Strong Finish to October Helps Pacific Sunwear Post Strong Third Quarter Gains…

Pacific Sunwear of California, Inc. saw the third quarter start off slowly, posting a 2.6% comp sales in August, but finish strongly with a respectable 5.3% gain in September and a 7.9% comparable store sales increase in October that benefited from an exceptionally strong final week that was driven by a quick cold weather snap.

The PacSun business saw Q3 comparable store sales improve 4.6% on top of a 6.6% gain during last year’s third quarter.

Discussing the guys business in a conference call with analysts last week, management said that denim comps were “very high” throughout the back-to-school period, a trend they expect to continue through the holiday season and the rest of the year. Short-sleeved tees provided a “strong double-digit comp” gain on expanded inventory including cereal-, soda-, and band-inspired novelty tees. Management also noted the strength of a regional brand program, specifically pointing to the Skin brand which was “very successful” in Californian stores. Polo’s were “very strong,” while fleece and track jackets “comped well.” Solid wovens “performed well,” but short-sleeved wovens were “very weak.” Girls saw similar results to the guys with T-shirts posting comps in excess of 30%. Basic denim generated “very high comps,” but fashion denim was a disappointment. The accessory business was “excellent” and saw its share of total business at the chain increase from 17.5% during last year’s quarter to 19% this year.

The sneaker business “comped well” during the quarter for both guys and girls. PacSun added the éS brand to its sneaker wall during October, which management sees an important volume driver going forward. The models include the Accel, Accelerate, Accel Plus, and K6.

In a conversation with Sports Executive Weekly, Marvin Springer, key accounts manager for Sole Technology, said, “Sole Technology has consistently had success selling etnies and etnies Girl through PacSun, and we anticipate continued success with éS.  We are looking forward to the increased sales of the holiday shopping season.”

The d.e.m.o. stores saw positive comps in September and October offset a tough August to produce a 1.0% comp sales gain for the quarter. The guys business comped negatively for the quarter, but management was optimistic, citing strong t-shirt comps on the men’s side in September and October and positive comps in the denim business. Wovens remain a challenge at the chain after strong third and fourth quarters during 2004, prompting Seth Johnson, CEO, to comment, “Until we get over this big wovens knot, it’s going to be very tough to have very strong comps.” He was optimistic about 2006, but worried about the comps for Q4. Girls again carried the store for the quarter with tanks and tubes providing strength in tops and capris providing growth in bottoms. Baby Phat was the strongest brand on the girls side. Shoes were “improved significantly” over 2004 and management was excited about the addition of several Steve Madden models during the fourth quarter.

For the holidays, both concepts will use holiday trim for the first time. Management, however, was wary of taking the strong end to the third quarter directly into growth in the fourth, as much of the final growth trend came as a result of a cold week that has yet to be followed up in much of the country. The company is currently forecasting earnings per share in the 62 cents to 63 cents range, up from 52 cents per share last year.