This summary is based on the fourth quarter fiscal 2007 earnings call conducted by Pacific Sunwear of California, Inc. (PSUN: chart) on March 13, 2008.

Management:

Chairwoman of the Board, Chief Executive Officer: Sally Frame Kasaks
Chief Financial Officer, Senior Vice President, Secretary: Michael L. Henry

Key Investors Issues

- EPS fell to 7 cents a share compared to 13 cents a share last year.
- Profit fell to $5.5 million from $9.1 million a year ago.
- Revenue fell to $420.1 million from $455.8 million in the year-ago period.

Fourth Quarter Highlights

The GAAP based results exclude the impact of One Thousand Steps from both 2007 and 2006.

One Thousand Steps was designated as a discontinued operation in the fourth quarter of fiscal 2007. Accordingly, GAAP based results are provided on a continuing operations basis, which includes both PacSun and Demo as of the end of fiscal 2007.

- On a GAAP continuing operations basis, total company were $420 million, a decrease of nearly 8% from total sales of $456 million for the fourth quarter of fiscal 2006, which was a 14-week period ending February 3, 2007.
- On a GAAP basis, total company gross margin, including buying, distribution, and occupancy costs, decreased 370 basis points to $119 million, or 28.4% of sales from $146 million, or 32.1% of sales in the fourth quarter last year.

- Merchandise gross margins decreased 90 basis points, primarily due to increased markdowns associated with Demo and PacSun footwear business, partially offset by improved IMUs.
- Non-merchandise margin categories, which include buying, distribution, and occupancy costs, were up 280 basis points. Occupancy was up 150 basis points, buying costs were up 90 basis points, and distribution costs were up 40 basis points.

- On a GAAP basis, SG&A expenses decreased 300 basis points to $106 million, or 25.1% of sales from $128 million, or 28.1% of sales in the fourth quarter last year.
- Asset impairment charges were $22 million, or 480 basis points lower versus the fourth quarter last year, primarily due to impairments associated with the 74 Demo stores closed early in fiscal 2007. The company had announced intention to close those 74 stores at the end of fiscal 2006 and took the impairment charge at that time.

- Depreciation increased 80 basis points, primarily due to both new depreciation associated with store refresh program and accelerated depreciation associated with increased store closures.
- General and administrative expenses were up 80 basis points, primarily due to severance charges and planned increased in e-commerce and consulting expenses in descending order of impact. The remaining 20 basis points of SG&A increase was primarily due to credit authorization expenses due to having a higher penetration of credit card purchases in the current year.

- On a GAAP basis, income tax rate increased to 47.2% from 39.5% last year. This increase was primarily due to lower net income for the year due to the impairment charges associated with Demo.
- On a GAAP basis, net income was $7.6 million, or 11 cents per share, compared to $11.5 million or 16 cents per share last year.

Non-GAAP measures exclude the financial impact to both the current and prior year of Demo and One Thousand Steps.

The company expects Demo to be designated as a discontinued operation in the first quarter of fiscal 2008. One Thousand Steps was designated as a discontinued operation in the fourth quarter of fiscal 2007.

- Net sales of PacSun business were $384 million, an increase of 4.5% over net sales of $368 million for the fourth quarter last year. The prior year result excludes $18 million of sales attributable to the extra week in last year’s fiscal fourth quarter, which contained 14 weeks versus the customary 13 weeks.
- PacSun same-store sales increased 2%. Total transactions for PacSun were down low single digits, offset by low single digit increases in average unit retail and average items per transaction.

- On a non-GAAP basis, gross margin for PacSun business was $128 million for the GAAP this year versus $123 million in the fourth quarter last year. As a percent of PacSun sales, PacSun gross margins declined 20 basis points to 33.2% of sales for the fourth quarter this year versus 33.4% in the fourth quarter last year.
- Merchandise margins increased 100 basis points due to lower markdowns and higher IMUs. Non-merchandise margin categories, which include buying, distribution, and occupancy costs, were up 120 basis points.

- Occupancy was up 60 basis points, buying and distribution costs were each up 30 basis points. Occupancy was deleveraged versus the low single digit comparison. Buying costs were up due to investments in this function. Distribution costs were up primarily due to operating two distribution facilities in the fourth quarter this year versus one in the fourth quarter last year.
- On a non-GAAP basis, SG&A expenses increased 100 basis points to $94 million, or 24.5% of sales versus $86 million, or 23.5% of sales for the fourth quarter last year.

- Depreciation increased 60 basis points, primarily due to both new depreciation, such as store refresh program, and accelerated depreciation associated with increased store closures.
- General and administrative expenses were up 70 basis points, primarily due to planned increases in home office headcount, e-commerce, and consulting expenses, in descending order of impact. Credit authorization expenses increased 20 basis points. Offsetting these increases was a 50 basis point decrease in asset impairment expenses.

- On a non-GAAP basis, income tax rate was 37.2% compared to 38.9% last year. The lower non-GAAP tax rates are primarily attributable to the exclusion of the GAAP losses associated with impairment and other reserve charges associated with Demo and One Thousand Steps.
On a non-GAAP basis, PacSun net income was $22 million, or 31 cents per share compared to $23 million, or 33 cents per share during the fourth quarter last year.
- The company ended the quarter with a strong balance sheet, including approximately $188 million in working capital, of which $98 million was cash. Inventory per square foot at the end of the year was down 7% versus the prior year on a PacSun standalone basis.