Pacific Sunwear of California Inc. will open new stores this year for the first time since embarking on a downsizing quest in late 2011, the company's CEO disclosed May 28.

CEO Gary Schoenfeld shared the news during the retailer's fiscal first quarter earnings call, where he explained why the retailer reported its first quarter-to-quarter decline in comp stores sales in more than three years and why he thinks results  will improve in the back half of the fiscal year.

PSUN's overall sales slid 2.7 percent to $166.5 million during the quarter ended May 2, when comparable store sales including e-commerce sales slipped 2 percent. Analysts had expected E-commerce sales, which reached 7 percent of total sales during the quarter, declined 3 percent. While transactions declined 13  percent, average transaction value increased 13 percent.

The results were in line with expectations, which anticipated the combination of a labor dispute at West Coast ports, an earlier Easter and unseasonably cold weather would compress the Spring Break selling period.

Port delays compress season
Men's and Women's comps both declined 2 percent during the quarter as some key categories underperformed, including shorts. Men's shorts fell off due to a lack of compelling new product, while a three- year growth streak in Women's denim shorts petered out.  Late product deliveries caused by the labor dispute at West Coast ports magnified the impact of the declines by reducing the time PSUN had to sell products at full price. Full-price sales of three Men's sneaker styles featured in store windows in late February were hit particularly hard when the shoes arrived late. 

“In women's, without the issues that plagued deliveries, I believe we could've had a small positive comp,” said Schoenfeld. “And in Men's, softness within our Heritage Brands offset growth in the rest of our men's business.”

Despite the declines, Schoenfeld said PSUN was able to end the quarter with the same amount of inventory as a year earlier by taking “a somewhat cautious approach to our summer receipts.” 

Gross margins, meanwhile, grew 80 basis points to 26.8 percent thanks to a 130 basis-point improvement in merchandise margins. SG&A expenses were also flat with a year earlier, but inched up 90 basis points to 31.3 percent of net sales due to the decline in sales. Operating margins came in flat and non-GAAP loss per share came in at -12 cents, which was in line with guidance and a penny worse than the first quarter  of 2014. 

New brand partners, denim to drive back half growth
PSUN guidance for the second quarter anticipates non-GAAP earnings per diluted share to range between a loss of 5 cents and a profit of 1 cent, compared to a loss of 3 cents in the second quarter of fiscal 2014.  The forecast assumes comparable store sales from -4 percent to flat; net sales of $201-to-$209 million; gross margin (including buying, distribution and occupancy) of 27-to-29 percent and SG&A expenses in the range of $54-to- $56 million.

Schoenfeld said comps and margins could rebound in the back half of the year on the strength of several initiatives with key brands, particularly on the women's side of the business.

In Spring 2013, PSUN was projecting sales of national brands would drop below 20 percent of its Women's sales due to the declining influence of if its legacy surf brands. But after two years identifying and partnering with new brands, Schoenfeld expects PSUN will derive 75 percent of it Women's sales this fall from national brands. 

In addition to the oft-mentioned Brandy Melville and Kendall & Kylie brands, Schoenfeld called out Adidas Originals, Obey, State Street and Free the Children as brands poised to do well this fall. Last week, Pacsun.com was promoting Adidas Originals Rita Ora White Smoke collection. The collection, which was released May 1, features leggings, gym sorts, tanks tops and other casual apparel designed in collaboration with British pop star and fashion trendsetter Rita Ora.

Schoenfeld said he anticipates growth in sales of long bottoms, including Men's denim and casual pants, will also propel growth in the fourth quarter.

10 new stores planned for Fiscal 2016
Finally, PSUN – which has reduced its store count by 214 since 2011 in a bid to return to profitability – expects to open 10 stores over the next eight months. The mix of full-price and outlet locations will borrow elements from a new concept store in Santa Monica. While opening new locations at full-price malls remains a low priority for the company, landlords are starting to bring it compelling offers.

“[At] last week's meetings with key landlords in Las Vegas, the renewed enthusiasm for PacSun was quite different than years past,” said Schoenfeld, referring to the International Council of Shopping Centers annual RECon convention. “Much of this year's new store openings will be funded with TI (tenant improvement) dollars from landlords.”

PSUN operated 605 stores at the end of the quarter, down from 618 stores a year ago.