, CA-based teen retailer fell 10.1% to $218.3 million in Q2 on the aforementioned factors as well as weakness from comp stores (down 10.0% for the quarter on top of a 24.0% decrease in Q2 last year) and a struggling West Coast business. The net loss for the period increased by 65.8% to $23.5 million.
PSUN management said the company has experienced a “few small wins” in its juniors business, as recent initiatives led Juniors’ comps to “improve” from a negative high-20s comps in Q1 to a negative low-20s comps in the second quarter. In recent quarters, PacSun has taken an initiative to market its juniors’ business to an older, more sophisticated crowd.
Among other results, comps for PacSun’s young men’s business were up 2%, marking the fourth consecutive quarter the segment has experienced growth. Company President and CEO Gary Schoenfield said PacSun’s young men’s segment has “responded well to the renewed prominence” of certain brands within the store. Other positive results for PacSun included merchandise margins that improved by 210 basis points due to scaled-back markdowns. Total gross margin declined by 50 basis points as a percent of sales on a deleveraged sales base, which also affected SG&A by about 120 basis points.
Regarding guidance, PacSun expects a loss of 9 cents to 16 cents per diluted share in the fiscal third quarter on a same-store sales decline of 4% to 9%. Most analysts expect a loss of about 12 cents per share.
In related news, PacSun has entered into an exclusive agreement to license the Modern Amusement brand, which has been sold in the U.S. through retailers such as Nordstrom, Barney’s, Fred Segal and Bloomingdales.
The brand was acquired in 2004 by Mossimo Giannulli, the founder of the Mossimo label. Management said the acquisition would be a key opportunity to “further differentiate PacSun as a leader in lifestyle and fashion among 15-24 year olds.”
The agreement with DBP will extend through December 31, 2013, and PacSun will have an option to extend the agreement for an additional seven years. The parties will work together on additional licensing opportunities and the development of other domestic and/or international distribution. Each party will have mutual approval rights with respect to such transactions, and PacSun will have the right to share in any amounts generated from licenses entered into by DBP.
