Knobias Clip Report (08-22-2008) PSUN
Submitted By Knobias ClipReport.
PSUN: Shares Plunge to Multi-Year Low on Q2 Earnings and Weak Guidance
By Fain Hughes, fhughes@knobias.com
Shares of Pacific Sunwear of California Inc. (PSUN) plunged to a multi-year low in early trading on Friday after the Company reported financial results for the second quarter. Total sales were $312.7 million, a slight increase over total sales of $311.8 million for the second quarter of fiscal 2007. Total Company same-store sales decreased one percent during the second quarter of fiscal 2008. The Company recorded income from continuing operations of $3.7 million, or $0.06 per diluted share, for the second quarter of fiscal 2008 compared to income from continuing operations of $9.3 million, or $0.13 per diluted share, for the second quarter of fiscal 2007.
The Company expects third quarter EPS of $0.00 to $0.05 and fourth quarter EPS of $0.11 to $0.16.
Michael L. Henry, CFO of Pacific Sunwear of California, addedin a conference call, “Same-store sales are down 8% through the first 2 1/2 weeks of August. The particularly poor economic climate in California, Florida and the desert southwest continues to adversely affect nearly 25% of our stores, and we do not expect conditions in these regions to improve in the near term. We expect that same-store sales will decline in the high single digits.”
Sally Frame Kasaks, president and CEO of Pacific Sunwear of California, commented, “During the quarter, we continued to move forward with our strategy to grow our apparel business, enhance productivity of our real estate portfolio and reduce or exit unprofitable product classifications.”
“Our apparel business showed a solid 13% same-store sales increase during the quarter and now represents 81% of our total sales. We expect to end the year with apparel representing 85% of our sales mix. We believe that by concentrating on apparel and reducing our emphasis on lower margin footwear and accessories, we can improve our merchandise margins over time. Junior apparel achieved same-store sales growth of 26% duing the quarter and now represents 51% of our apparel sales. We believe there is an additional opportunity to grow the Junior business and have set our next target milestone to be 55% of our apparel sales. At this level, we would still be below many of our peer group whose Junior mix is typically greater than 60% of sales.”
She concluded, “I remain confident in our belief that we are taking the appropriate actions to improve the areas of the business where we have direct control. 2008 remains very challenging, but we believe that we are doing the right things to position our company for success when the environment improves. In the meantime, we will continue to manage expenses and capital needs prudently for the remainder of the year.”
There was a great deal of analyst comments today following the earnings release. Citigroup maintained its Sell rating and believes the Company’s lowered 2H08 guidance and inventory levels are concerns. The firm thinks continued comp pressure, flat square footage growth, and deteriorating profitability could drive shares lower. Baird downgraded PSUN to Neutral from Outperform and cut its target to $8 from $13. BB&T cuts PSUN to Hold from Buy. Roth Capital downgraded PSUN to Hold from Buy following the Company’s worse than expected outlook and lowered their target to $5 from $11. Friedman Billings downgraded the shares to Market Perform from Outperform and lowered its target to $6 from $11.
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