Pacific Sunwear of California, Inc. may have narrowly exceeded analysts forecast for the second quarter of 2009, but the main story lies within a macabre Q3 outlook that is far worse than most analysts expected.  Management now expects same-store sales to fall in the high-teens to low-twenties in the third quarter, and assuming non-cash pre-tax store asset impairment charges of approximately $10 million, PSUN expects to report a Q3 loss of between 16 cents and 23 cents per diluted share.

“Clearly, we have a lot of work to do to stem our decline in sales and ultimately return to profitability,” said Gary Schoenfeld, the retailer’s new president and CEO, in a conference call with analysts.

PacSun reported a net loss of $14.2 million, or 22 cents per share, for the second quarter as compared to a net income of $3.7 million, or 6 cents per share, in the year-ago period.  Comps plummeted 24% on a 19% drop in apparel sales and a 45% decline in non-apparel sales. 
Within apparel, the primary weakness came from the spring categories of swimwear and shorts, while young men’s tees and juniors dresses also preformed below expectations. Non-apparel was “generally weak” on significantly lower inventory levels. Sales of both young men’s and juniors merchandise fell 24% while e-commerce revenues were up 11% to $9 million from $8 million a year ago.

Declining margins were significantly impacted by a 220 basis point decline from merchandise margins that reflected increase markdowns which management said more than offset improved initial markups.
In the conference call, Schoenfield acknowledged several “mistakes over the past year or two,” and referenced the company’s exit recent from footwear that he says isolated a significant segment of the consumer base, resulting in a reduction in in-store traffic. 


“I think when we exited footwear we walked away from one of the guys’ favorite product categories, and unfortunately I believe [we] gave him a reason to go to other stores first,” Schoenfield said,  “The problem, of course,  [is] when you begin to give them reason to shop elsewhere for shoes, you also give them permission to shop for the rest of his apparel and accessories, and I think [we lost] an important connection with that customer.”  Schoenfield added that PacSun was actively exploring initiatives to re-introduce the footwear line using a different business model.