This summary is based on the second quarter fiscal 2008 earnings call conducted by Pacific Sunwear of California Inc. (PSUN) on August 21, 2008.
Management:
CEO: Sally Frame Kasaks
CFO: Michael Henry
Key Investor Issues:
- Second quarter total sales crept by $900,000 from $311.8 million last year quarter.
- Q2 EPS were 4 cents versus net loss per share of 15 cents in Q2 of 2007.
- The company ended Q2 with 938 stores versus 957 stores in the previous year quarter.
- Half year gross margin fell to $170.7 million from $177 million in the year ago period.
Half Year Financial Highlights:
- Total sales were $579.6 million versus $579.9 million in the same period last year.
- Same store sales retreated 1% during the period.
- The company recorded a net loss from continuing operations of $8.3 million compared with $8.9 million in the first half of 2007.
- The first half earnings result includes the asset impairment charge of 7 cents per share incurred in the first half related to the materials handling equipment in the company’s closed Anaheim distribution center.
Second-Quarter Financial Highlights:
The company recorded income from continuing operations of $3.7 million, or 6 cents per share for the quarter.
- This is in comparison with income from continuing operations of $9.3 million, or 13 cents per share for the second quarter of 2007.
- The second quarter results for each period exclude the income statement impact of demo and One Thousand Steps due to their being designated as discontinued operations during Q1 of 2008 and Q4 of 2007, respectively.
The e-commerce sales grew from $5 million in the year ago quarter to $8 million for the current quarter.
- This represents growth of 60%.
- The merchandized gross margins declined 190 basis points due to higher markdowns associated with increased sales promotions.
- The non-merchandized gross margin costs firmed 30 basis points.
- Occupancy increased 70 basis points as a result of de-leveraging the costs on the negative 1% same-store sales results.
The overall EPS for the quarter were in line with the expectations.
- The company has faced major challenges especially in certain regional markets.
- The management also expressed concern about the sales acceleration experienced in recent weeks.
- For the first 2.5 weeks of August, same-store sales were down 8%.
- The economic environment remains bleak especially in California, Florida and the Desert Southwest were the company has 24% of its store base.
The quarterly distribution expenses dipped 30 basis points due to the consolidation of the distribution functions in Q1.
- The buying costs dropped 10 basis points.
- The SG&A expenses increased 90 basis points to $90 million or 28.8% of sales this year from $87 million or 27.9% of sales last year.
- On a dollar basis, SG&A for the second quarter was up less than 4% over the last year.
- Depreciation increased 80 basis points due to the impact of accelerated depreciation associated with the store closures and re-locations and new depreciation on existing stores from the store refresh program.
- The store impairment charges firmed 70 basis points.
The income tax rate for the quarter was 27.2% versus 40.1% last year.
- The management expects the full year effective tax rate to be approximately 43%.
The company ended the quarter with $103 million in working capital.
